CUTTING THE minimum wage by €1 will not save the exchequer any money and may cost more, Labour leader Eamon Gilmore has claimed as the Taoiseach defended the proposed cut.

Brian Cowen said Ireland would still have one of the highest minimum wages in the EU after the cut from €8.65 to €7.65. He told the Dáil “we have to do it” in order to have “more flexibility in our labour markets and more competitive labour costs”.

During leaders’ questions in the Dáil, Mr Gilmore challenged the move announced in the Government’s four-year national recovery plan and demanded to know “who asked you to cut the minimum wage”. The Labour leader said somebody “working a 40-hour week will have their pay cut from €346 by €40 a week. Somebody on less than €18,000 a year will suffer a pay cut of more than €2,000 a year or 11.5 per cent.” There are “52,000 workers in the country at or below the national minimum wage, just over 3 per cent of the entire workforce”, he said.

The cut in the minimum wage “won’t save a single cent for the public finances. In fact arguably it’s going to cost money.”

He asked “what estimate if any has the Government made, as to what cutting the national minimum wage will cost the exchequer, since presumably people who have their national minimum wage cut will be entitled to a higher family income supplement, more secondary social welfare benefits and presumably there’ll be an impact on local authority rents”.

Mr Gilmore said two weeks ago the Government was waiting for a Labour Court recommendation on the minimum wage and the court had not made a recommendation.

Mr Cowen said the cut “forms a base for other wages further up the line. We have seen an increase in minimum wage beyond the level of inflation. It was increased by 55 per cent during a period when inflation was 28 per cent.”

He added that there would be a review of labour agreements including employment regulation orders and registered employment agreements, which were set “at well above minimum wage”.

The Labour leader said it was a “peculiar form of Fianna Fáil economics now that in order to incentivise people on low pay or who are poor you pay them less but to incentivise the banks you throw more money at them”.

Mr Cowen rejected his remark as a “populist throwaway” and said the hospitality sector had been saying for some time it would like to see some changes. “It’s not a question of saving money for the State. The whole idea is to keep as many people in work at a time when the trading environment is very difficult.”

Mr Cowen said “we have to try and ensure that we have a competitive economy. We have seen reductions in wage rates throughout the board in the public sector. We’ve some in the private sector as well obviously.”

He said “the OECD and others have been referring to this issue as a structural issue within the Irish economy generally”.