We are giving out pay rises not because productivity is up, but because we have money

Did your Granny have a “good room”? In west Cork in the late 1970s, my Granny had a good room that was so good, I wasn’t good enough to go into it. In fact, none of my immediate family was. The good room was kept for people who were better than us: the parish priest, the solicitor or the local big Fine Gael farmer. After Mass, Granny would usher these better people into the good room, where my cousins and I lined up to meet them, drinking our MiWadi nervously from swanky Waterford glass goblets, terrified lest we drop a thing, not least our Tee Haitches. Once the good people were gone, the Waterford glass was carefully locked back in a press, not to be touched again until the next good room charade.

The aim was not to mortify the family. We were insecure about our position and let on to be richer than we were. The really posh people knew we were playing posh, and we knew that they knew we were putting it on, but everyone went along with the drama to avoid embarrassment.

No one made a Holy Show of themselves.

Good rooms are no longer a thing in Ireland, but the insecurity of good-room mentality pervades. These days the good people are no longer parish priests or local, Ford Granada-driving solicitors, but foreign leaders and dignitaries, the type of folk who arrived in Dublin last week. Our governing class still feels insecure alongside these cosmopolitan, multilingual continentals, and the last thing the lads could countenance was a messy public sector strike on the very day the national good room opened to our upscale visitors.

In terms of negotiating, this was the moment of maximum Government fragility and thus a maximum leverage point for the public sector workers. The unions struck a deal on Wednesday, and a truce was announced predawn, fittingly 106 years to the day of the first World War armistice. Face was saved, and the big event could pass off swimmingly – the good room won the day. But what about the economic and fiscal details of the latest deal? Once the black Mercs have swished the foreign grandees back to the airport, we will have to pick over the details to see who is on the hook for what.

The first thing to appreciate is that the Irish public sector is in overdrive mode, and has been for some time. The ultimate question is whether the expanded public sector offers the sort of value for money that would render legitimate a €5.2 billion pay deal that will deliver pay increases of 10.75 per cent over two years and nine months.

The growth of the public service is unambiguous. Annual expenditure has grown from roughly €15.3 billion in 1994 to €107 billion in 2025: a seven-fold nominal increase in three decades. Even allowing for inflation and population growth, the trajectory is striking. Spending nearly doubled between 2000 and 2010 (€26 billion to €61 billion), was reined in through austerity (falling to €54.6 billion by 2015). Spending has since exploded, up exactly 100 per cent in the decade to 2025. Health alone absorbed €25.8 billion in 2025 – more than the entire State budget only 25 years earlier in 2000 – while housing expenditure grew from €1.2 billion in 2015 to €9.3 billion by 2025, a near eight-fold increase in a single policy area within 10 years.

Lots of dough is being spent. But just how much is being spent per head? And how are we doing relative to other countries – are we spending more or less per head than the rest of Europe?

At first blush, things look good. When we stand back, we see that general Government expenditure in 2024 was 39.25 per cent of national income. Based on this, Ireland sits meaningfully below the European high-spenders – Finland (57.7 per cent), France (57.3 per cent) and Italy (50.4 per cent). Ireland is also below Spain (45.5 per cent) and the UK (44 per cent).

[ Public sector pay deal: What’s in it for me?Opens in new window ]

[ Public pay deal will be reviewed if economy deteriorates, Government and unions insistOpens in new window ]

But drill a bit deeper into the per-capita picture and a more nuanced and revealing story emerges. Last year, Ireland’s general Government expenditure was €133.5 billion, which is how much it costs to run our country of 5,308,039 people. We therefore spend about €25,198 per person. This means that Ireland’s Government actually spends more per person than even France – €25,198 versus €23,300 – and broadly comparable amounts to Finland (€24,200). We spend considerably more than Spain (€17,300) and Italy (€20,100), and somewhat less than the UK (€27,300).

Because our population is much younger, our unemployment levels much lower and our tax revenues more buoyant, this spending per head figure should set off alarm bells. It means Ireland is not spending anywhere near as efficiently as many of our neighbours. Given that productivity in the public service is so hard to measure, the notion that a young country – which should have far fewer demands on its health and welfare systems – is spending significantly more per head than older countries (which have far greater demands on the welfare state) means that productivity in the public sector in Ireland is lower than in other countries.

How can the State afford to be so generous to workers in the public sector without impoverishing other taxpayers? For context, 31.76 per cent of total current expenditure goes to public sector pay. Public sector employment rose from 301,000 in 2015 to 424,000 in 2026. Meanwhile, the average annual public sector pay is €56,496, compared to €40,200 in the private sector – a premium of approximately 40 per cent. If public sector workers are paid more, get more holidays, can’t be fired and have guaranteed pensions, something must give, surely? Are other workers shouldering this burden, and why are they not more pissed off?

The reason is simple: the money for the public sector pay rises is not coming from the tax paid by their neighbours, but from tax paid by foreign multinationals, which will amount to €34 billion this year, predicted to rise to €39 billion in 2027 and to €44.7 billion by 2030. In this scenario, the deal is comfortably affordable. The only question is how fragile this tax take is. We are giving out pay rises not because productivity has increased, but because we have the money, right now. It’s “kids with hands in the sweetie jar” time. Hardly the most confident look?