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Budget 2003: A fine example of Social Partnership

Joe Craig

8th December 2002

The 2003 budget has been described by one paper (Sunday Tribune) as ‘forgettable’ and by every other as stuffed full of ‘stealth taxes’ , implying they will hardly be noticed.  This is straight after the Estimates, which reneged on the promise to increase the number eligible for medical cards, flagged up removal of the first-time buyer’s grant, drastically cut spending on replacing decrepit school buildings and signalled the end of the much vaunted Health Strategy.

All at a time when the government is supposed to be facing difficult negotiations with the Irish Congress of Trade Unions (ICTU) on a successor partnership agreement to the Programme for Prosperity and Fairness (PPF).  Many commentators and economists were perplexed why McCreevy hadn’t had recourse to limited borrowing but had instead gone straight for cuts and tax increases that hit the poorest and most vulnerable.  It seems strange when placed in the context of the real and declared desire to agree a new partnership deal that for some workers should kick in at the start of the new year.

In this scenario the only explanation that makes sense is that the government has little fear of any effective resistance from ICTU and believes that the harder it plays the game the greater the pressure on ICTU to accept whatever rotten deal can be assembled.  This mirrors the approach of the bosses, who have ‘offered’ a six month pay pause followed by pay rises in low single figures.  What gives them this confidence?

ICTU Position

Well, besides fifteen years of partnership experience the budget comprehensively ignored all ICTU demands on what the budget should do for Irish workers.  A serious negotiator, having been so brazenly ignored and insulted would have got up from the table and walked.  Instead we face into a week of negotiations in which we are told by an ‘Irish Times’ leader that the union leaders may indeed stage a walk out but only in a choreographed performance that would see the government intervene to sew the whole thing up.  All so familiar, SIPTU walked out before negotiation of the PPF.  The point of these is not to impress the bosses or government of serious intent but to help sell any deal to the rank and file.

An additional reason is that another standard feature of any partnership deal is a report by the National Economic and Social Council, which contains representatives of the social partners, and which lays out the strategic economic thinking informing a new deal. Once again the latest lays bare union capitulation to the arguments of the bosses and government.  In the past these documents have signalled important retreats by ICTU from any idea that workers have any independent view of economic and political affairs.  They have thus announced ICTU agreement to public expenditure cuts; payment by workers of the national debt; agreement to privatisation and deregulation; support for the Maastricht Treaty and introduction of the Euro and the fiscal and monetary constraints involved; and subordination of all worker’s interests to the idea of ‘competitiveness.’

The latest published section of the report (150 pages) – ‘An Investment in Quality: Services, Inclusion and Enterprise,’ contains a more jumbled series of buzzwords but at first cursory examination seems to signal no big new retreat.  It rather appears to be a mere going through the motions attempt to make it look as if some thought has gone into justification of a new deal; although workers should be wary of what exactly is meant by talk of a ‘Development Welfare State’ to complement existing State economic policy.

The report does however make clear the subordination of all demands by workers on pay, conditions and welfare to capitalist competitiveness.  Having done so the bosses and State can have relatively little concern about partnership negotiations since all that is left to argue over is a percentage point here or there, which can easily be accommodated through inflation, productivity, layoffs or profits.

Budget Demands

All the demands in relation to the budget by the unions have been more or less ignored by the government.  ICTU called for maintaining corporation tax at 16% and introducing a new tax on companies related to research and development expenditure; increasing employer’s PRSI; providing relief on childcare costs and ‘reviewing’ the extensive range of tax shelters available to the rich.

McCreevy thus lowered corporation tax to 12.5% from next year costing €305m a year, introduced no new corporate taxes and was told by IBEC that his budget was ‘much less severe’ than expected.  The monthly increase in Child Benefit was about a quarter of that promised and the tax loopholes and schemes closed were estimated to raise €10m.  The total cost of tax allowances is €8.5 billion a year!

This contemptuous rejection of union claims and breach of promise is not new.  In April this year the Services Industrial Professional and Technical Union (SIPTU) published a review of the PPF and twelve areas over which the PPF would be judged.  This merits a commentary in its own right but what the twelve areas show is that even in its own terms the PPF has failed to deliver.

The Budget

The budget tears up the strategy of tax cuts for workers in lieu of substantial pay rises and substitutes tax increases, unemployment, increased privatisation, user charges, price increases and real cuts in welfare allowances.  ‘The Budget contained a raft of small measures which may not mean a lot individually but taken together will ensure that the average consumer is significantly worse off.’  So wrote the markets correspondent of the ‘Irish Times.’

In general it is always quite difficult to get a really accurate measure of the effect of budgets on the working class, not only because many of the measures are hidden or announced separately but because newspapers and commentators do not recognise a society divided by class but talk in terms of consumers, savers, tax payers, service users, welfare recipients and of workers only in particular circumstances and not as the primary unit of analysis.  This allows one section of the class to be set against another.  The cumulative effect of budget and other changes on the whole working class and the distribution of resources between it and the capitalist and other classes is therefore obscured.  In Ireland however the basic distribution and that of this budget is not hard to see as we look at the various measures individually.

Apparently “the most cunning ‘stealth tax’ was the non-indexation of most income tax credits and the standard rate income tax band” according to Cliff Taylor in the ‘Irish Times.’  This will cost workers hundreds of millions of euros.  The promise to take those on the minimum wage out of the tax net has been broken.  The increase in the lower rate of VAT from 12.5 percent to 13.5 percent and other indirect taxes will cost €600 million   This does not include other price increases such as electricity which will be rising 13 percent next year anyway.

The extra tax, or ‘stamp duty’ as its called, on cheques, bank and credit cards was described by another ‘Times’ correspondent as ‘a tax on existence.’  (The tax of €100m per year for three years on the banks will most likely be passed on to the customers.)  The first-time home buyers grant was axed and although its existence has been factored into the prices charged by builders and developers its removal will be a real cost, and not compensated for by the increase in mortgage interest relief when the effect of increased VAT on house building costs is taken into account.

The increases in social welfare allowances have been meagre.  On Child Benefit the charity Barnardos claimed that the €2 weekly increase ‘won’t buy a loaf of bread and a pint of milk a week.’  The increase in unemployment assistance to €124.80 a week breaks the promise in the PPF to raise the lowest social welfare rate to €127 a week.

It has been claimed that inflation will consume €5.70 of the €6 increase of some welfare allowances but this is only if inflation rises by the government predicted 4.8 percent.  In fact inflation could easily rise to 6 percent so that there will be no real increase at all but an effective cut.  Even on the government’s own estimate of future inflation some recipients will be worse off.  The Conference of Religious in Ireland (CORI) state that a single parent with one child will be 9 percent worse off.  Inequality in this budget, as with all previous McCreevy budgets, will be increased.  CORI estimate that the difference in income between a single unemployed person and someone on €50,000 will widen by €25 per week.

In fact the measures announced in the budget are but a part of the assault on workers’ living standards.  The cap on public sector employment, which will also see a reduction of 5,000 over three years not only blows out of the water any idea of a Health Strategy but it also understates the cut in jobs.  One paper (Sunday Tribune) now quotes estimates that 10 percent of health service jobs will have to go as the service recruited more staff than the government authorised.

On top of budget day announcements the government announced an increase in hospital charges the day before and an increase in motor tax the day after.  When we include the increases since the election in electricity charges, bus and rail fares, college registration fees, VHI (health insurance) premia, service charges and the RTE license fee coming up the budget is only the half of it.

Union Reaction

The reaction from the leaders of Ireland’s workers has, as we have said, been revealing.  One, unnamed union leader, said that he was showing restraint so as ‘not to frighten the chickens;’ a reference to his members?

David Begg, general secretary of ICTU, must live in a parallel universe because the in the budget he saw he said that McCreevy had made ‘some effort to share the burden of adjustment’ although true to these people’s inability to talk straight he said that it had done ‘nothing to create a fairer society.’

Their real concern, expressed by Michael Coffey of the Federated Union of Government Employees, was that the budget made it ‘more difficult to sell’ social partnership to ordinary union members; but sell it they are determined to do.  Joe O’Toole appeared on RTE ‘News at One’ to state that if there was no deal workers would take industrial action in some highly profitable companies and achieve settlements that would set the trend for everyone else.  Jesus! Workers taking industrial action to get higher wages – we can’t have that.

Instead it is now being speculated that the ICTU negotiators will be happy with a two phased deal offering 2.5 percent at the start of the year and the same amount six months later.  This would apparently be sold on the basis that pay increases will keep pace with inflation, except that if these figures were to be correct they wouldn’t.  Further concessions to the unions would be around union recognition and statutory redundancy payments.  What a testimony to social partnership that fifteen years after its commencement the bosses might deign to actually recognise unions and that what is due workers by right already will actually be given!

Union leaders are repeating the same old nonsense they always come up with before signing these deals: that the government and bosses have shifted to the right and are more and more ideologically opposed to partnership.  The conclusion?  Let’s really show them and sign up to some rotten deal!

The real ‘carrot’ for the deal however will be payments due under the benchmarking report averaging 8.9 percent.  These payments due under the previous deal may be used to buy pay cuts under the new one.  In the way privatisation bought a previous social partnership deal (see our ‘Prisoners of Social Partnership’), so the attack on terms and conditions, utter contempt for democracy and basic principles of trade unionism, and divisiveness that are all contained in benchmarking will be ignored.

The divisiveness exists not only between different groups of workers within the public sector but in a forecasted split between all of them and private sector workers who will not receive any benchmarking increase.  Even the dishonest claims that partnership deals present a unified union position are exposed.  There is speculation that if no overall deal is agreed the public sector unions will agree one on their own.  The counter posing of interests between public and private sector workers has been another recurring feature in the history of the deals.

The difficulty for the ICTU hierarchy is that while existing promises have been broken a new deal can only assure reductions in living standards right from the start.  This was flagged up in the NESC report which speculated on increases in user charges and, as we have said, made pay, public services and welfare subordinate to ‘competitiveness.’

Union leaders are reduced, as they have in every other deal, to complaining about the results of the previous one while inviting workers to agree to the next one.  So Jack O’Connor of SIPTU moans that pay in Ireland is ‘as low as 14th in Europe and certainly no higher than eighth’ and saying that it is ‘simply not on’ that  workers make sacrifices ‘in order to subsidise profiteering by certain elements among the business and professional classes.’

In fact that it is exactly what is happening.  Even while foreign investment plummets by 28 percent in the first six months of 2002 the outflow of profits by multinationals is estimated to have increased by €4 billion over the year!


So is there an opposition?  This invites a separate review but even a quick survey reveals its absence.  The Green Party calls for a three-quarters cut in contributions to the National Pension Fund and scrapping of the Special Savings Investment Accounts.  Public spending should rise by the 8 percent recommended by the Economic and Social Research Institute and removal of investors from the housing market and market changes are proposed to deal with the housing crisis.

Sinn Fein says that Capital Gains Tax should go back up to 40 percent from the present 20 percent; corporation tax should be held at 16 percent while banks and other financial institutions should pay 30 percent.  Those earning over €100,000 should pay 50 percent PAYE and those on low earnings should be taken out of the tax net altogether.

To illustrate how remarkably un-radical all this is it should be recalled that in Britain taxes on the rich were higher than this for much of Thatcher’s term of office.  These proposals are weak measures that would at best postpone cuts in the same way that McCreevy’s one off sources of revenue did earlier.  There is no indication that either party rejects the system that demands such cuts.  The idea of proposing opposition to social partnership or a strategy to defeat it is not even considered.

There is no anti-partnership campaign on the left although one was set up over a year ago.  It has been notable for meeting less often, and therefore being less democratic, than the union bureaucracy it claims to oppose.  If every feature of past deals is to be repeated we will witness a hurriedly cobbled together campaign calling for a vote against the deal which allows no discussion of its political significance or content, different conceptions of how it should be opposed; lessons drawn from previous deals; or failures of previous campaigns.  Instead militants will be invited to come to meetings to have leaflets stuffed in their hands and told to go to the workplaces to argue a case with the most rudimentary of exposition.

Let’s hope this is at least one feature of social partnership deals that is not repeated.



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