Good article on why we should not be borrowing to pay increases to public servants

Duke of Marmalade said:
The basic fact is that the dynamics of saving and funding are completely different at the national level than they are at the individual or company level.
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Hi Duke,

I would be interested in hearing more about your thoughts on this. I've always believed that just like a family shouldn't do the weekly shop on the Visa and only pay the minimum interest payments, a country should not borrow to meet day-to-day expenditure. Fine if the government wants to borrow for a capital investment (just like a private individual might borrow to buy a house / car / education etc).

Firefly.
 
That is a very fair point! I have always wanted to educate myself on the core principles of Government Debt and while I have picked up some of them I feel that overall many mysteries remain!
My difficulty with the point made by you is that it was highly unlikely that the funds used to create a pension reserve would have been used to reduce debt had they not been set aside for that purpose. Most likely they would have been re-allocated to other Capital/expenditure areas. I.e. The level of debt would have remained unaltered by the decision. It is fairly clear that as the spend on pension funding increases (Both PS and General OAP) this will stretch the current budget to the extent that the shortfall will also increase and therefore the borrowing requirements. My point is that if we continue running a significant and increasing deficit our ability to borrow to fund the shortfall is bound to reach some limitation. The validity of your argument would stand up, if we understood that there was an ultimate borrowing limit and by using funds to reduce debt rather than setting them aside to cover future pension requirements we were in fact increasing the availability to borrow these funds in the future.
The set-aside principle is used by virtually all firms to cover future calls on the funds. I.e. profits are hit by a certain level of charge each year and the funds set-aside to meet an accumulating pension fund. This fund is not available to the firm to cover other expenditure and thus they will be both borrowing and saving in a period.
So why is it different for Governments
 
It's not often I agree with the bould David McWilliams, but he's bang on here...

[broken link removed]

Firefly.
 
44brendan said:
So why is it different for Governments
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Let's take a simple example of a self employed person. That person has a wide range of life/financial choices. At one extreme she can spend it as fast as she can get it, at the other extreme she can live as frugally as possible and save for a very comfortable retirement, or somewhere in between.

Now the management of a national economy should be to maximise economic output not just today but on a sustainable basis into the future. If it decided to take the view of Frugal Woman and really go for this austerity gig and put aside oodles for tomorrow's pensions, that would be a disaster for the economy both now and into the future and would entirely fail in its objective.

The aim should be to maximise economic output in 40 years time. That is the best way to meet the demands of those who will be dependent on the state or indeed dependent on their assets. Realistically the plan must be much more short term but a delicate balance between capital and current spending is the holy grail.

I am not saying (Purple) that we have nothing to worry about and I am not denying the demographic projections. But "funding" for this situation is a total illusion. Yes, we should start managing expectations, like pushing out slowly the OAP starting age, but in the end of the day when 40 years transpire and let's say we do have a pension Armageddon, we will not regret the absence of funding we will regret that for whatever reason our economy was unable to meet the demographic challenge.
 
"Funding" is perhaps the wrong phrase, or way of looking at it. Maybe we should say that we need to make sure that our future pension liability does not exceed a certain proportion of the governments revenue.
 
Purple said:
"Funding" is perhaps the wrong phrase, or way of looking at it. Maybe we should say that we need to make sure that our future pension liability does not exceed a certain proportion of the governments revenue.
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Okay, maybe. We need to start managing expectations. That has already begun, with pushing out the OAP age and also, crucially, moving new PS on to average salary. I think the more correct target is that dependency expenditure should be targeted to not exceed a certain percentage of GNP. It is not really the government revenue that is the decider but the capacity of the economy to provide the government with revenue.
 
We certainly have to start managing expectations but there is also a question of equity between generations at issue. Is it really fair to say to today's 20-somethings that they will simply have to lower their expectations while their parents look forward to a retirement of relative luxury?

It is inevitable that the percentage of GNP expended on dependency spending will increase due to our changing demographics.

On the question of funding, I would just note that the major sovereign pension funds that continue to exist (such as those operated by Norway and New Zealand) have substantial allocations to equities, which would have higher-expected returns over the long term than the liabilities associated with the debt (bonds) of the relevant sovereigns.
 
Firefly said:
It's not often I agree with the bould David McWilliams, but he's bang on here...

[broken link removed]

Firefly.
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David should check his own mathematical achievement standard...!!

"Did you know that the average child in secondary school in New Zealand has a mathematical achievement standard that is twice as high as the average child in school in Ireland?

Yes twice as high. In New Zealand, according to a study from Stanford University, 16 per cent of 16-year-olds are performing at an ‘‘advanced level of maths proficiency’’. In Ireland, the corresponding figure is 7.9 per cent."

Having twice the proportion performing at a high level does NOT mean the average student is performing twice as well...

Interesting article though - I'd love if we had the NZ model.
 
The 20-somethings can expect to live longer and so spend longer retired. That means the same amount of money has to be stretched over a longer period. That's probably a fairer way of looking at it.
 
Just when Ireland is seemingly getting out of recession they go back and do the same thing again and pay money they cannot afford, and worse, money that is borrowed. Wouldn't it be better to spend it on the disabled cuts they made last year which were pretty shocking. Do the civil servants need this money.

Must be an election, bribery to the fore. Has nobody learnt anything.

How about a stimulus package to go house building, brings employment, brings down rents, houses people, brings in taxes. Solves lots of problems.
 
Purple said:
The 20-somethings can expect to live longer and so spend longer retired. That means the same amount of money has to be stretched over a longer period. That's probably a fairer way of looking at it.
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The problem is it won't be the same amount of money, it will be many multiples of the amount currently spent on public sector pensions in today's money terms.

The C&AG projected that the annual gross cash flow required to meet PS pensions will have to increase by 500% from €2.9 billion for 2009 to €14.7 billion in 2058 in constant 2008 price terms.
 
The TUI are rejecting this as Lecturers have an extra 2 hours class time per week (and they claim this means an extra 4 hours in prep time). They want those hours removed AND a pay rise (Lecturers in the TUI work contracts of 18 or 20 hour class time per week, roughly 33 weeks per year and their Union boss last night said they are stressed out and cannot cope any longer)
Maybe things have changed but I recall my days in college, and I can assure you there was no 2 hours prep time for every 1 hour class time. It didn't take that long to photocopy notes for each days class!!!

The nirvana here is explicitly to return to Bubble era wages and conditions. So no, some folk have learned nothing.
 

I would simply refer them to post # 87 in this thread by DrMoriarty the link which sets out the payments that Public Sector workers can expect to receive in 2016 , 2017 & 2018 .
The mooted Agreement runs for 3 years but the pay increases are phased in over an 18 month period.
In the first year 2016 workers on €30,000 will gross € 1,003 , a further €1,167 will become payable from September of 2017 , € 567 of which will be paid in 2017 & the balance of €600 will be paid in 2018.
As the cumulative gross increase of €2,170 is made up of a combination of pension levy cuts ( which do not increase the gross salary ) & increase in gross salaries of €1,300 for those on €30,000 ( 300 on 1/1/16 & 1000 on 1/9/2017 .
In effect if further % percentage increases are negotiated from 2018 they will be on a base gross salary of €31,300 not the inflated figure posited by you of €34,674 .
As public sector workers may be worried about your interpretation perhaps you would confirm that you did not key in the fact that some of the restoration is by way of pension levy reduction into your calculations.
 
Delboy said:
The TUI are rejecting this as Lecturers have an extra 2 hours class time per week (and they claim this means an extra 4 hours in prep time).
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This is a fair assessment of prep/lecture ration where a relatively new course is being delivered. However, the additional 2 hours class time are unlikely to relate to new material being delivered. Most likely delivery will be repetitive lectures where material is already well prepared for delivery. Obviously the lecturers themselves will try to put forward a case where workload appears to be at a maximum level. But this would be standard practice in any pay negotiations!
 
Deiseblue said:
Instead they will receive in :
2016 € 31,003
2017 € 30,567
2018 € 30,600
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I'm confused by your claim that pay will be reduced in 2017. Clearly your 2017 figure is less than your 2016 figure? Also you'll note your 2018 figure is less than 2016.

Seemingly when you posted the figures above, you did at that point agree that there's a difference between the cost over three years versus cost in year three, since you were trying to get the costs over three years to add up to around 2k.

PER seem to have made an error when describing a 2k over 3 year deal for 300,000 workers as "The agreement has additional costs of €566 million over a 3 year period.."

To explain the PER figure, so far you've claimed it's due to it being net of tax, next because there's some pay cut being implemented in 2017, and now it being because pay rises via reduction in PRD are not pay rises. Isn't the simplest explanation that the description of the cost by PER is incorrect?
 
I'm saying that in order to keep expenditure the same then pension payments have to drop proportionately. Using the figures you quote that would mean they drop by 80%.
 
Purple said:
I'm saying that in order to keep expenditure the same then pension payments have to drop proportionately. Using the figures you quote that would mean they drop by 80%.
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Ah, understood. Yes, entitlements will have to be reduced very significantly if we are to maintain an equivalent level of expenditure in real terms in the future. I believe it would be better if this was dealt with on a phased basis - starting now.
 
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