Government and trade unions apart on inflation projections around public sector pay deal

The proposal on a public sector pay deal tabled by the Government last week – but rejected – would have cost €3.4 billion, union officials were told on Monday.Over its proposed 2½ year term, the offer included a 1.75 per cent increase from November 1st followed by further increases of 1 per cent in April, August and November of next year. Similar increases were tabled for May and October of 2028. There would also have been a 1 per cent increase in March 2028 for local bargaining, rather than the 2 per cent that unions believe was committed to in the last deal. Local bargaining is a mechanism intended to allow different unions and work groups to address claims specific to their own areas. READ MOREInclude that and the total uplift on offer amounts to 7.75 per cent, or 8 per cent when the increases are compounded over the 30 months. That falls well short of what the trade unions have sought.[ Government seeks solution to public sector pay deal before threatened strikeOpens in new window ]Their opening position was that they wanted the deal to address a shortfall they say has developed between pay and inflation since 2021, an increase to cover inflation for this year and increases above inflation for the next two years.The shortfall has been put at more than 5 per cent and up to 7 per cent by senior union officials. This is considered a non-starter on the Government side which prefers to count pay from 2019. That time frame produces a more favourable comparison. While the union side have discounted the earlier increases included as pay restoration rather than pay increases, the argument that the outcome of three previous pay deals should be revisited seems ambitious.What the rest of their demands amount to depends to a considerable extent on where inflation actually lands between now and the end of 2028. Taking the most optimistic projections on inflation, keeping pace would require increases of 7 per cent on top of which they believe they are entitled to 2 per cent in local bargaining. In reality, they are unlikely to have anticipated settling for less than the 10.25 per cent in total delivered by the last deal.The most recent Central Bank forecasts, contained in its third quarter of 2026 bulletin, put inflation at 3.4 per cent for this year and 3.1 per cent for next year before falling to 2 per cent in 2028. In fact, the CSO said on Tuesday that it was 4 per cent in the year to October meaning the union’s members are 2 per cent down on this year. Next year’s figures will also likely need to be revised upward.The unions, meanwhile, are deeply sceptical about the 2 per cent figure for 2028.The Central Bank accepted there are worse case scenarios than those in their main forecasts and said in June inflation next year could be 5 per cent.Accepting 3 per cent for next year would not be a good look and the risk is even higher for the following year given the extent to which the projections factor in a fall in fuel prices.The unions had floated the idea of a review process, but this undermines the appeal of these pay deals for the Government which likes the budgetary certainty they bring. The most recent survey of private sector employers by their representative body Ibec found they anticipated average increases of just over 3 per cent next year, which may also increase on foot of higher inflation. Public sector union members might wonder why they are paying their dues and took strike action, if they don’t beat that.The other issue highlighted on Monday was the absence from the offer of measures to help the lowest-paid public employees. Some are certainly well remunerated. Taking the 50,000 civil servants, 9,000 are earning more than €80,000 a year with about 2,500 earning more than €100,000. The pay scales rise all the way to €250,000 plus in a handful of cases.The largest cohort are clerical officers who earn €31,811 a year, rising to €49,858 after 16 years. From January 1st, that entry level pay would, after a 1.75 per cent increase, be about €50 a year more than the minimum wage. That is not something the unions will want to sell their members.In the end, something that allows some measure of flexibility might yet be settled on to deal with the difficulty of estimating inflation. It is difficult to see any deal being agreed without some guaranteed uplift for the lowest paid.After that, the backdating of the increase for the second half of this year to July rather than November 1st, may help to get this deal over the line. There is a way to go before anyone has to worry about that, though.