Minister for Finance and Public Expenditure and Reform Paschal Donohoe has said the State cannot afford to immediately repeal Financial Emergency legislation (FEMPI), which underpinned the pay cuts imposed on the public sector during the economic crisis.
Mr Donohoe also warned that over ten years, in a worst case scenario, a hard Brexit could reduce Irish GDP by 4% compared to where it would have been without Brexit.
Speaking in the Dáil, he said that while overall the FEMPI legislation had been highly effective at temporarily reducing the public service pay bill, there was a continued necessity for it as repealing it in one budget year would not be affordable.
The minister was speaking as he laid his Annual Review of the operation and effectiveness of the legislation before the houses of the Oireachtas.
He said that upon full implementation of the Lansdowne Road Agreement there would be an outstanding €1.4 billion in FEMPI savings still dependent on the operation of FEMPI pay and pension measures.
Mr Donohoe said he believed that in the Public Service Stability Agreement 2018-2020 the Government had achieved a balanced approach to public service pay that was compatible with the economic conditions of the state, national competitiveness and available revenues.
He also noted that the agreement was fair not just to public servants, but to those who rely on public services, and to the Exchequer.
He said the agreement would deliver a series of affordable pay increases, weighted towards the lower paid, which would provide a clear, realistic route out of FEMPI for almost 90% of public servants by 2020.
He acknowledged that public servants would be making an additional contribution to their pensions, to reflect the higher value their pensions compared to private sector.
However, he noted this would place public service pensions on a more sustainable long-term footing.
The cuts imposed under FEMPI saved the Exchequer approximately €2.2 billion per year, but unions have been campaigning vigorously to have those cuts fully restored as the economy improves.
Once the restoration provided for under the Lansdowne Road AGreement has been fully implemented, there will still be savings worth approximately €1.4 billion underpinned by FEMPI legislation.
The new pay agreement will cost €887m over 3 years, though a number of additional side deals for individual union groups will add a further €10m to that.
The minster also said that pay restraint had allowed the Government to prioritise the recruitment of an additional 20,850 personnel to deliver public services - including 5,243 teachers, 2,360 Special Needs Assistants, 3,073 health and social care professionals, 2,267 nurses, and 1,426 consultants/doctors/dentists.
He said this level of recruitment would have been impossible without the FEMPI legislation.
He cited a number of vulnerabilities in the economy, including Brexit - noting the Department of Finance is now assuming a hard Brexit is the most likely outcome of negotiations.
He said in the worst-scenario, where there were no trade deal with the UK, after ten years Irish GDP could be almost 4% below what it would have been without Brexit.
He highlighted the high level of Government debt, which currently stands at almost €201 billion, and also cited risks including the high level of private debt, the highly concentrated industrial base, the loss of competitiveness, and supply constraints in the housing sector.