Gerard Brady: Employers face significant additional wage bills driven by Government pledges

Across Europe, major economies from the UK to Germany are flirting with recession and China’s economy is slowing significantly. The US is alone in seeing continued modest growth. The softening global economy is reflected in falling goods exports here at home. Yet, the full squeeze of higher rates on consumers and businesses is yet to come. Ireland is not in a recession, but neither is it immune to the troubles of our trading partners.

This year, Irish employers will pay around €100bn through their private sector pay bills. Any cost increases will catch the attention of chief executives; recent Ibec surveys show moderate levels of wage pressure coming from the workplace, but the same cannot be said of costs imposed by Government policy.

The Government has committed businesses to billions of euro of additional labour market taxes, entitlements, and regulations over the coming years without any overarching strategy. 

Even where individual measures make sense, like pension auto-enrolment or pay-linked unemployment benefits, the lack of coordination across government has meant a raft of new measures arriving all at once. The Government’s unprecedented spending spree on the credit card of Irish companies is the biggest change in labour market policy in decades.

From January, the Government has agreed to increase the minimum wage by 12%, rising to 15% when additional PRSI costs are taken into account. The Government has committed the full-time minimum wage equivalent will increase by a third to over €30,000 by 2026. This will be an enormous challenge for many companies.

The costs come as other workers understandably look for their relative pay to keep ahead. Many companies are expecting increases in their wage bills of 25% over the next 26 months.

Moreover, the Government estimates its policy of introducing pension auto-enrollment next year will cost employers €9bn over the next decade. In the past week, the Government has also announced a further increase in PRSI paid by both employers and employees. The total cost of this measure is likely to be in the range of €750m a year.

The cumulative impact of all of these measures is no small change. More is to come, with other significant expansions of entitlements next year in sick pay and protective leave, as well as plans for additional bureaucracy such as significant additional Revenue reporting requirements on employees’ non-taxable expenses.

Budget 2024 contained a €250m fund as a partial recognition of these additional costs. Unfortunately, even the early promise of that fund looks like it will be lost in a scheme which is spread wafer-thin across more than 130,000 businesses rather than aiming support at the firms facing the most significant additional responsibilities.

As the global economy slows, we need to remain conscious that no one owes us a living as a country. This is not a new story; spending other people’s money on the promise that the good times are here to stay may be popular while things are good but creates significant risks.

Improving conditions for workers is important for social stability but it must be done in a sustainable way.

• Gerard Brady is chief economist at Ibec