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Ireland - Pay freezes to continue in 2012

18 October 2011

69% of companies will either freeze or reduce basic pay rates in 2012, according to the latest pay survey, published by the Irish Business and Employer Confederation (IBEC).

While the survey data suggested more companies were going to hire over the coming months, pay expectations needed to reflect current economic realities. IBEC has called on government to take a range of practical steps to restore confidence in the domestic economy to help protect and create jobs.

The survey of over 400 IBEC member companies found that 64% of companies intend to apply a pay freeze for 2012, while about 5% expect to reduce basic pay by about 10%. In contrast, it is projected that 72% of companies will freeze pay this year and 7% will reduce basic pay, again by about -10%. Across all respondents the average expected change to basic pay rates in 2011 is -0.2% and for 2012 it is projected at +0.3%.

IBEC Director, Brendan McGinty commented "job protection and creation must be the priority. Despite the fact that a quarter of companies plan to hire new staff in the next three months, employers are still not in a position to award pay increases."

"Companies remain focused on regaining competitiveness and getting pay costs back in to line with our trading partners. Irish annual nominal compensation costs per employee remain +15% higher than the EU15 in 2011, despite improvements in recent years. The minority of companies that will award pay rises will do so on an exceptional basis, typically on foot of significant productivity increases or increased workforce flexibility."

"Inflation is likely to moderate further in the coming months, averaging about 2.5% this year and not exceeding 1.5% in 2012. Encouragingly, Ireland's inflation rate, as measured by the European Union's harmonised index of consumer prices, at only 1.3%, remains the lowest in the Eurozone, ensuring that Ireland's competitiveness relative to trading partners continues to improve."

"Many companies operating in the domestic economy are still struggling  to survive. Alongside the current plan for austerity, we need a clear strategy to grow the economy."

To help restore confidence and boost employment, IBEC has proposed a number of innovative ideas, including:

• Reform of pension rules to allow people draw down up to 25% of the value of Additional Voluntary Contributions' (AVC) without penalty and at the standard rate of tax. Irish pension funds are currently worth 70 billion Euro.

• A new social welfare smart card system to ensure that payments and benefits spending are promoted in the domestic economy.

• Stamp duty and property tax incentives for first-time buyers to get transactions in the property market moving again. Every house sale generates 20,000 Euro in ancillary services. A normalisation of transactions would generate approximately 600 million Euro per annum for the domestic economy.

• A pro-active and comprehensive communications strategy to give consumers the confidence to spend again.

EU15 countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain, Sweden and the United Kingdom.

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