Would cutting high pay save services?

Revised 17th September 2012

It’s tempting to believe that cutting the pay of high public service earners is an alternative to staff reductions or cuts in services. But there are a number of problems with this idea. The first problem is to agree a definition of high pay. In a 2011 report, the OECD found that virtually all Irish public servants are paid on a par with OECD and EU averages. The only significant groups of public servants who are ‘high paid’ by comparison with international norms were medical consultants and top level central government managers (departmental secretaries).

The OECD figures take account of the cost of living in the countries under study by measuring the ‘purchasing power’ of public service salaries. They also adjust for social contributions and holiday entitlements and take account of the so-called ‘pension levy,’ but not the 2010 pay cuts, which averaged 7% across the public service with bigger reductions for the highest paid.

A simpler definition would be to take a salary figure and define all those on or above it as high paid. A figure of €100,000 gross annual salary is often used.

According to figures published by the Minister for Public Expenditure and Reform in a Dáil answer last December (2011) just 6,791 public servants – or 2.2% of the total – gross over €100,000 a year. Almost half of these are hospital consultants. This means that, whatever other reasons there may be for addressing high pay, relatively little money would be generated by further pay cuts at this level both because the exchequer income would be net of taxes and charges of over 50%, and because there are simply too few public servants in this category.

More recent figures reveal that the public service accounts for just over 6% of the total number of workers in Ireland (111,055) who earned over €100,000 last year.

Increments

The annual cost of increments at all levels is declining as public service numbers fall. But freezing increments for better-paid public servants would not yield huge savings either because, where they are paid, the vast bulk of increments go to workers on low or middle incomes. A July Dáil answer from Minister Howlin revealed that only 10% of civil servants who receive increments earn annual salaries of €70,000 or more, while over 76% of those who earn below €50,000 receive increments.

Most senior staff would be unaffected by an increments freeze because they have few or no increments in their pay scales. Departmental secretaries and deputy secretaries have single point scales and, therefore, no increments. Principal officers have just six increments; assistant principals seven. On election, TDs are immediately paid at the maximum of the principal officer scale, to which they are linked, rather than ascending the incremental scale over time.

Further down the grades, executive officers have 11-point scales and clerical officers have 13. This means that lower paid public sector workers have much further to travel before reaching the top of their salary scale.

Addressing income inequality

Figures produced by the Association of Higher Civil and Public Servants (AHCPS) show that the burden of civil service income reductions has been progressive inasmuch as those at the top have lost a much higher percentage of net income. When pay cuts, the pension levy and increased taxes and charges (including the Universal Social Charge) are taken into account the net salary of a secretary general has fallen by between 29% and 34%, compared to 7%-12.5% for a clerical officer.

Of course, this still leaves secretary generals on much higher gross and net incomes than low paid public servants. But if the issue is equity, rather than savings, why look solely at the public service when huge income inequality exists across the economy, and 94% of those earning over €100,000 work in the private sector?