The chief advantage of the national pay talks is that they provide employers everywhere with what might be called a government-approved benchmark. The 5.5% pay increase to be paid over 18 months will certainly do nothing to dent the massive expectations already being built into this year’s economic growth numbers. Neither does anyone seem to believe it will damage our competitiveness. The first 1.5% will be paid to most private-sector employees in July; the next 1.5% will be payable in January; followed by 2.5% in the middle of 2005. Between now and the end of next year, inflation is targeted to reach 4%. On the face of it, that leaves a small premium for employees, but the strong job-growth numbers published last week could push that inflation figure higher.
Individual unions who have yet to vote their approval of this deal will be mindful that real incomes have been eroded in the past two budgets. The government’s failure to index the standard-rate tax band has effectively forced employees to play their part in the country’s economic recovery. The government should take the sting out of this by indicating it will set aside €300m in December’s budget to widen tax bands and increase tax credits. Such a move would take tens of thousands of people out of the higher-rate tax band and make good the government’s promise to keep 80% of employees out of top tax. It would also seal this agreement and allow everyone to move on.