Tuesday, 24 February 2009
Dáil Eireann Debate
Deputy Dan Neville: Prior to the previous adjournment of the debate, I outlined that international research since the 1890s shows that there is an increase in suicide and mental health issues during times of recession. I request that the Government allocates €8 million to the National Suicide Prevention Office to deal with that situation.
There is a precedent for this. Some weeks ago the Minister for Social and Family Affairs announced that €7.8 million was being provided to organisations involved in marriage and child bereavement counselling services throughout Ireland as a first part of a three-year rolling investment in the valuable services provided by those organisations to support families in times of distress and trauma. The psychological stresses should be addressed in a similar fashion. The Minister stated that now more than ever there is a need to ensure the quality of services available to help families who may be experiencing new pressures and stresses in their lives.
The difficult economic situation being experienced throughout the country is filtering into the lives and homes of families throughout Ireland. When a person loses his or her job or has working hours cut, the financial strain can lead to pressures in relationships and on his or her mental health and well-being. The Minister for Health and Children must deal with the situation in the same way as the Minister for Social and Family Affairs has dealt with the pressures on relationships. She also stated that having a network of support services available throughout the country to provide marriage and relationship counselling services is a core part of helping families to cope with problems they are confronted with. Having a network of support services available throughout the country to provide mental health and suicide prevention services is a core part of helping families to cope with problems they are confronted with as a result of the recession and the effect it will have, as proven by international research in every decade since 1890, and the fact that those rendered unemployed are six times more likely to commit suicide than the general public.
I call on the Minister to respond to the request to treat the levels of mental well-being and psychological stresses in the way the Minister for Social and Family Affairs dealt with marriage difficulties and family relationship problems. The same applies to mental health and well-being and suicide prevention, and recognising that the recently unemployed have a higher level of suicide. We must promote suicide prevention programmes aimed at those people and the avenue to do that is the National Suicide Prevention Office.
Before Christmas we met the Minister for Social and Family Affairs and Professor Drumm and they informed us they had recognised this and would increase the level of money to the National Suicide Prevention Office, but recent rumours have been circulating that the office may have to take a 10% cut in its budget. If that happens, the Government and the Minister are in denial about the real situation confronting people in terms of psychiatric and emotional difficulties and levels of suicide in families as a result of the recession.
Deputy Thomas Byrne: We are debating this legislation on Second Stage but only 20 minutes ago in this Chamber, Deputy Joan Burton made statements about the alleged involvement of Fianna Fáil in Anglo Irish Bank. She started saying this only last week, when the Opposition was smearing us. It is a lie that Fianna Fáil was intimately involved with Anglo Irish Bank over the last few years. Most of us had never come across that bank, unlike other Members of the House on the Opposition benches who were substantially involved with it for a number of years in terms of share holdings. That lie is incorrect and is unfair on Fianna Fáil Members who have not come across that bank and were delighted to see the gardaí investigating it today. It is important that Fianna Fáil fights back and rejects these accusations being made conveniently by the Labour Party when it should be offering economic solutions to the problems we face.
This Bill is such a solution. It is a difficult Bill and will have consequences for the many public servants affected by it. Any of the public servants I deal with are hard working and committed to doing a good job, including people who work for Meath County Council and the Health Service Executive.
When we debate this legislation, however, it is important to read the preamble to the Bill, which sets out in stark terms the difficulties the country faces. It notes that a serious disturbance in the economy and a decline in the economic circumstances of the State have occurred which threaten the well-being of the community. Legislation does not include a preamble of that nature without good cause. That is the nature of the situation we face and if we do not face up to it there will more serious trouble in the economy as a whole.
The next paragraph of the preamble states that as a consequence, a serious deterioration in the revenues of the State has occurred and there are significant and increasing commitments in respect of public service pensions. It is therefore necessary to cut current Exchequer spending substantially to demonstrate to the international financial markets that public expenditure is being significantly controlled to ensure continued access to international funding, to protect the State’s credit rating and reverse the erosion of the State’s international competitiveness.
These are serious matters the legislation seeks to address. As a result of our deficit, we are dependent on our access to international funding and the maintenance of our credit rating. That view does not seem to be shared by the Opposition. However, if we cannot do those things, we cannot borrow the money and employ public servants because we are borrowing almost the entire amount of public service pay.
No one wants to place this imposition on anyone. However, the imposition on those in the private sector who have lost their jobs, although some in the public sector have lost their jobs, is far more serious than for anyone who has to take a pay cut. That is not to underestimate the serious and substantial difficulties people face when they take a pay cut, particularly those on lower incomes. We have quite a progressive taxation system in this country. According to the Department of Finance, a single person on €25,338 per annum will pay, including this pension levy, 13% of his or her gross income in total deductions to the Revenue. That is a person on the modified PRSI rate. A person earning €66,179 in the public service, which is not three times the previous figure, will pay 33% of his or her gross income in total deductions to the Revenue Commissioners. In money terms, however, the difference is that the person on €25,000 will pay €3,193 — that is total deductions, including tax, PRSI, the pension levy and the 1% levy. However, the person on €66,000 will pay €21,897. There is more than a seven times difference in the cash payment, whereas the salary is not three times different.
We have a significantly progressive system and it is not true to say we do not have a progressive taxation structure. We have a very progressive one, although it certainly could be improved. I would have no objection to people earning six-figure salaries receiving tax increases in this year’s budget. The reality is, however, that the money that will come in from people earning more than €200,000 will not be as significant as a broad-ranging tax increase, which may have to happen later in the year. Those figures and others, which are available on the Department of Finance website, indicate the progressive nature of our taxation system.
We have a low level of taxation and there are few economies where one’s taxation contribution could be as low as 13%. Let us call a spade a spade because PRSI and the two levies are all tax paid to the Government out of one’s wages for services provided and benefits received.
A single person earning €66,179 will be on 33% of his or her gross income, which is much less than many other countries charge. A married one-earner couple — there may be more of them with rising unemployment — on €66,179 pays only 27% of gross income in taxation. That compares very well to other countries. We must nail this myth that somehow we are a high tax country, because we are a low income tax country compared to other jurisdictions. That is not to say, however, that the income tax burden does not impose difficulties on people.
Deputy Burton was also guilty of confusing the pension levy with bank recapitalisation, in saying that somehow one’s pension levy will go to the banks to pay for the recapitalisation. That is a myth that has been put about by many Opposition spokespersons and others around the country. They say that somehow this levy is directly connected to the bank recapitalisation, but I suggest it is the other way around.
The pounding the world financial system, including our own banks, is receiving has resulted in a huge decline in revenues for us and is causing major difficulties in the economy. The bottom line is that if we do not recapitalise, the banks will not be able to lend. Now that we are doing so, the banks have given a commitment that they will lend money.
People do not seem to realise that the recapitalisation moneys, apart from the various conditions the Minister for Finance has attached to them, are basically a loan. The Minister expects something in the order of €560 million in interest payments in the first year. One of the banks said it would aim to pay back sooner because of that. That can create difficulties for the banks, but that is the condition we have put on it. It is not that the pension levy is going straight into the recapitalisation figure, however, so that myth must be nailed. The pension levy is really there to shore up the public finances and it must be done. If we do not do that we might as well all go home because we will not have funding to do anything.
A lot of hardship will be endured because of the pension levy. The various rates come from the table in section 2 of the Bill, whereby any remuneration up to €15,000 is deducted at 3%. Any excess between €15,000 but under €20,000 is deducted at 6%, and any amount over €20,000 is deducted at 10%. That is not to say that all one’s income over €20,000 will be deducted at 10%, although unfortunately some people think it will be. That position has been represented to me by concerned constituents. I was contacted by a number of constituents in the HSE who got information that the rate for incomes over €20,000 was 10%. While they are not happy with the situation, they were relieved to discover that the rate was not 10% unless they are earning at the higher rates where it goes up to about 9.9%. That would apply to Ministers and TDs who will be on about 9% of their overall income.
Some people do not realise the tax situation involved which has the same effect as a pay cut, in that the deduction will be on gross pay and not on the net amount. The deduction on the net amount will be significantly less. It is nonetheless a serious imposition, but a necessary one for the Government to get the public finances back in order and to provide State services. The Minister could easily have cut back on services, including schools and hospitals, by abolishing the capital programme. We would have no deficit problem then, but the consequences for the economy would be so serious that we would have even more unemployment. In addition, we would have even less infrastructure being prepared for when the international economy turns. With bad news every day, one wonders if it will ever turn around, but it is assumed it will. The international economy had better turn for our sake because we are totally dependent on international finance and our reputation abroad. We must demonstrate that we have the financial wherewithal to weather this storm, keep things under control and ensure our national debt, which comes from a low base, does not increase any more than is projected by the Government.
Deputy Michael Noonan: This Bill does not actually impose a pension levy on public servants, rather it imposes a pay levy on persons who are participants in certain State superannuation schemes. Therefore, the reference to pensions is to define the category to which the pay cut applies. It is not a pension levy as cans be seen when one reads through the Bill. These persons derive no additional pension benefit from the levy, which is imposed at levels of 3%, 6% and 10%, depending on income. The levy is on net rather than gross income and applies to all income, including overtime. This proves again that it has nothing to do with pensions because overtime is not reckonable for pension purposes.
It has all the signs of being a rushed scheme. We have heard various anecdotes from meetings of the social partners, but the internal evidence of what is presented to us looks as if it was rushed. When questioned in the Dáil, the Taoiseach stated that the levy applied to gross income. Three hours later on television, the Minister for Justice, Equality and Law Reform said it applied to net income and that seems to be the current position. This fact does not seem to have been taken into account, however, when the scheme was designed. It is claimed to be progressive in nature, with those on higher income paying more. When tax relief is allowed some persons on higher income, on the higher rate of tax, will pay less in percentage terms than persons on lower income and on the standard rate of tax. Any competent set of civil servants designing this scheme would not have fallen into that kind of trap unless they were working on the basis, in the first instance, that it applied to gross income. It appears, therefore, that those who designed the scheme meant it to apply to gross income and when this was changed to net income no amendments were made to eliminate the distorting impact of the higher tax rate on the progression of the scheme.
Further evidence that the original intention was gross income is in the calculations of savings announced by the Cabinet. There is a difference of €500 million between applying the levy on net rather than gross income. Yet the announcement claimed savings of €1.4 billion from the levy when the actual figure was €500 million less. I do not know if the change took place between the Taoiseach’s answer in the Dáil and the Minister’s appearance on television. It shows, however, the signs of hastiness — a dirty hurry. Things done in a dirty hurry are always inexact and inequitable.
This levy is unfair as it singles out public servants without any impositions on other persons in the community who are far wealthier than the nurses, the teachers, the gardaí, the prison officers, the local authority workers and the civil servants. I cannot understand how experienced politicians, who above all else pride themselves on their political skills, could have introduced a levy which applies to such a narrow range of hard-working people in our community while allowing others, the principal beneficiaries from the excesses of the Celtic tiger boom, to walk away scot free. The Minister for Finance has suggested that next December’s budget will be harsh and taxes will be increased. The tax increases will apply to public servants the same as they will apply to the bankers and those who made exorbitant profits out of the economy when the going was good.
The public service did not cause the financial and fiscal crises in which the country is mired. Certain wealthier sections of society are largely to blame for that. In the interests of social cohesion, they must share some of the burden being imposed upon public servants. While public servants have a contribution to make to the solution of our fiscal problems, they did not cause them and they played no part in the main events that caused the economy to crash.
The levy is particularly harsh on the lower paid. Many Members on both sides of the House believe that should be amended. The word “tweak” has been used; the Bill needs a bit more than tweaking. A salary of €15,000 is too low to commence paying the levy. If the Minister were to design it again, a starting salary of €25,000 would be more appropriate. I ask the Minister of State, Deputy Noel Ahern, to use his influence to have an amendment introduced on this.
After the Long Title, there is a recital referring to the fiscal situation, the difficulties the economy is experiencing, the State’s credit position, Exchequer spending and so forth. I believe this recital has been included on the Attorney General’s advice to proof the Bill from a legal or constitutional challenge as it is effectively the appropriation of people’s pay which would run into constitutional difficulties. One can protect oneself from such a challenge when it is put in the context of the public interest with all the dire events in the economy. While I accept the Attorney General’s advice must be taken, one part of the recital states, “whereas the burden of job losses and salary reductions in the private sector has been very substantial and it is equitable that the public sector should share that burden ...”. It is outrageous the Government decided to write into the Bill a provision which points to social division, playing the public sector off against the private sector. If the Minister wanted to make that debating point, he should have done so in his introductory speech not in the text of the Bill. When it goes to Committee Stage, the Minister must remove this wording. If he wants to counterpoint in society, he should counterpoint the rich against the poor, the influential against the powerful. He should not counterpoint public servants against those losing their jobs in the private sector.
Deputy Paul Connaughton: The one aspect of this legislation that everyone remarks upon is its unfairness. They should not be too surprised about that, however. While Fianna Fáil claimed it had all the political craft over the years, it recently made two mistakes and unfair decisions. The first mistake was during the budget when it imposed a 1% levy across the board from those earning €17,000 per annum to those earning €99,000. The Government then spent the next two months apologising to the various groups for this mistake. The Government has now compounded this mistake by stampeding the electorate into believing there was no other way of introducing a levy.
A common theme running through today’s Fianna Fáil contributions on Leaders’ Questions, the Order of Business and this debate is that the Opposition is guilty of high treason. Somehow or other, the country’s problems would not be as bad except for the Opposition. What hypocrisy. Over the past ten years, the construction bubble sucked in everyone in the Government to the point they could not see night from day.
It was the Government that should have regulated the banks. In the past ten years if an Opposition Member raised an issue concerning a bank or banker in the House, the Taoiseach, or his predecessor, would say, “ How dare you speak about the banks”. The banks were allowed to run riot. Now, it suits the Government to nail the banks. What happened in the banking world is nothing short of atrocious. Who allowed them to get away with it? The Government. There was more regulation in an ordinary credit union down the country than there was in the national banks.
Last week, public representatives had an important meeting in Ballinasloe, County Galway with several hundred members of IMPACT. They comprised nurses and local authority workers who will all be unfairly hit by the levy. One after another stood up to explain how the levy would economically affect them. If the Minister believes this was the only fair way to tackle this problem, despite the other economic problems we have, then he, and the Government, have no brains. There is something lacking at the core of this Government.
Many Members have said, including Government backbenchers when they are down the country, there is a fairer way of introducing this levy. We all appreciate we are in a bad economic situation but the Government must stop turning the gun on people who had nothing to do with creating it, as Deputy Noonan rightly pointed out.
Many public servants will pay dearly for this levy without gaining any extra pension rights. They are in fact subsidising a group in society which played holy hell over the past ten years. That group took the money and ran while the Government will ensure those on low and middle incomes will pay for them. When 120,000 people took to the streets of Dublin last Saturday, the good wishes of another 2 million people were with them. There were many reasons more people could not attend but, by any standards, it was a huge march. Numerous individuals wished they could have been present.
Of all the legislation that has ever been passed by the House, this Bill will be remembered for a long period. We are fully aware that the State must make savings of €2 billion this year and a great deal more next year. However, it is the way in which this is being done that has led to protests. The Bill is ill-timed and not well thought out. On 4 June, the Government will rue the mistake it made in introducing it.
Deputy Andrew Doyle: IMPACT held a meeting in Wicklow last night and the message that came across is that people in general and public sector workers in particular want to know the truth. They wish to know the extent of the problem. They are terrified that this is not the end and that when higher taxes are introduced, either later in the year or in the budget, they will be hit again. As previous speakers stated, these people are strongly of the view that they did not cause the downturn in the economy. Meanwhile, those who should be held accountable are getting away scot free.
In the Government amendment to Fine Gael’s Private Members’ motion, the issue of capping the salaries of those who run the banks that are seeking recapitalisation has been overlooked. There is no doubt that the motion, as amended, will be passed by the House tomorrow evening. Most people would consider annual salaries of €250,000 for those in the banking sector who caused the problems we are facing as being more than generous. However, all the Government is doing is imposing a 25% cap on those who earn €2 million or €3 million.
In concluding his speech on budget day last October, the Minister for Finance stated that the budget was “no less than a call to patriotic action”. If ever legislation was designed to divide the country, it is that currently before the House. As Deputy Noonan indicated, the preamble to the Bill refers to sharing the burden. I accept that many in the private sector have lost their jobs and that public sector jobs are somewhat more secure. However, there is no doubt that those in the public service were prepared to play their part in assisting the process of making cuts in public expenditure.
Last week the Committee of Public Accounts issued a report on FÁS, which has a budget of €1 billion. The report indicates that €35 million of this was spent on advertising. In addition, it states that some procurements and tenders were not appropriate. The committee made a recommendation which, if the legislation had permitted, would have been stronger. This matter could have been referred to the Director of Public Prosecutions to carry out an investigation.
On the day on which the Garda fraud squad raided the bank the Government nationalised, this legislation, which will oblige people earning €15,000 per annum to pay a pension levy of €400, is being debated. It is not correct to state — as did Deputy Thomas Byrne — that people earning €25,000 will only pay a percentage. The money in question will be deducted from these people’s essential daily incomes. Those on higher incomes have somewhat more flexibility and it is, therefore, not fair to say this measure is weighted in favour of the lower paid. Those on lower pay should not be subject to the levy. The latter would only be fair and reasonable.
As already stated, people want to be told the truth. They also want leadership. We want to know the extent of the problem in order that we might provide assistance in dealing with it. People want to hear those who have been in power for so long stating that not everything they did in the past was correct and that they have made mistakes. It seems to be beyond the members of the current Administration to acknowledge the shortcomings they have displayed while in power.
I wish to provide an example of the Government’s short-sightedness. When announcing the cuts of €2 billion, the Taoiseach stated that €300 million in savings would be achieved in respect of the capital programme as a result of the submission of more competitive tenders. He indicated that work on certain projects could be done for 20% less. I suggest that the €300 million in savings to which he referred could be used to achieve 20% extra for the economy. For example, if it were used to keep 5,000 people in employment, an additional €50 million would accrue to the Exchequer as a result of their paying €10,000 each in income tax. In addition, this would lead to €20,000 per capita— a total of €100 million — being saved in unemployment benefit payments. Therefore, half the €300 million in savings to which the Taoiseach referred would have been obtained before savings were even achieved.
A nursing home in Bray, County Wicklow, has been obliged to close down because it constitutes a fire hazard for older people. It will cost €10,000 per week —€500,000 per year — to place those who lived at the home into outsourced beds. If this was replicated at 50 other locations throughout the country — which could easily be done — the total saving would amount to €100 million.
The example of FÁS highlights that a black hole exists in the context of there being too many members on boards. The Committee of Public Accounts recommended that the board of FÁS be reduced from 17 to nine members. In addition, FÁS has a number of sub-committees, committees to oversee expenses, etc. As an organisation, it is all over the place. The approach of keeping everybody happy must be brought to an end. We should have explored what could be done in this regard before attacking those who earn €15,000 per annum.
Retained firefighters, who work on a part-time basis, have not been able to obtain an answer as to whether the levy will apply to them. At the end of their period of service, these individuals obtain a gratuity rather than a pension. However, they cannot obtain a simple answer whether the levy will be imposed on them. There has been a great deal of discussion with regard to retained firefighters, not least those who serve in my constituency.
What the country needs, if it is to encourage people to pull together, is a thriving private sector which can pay for an efficient and progressive public sector. There is no doubt that the public sector requires reform because it has become too large. However, what is being done by means of this Bill should have been done in a way that is fair to everyone. Fair play is what is required but it will not be achieved as a result of the passage of this legislation. I urge the Minister for Finance to consider the amendments that will be tabled by the Opposition on Committee Stage because they will be aimed at assisting the country in addressing the financial challenges it faces.
Deputy Timmy Dooley: I welcome the opportunity to contribute to the debate on the Bill. There is little doubt that the economic situation in which the country finds itself is extremely serious. As the Minister stated, the country is facing its greatest challenge in 70 years. Based on what has been said by previous speakers, there seems to be a consensus building among people that we must work together and try to find common ground. We all have a common purpose and the vision that should accompany it must focus on achieving an acceptable level of fiscal rectitude. The term “fiscal rectitude” has not been heard for many years. In the 1980s when Ireland experienced similar but probably not as severe difficulties, people found it in themselves to work together to try to bring to reality the notion of a balanced budget. We have not been obliged to achieve a balanced budget for a long period. We have enjoyed budget surpluses, some of them significant.
The scale of the problem we face has been exaggerated by the speed at which the downturn occurred. In a two-year period, we have moved from having a considerable surplus to dealing with a deficit of almost €18 billion.
Consensus was achieved in 1987 following seven, eight or perhaps nine years of failed policies on all sides. People had failed to face up to the severity of the problem, to the serious issues that needed to be addressed and to the obvious and tough decisions which had to be made. Placing it in context, what occurred over seven years in the 1980s has effectively happened again in a seven-month period. The Government has been obliged to assist the public in understanding the reality that we have moved from a position of surplus to one of significant deficit and that severe economic measures are needed to address the problems that exist. Much has been achieved in this relatively short period in terms of the changes, including in the public mood, which have taken place.
The loss of jobs is the element that creates the greatest concern. Notwithstanding this concern, which we all share, the sentiments expressed and the level of hysteria displayed in some quarters would lead one to believe that 90% of the workforce was unemployed and the remaining 10% was in employment. Although the opposite is the case, negative perceptions have assisted the downward spiral of the recession and could, if we are not careful, lead us into a depression.
We must be balanced in our comment. While recognising the difficulties that lie ahead, we cannot allow commentary to exaggerate the problem to the extent that we instil unwarranted fear in the minds of many people. We are all aware of people, many of whom are recession proof, who decided not to purchase various items this year. Without wishing to understate the severity of the problems we face, balance is needed in the debate to ensure we do not further expose the economy to stress and undermine our capacity to return to a minimal level of growth in the coming years.
Under the Government plan, we could have a balanced budget in 2013. The decisions which will be needed in the next four years to achieve this objective will be significant and the resultant measures will cause considerable pain for many people. Members must be mindful of this and must share the pain. We will be affected by the measures set out in the legislation and I expect we will continue to share the burden in the same way as we expect others to share it.
Of the Government’s expenditure requirement of €55 billion for this year, €20 billion will be expended on pay and pensions and a further €20 billion on social welfare. It is vital that we continue to support the most vulnerable in society. While we are under considerable strain and pressure through our financial commitments and the requirement to fund various State activities, it is important to maintain the progressive nature of our social welfare support system. We cannot allow ourselves to be deflected from ensuring that those who are caught in the poverty trap receive assistance. It has been suggested in some quarters that the social welfare budget should be examined. Given that no one in receipt of social welfare has an easy ride, we must be careful in this respect and ensure any such action is taken as a last resort.
We must continue to fund the back to education programme to ensure we continue to assist those who have not had an opportunity to escape the poverty trap or have been unable to enter or return to the employment market. This will be more difficult in the current circumstances because significant numbers of jobs are being lost, including among skilled employee groups and professions. The loss of these types of jobs makes it more difficult for those without skills to find gainful and meaningful employment. It is important, therefore, to provide appropriate housing and assistance for those who belong to this section of society to give them some quality of life, while at the same time maintaining a focus on breaking the cycle of long-term unemployment.
We must work towards the removal of the social isolation and deprivation which has bedevilled some elements of society, in particular those who did not see the benefits of the Celtic tiger. It would be a misrepresentation to argue that these people did not benefit from the Celtic tiger given that it provided the State with resources needed to establish a progressive social welfare system. Clearly, therefore, the Celtic tiger benefited those in receipt of social welfare. While they may not have succeeded in entering employment, they have benefited from the progressive social welfare programme.
It is also important to place in context the progress made through economic activity in recent years. We must try to trace the origins of the economic downturn. Certain statements made in the House, other fora and a variety of publications amount to misrepresentations. Nothing could be further from the truth than the notion that the Government, in concert with a number of bankers and assisted by a number of property developers, caused the current problems.
A few years ago, we were all pleased that there was competition in the banking sector and we could all recount stories of the bad old days when the banks charged penal interest rates of 18%, 19% and 20%. We talked about the difficulties this created in a bygone era when farmers struggled to buy land to improve their lot and provide a livelihood for their families. We heard stories about bankers creating problems for those seeking to purchase a home by taking a stuffy approach, showing disregard for the common man and woman. We heard about bankers who refused to help people who needed money as they sought to ensure only a small elite group had the capacity to borrow. All this changed as a result of competition in the banking sector. As interest rates were reduced and money was made available, many people who would not otherwise have had an opportunity to do so found they could participate in the property sector. This is not to deny that a culture developed in the banking sector which allowed elements to engage in wrongdoing. Nevertheless, the motivation in the early stages, when a number of smaller banks emerged, was to bring about competition and ensure people were able to participate in society in a way they had not done in the past. Many people benefited from this development but we now have a certain degree of amnesia as people forget where the banking cycle started.
One of the fundamental mistakes or element of wrongdoing is to allow those involved in lending to do so on the basis that they will gain a significant bonus from arranging a loan. This removes the discretion and clear-mindedness required to ensure the risk being assumed is properly assessed by the bank.
The Minister has established a committee to examine remuneration among the higher echelons of the banking sector. In establishing appropriate levels of remuneration, cognisance must be taken of the bonuses available to banking staff who arrange loans or generate lending activity. This issue must be examined because it is not appropriate that bank staff should be remunerated on the same basis as a store assistant who is rewarded on the basis of the number of pairs of shoes, handbags or suits he or she sells. Bank lending is a different world which does not involve commodity trading or sales. We must, therefore, ensure action is taken on this issue.
Accusations have also been made about the manner in which the housing stock was developed. Not long ago, it was suggested that the supply of housing did not meet demand and the Government was accused of not doing enough to address the problem. As Members will recall, Dr. Peter Bacon was commissioned to produce a report on the issue. Based on his recommendations, certain policies were changed and new policies were implemented with a view to increasing supply. People forget that demands were made to increase the supply of housing to force down prices. At that time, Opposition and Government Deputies recognised that the lack of supply was causing an increase in house prices. The issue was then addressed by policy decisions. We now hear that this approach was wrong and that the Government should not have acted in this manner, notwithstanding the common view at the time that measures were required to remedy the supply problem. Sometimes intervention works and sometimes it does not. The market will eventually set the appropriate level. Clearly, the property market became overheated despite the best efforts of the Government — and indeed the Opposition — in terms of coming forward with valid ideas about controlling the property sector. The reality is that we can put in place certain controls but they do not always work. In this case we had an overheated property sector and we are now seeing the market rationalise and set a limit which is more appropriate and perhaps more sustainable.
In some cases there is considerable hardship associated with the imposition of this levy. Like every other Deputy in the House, I have been lobbied by various unions and different people whom I know. The people I have met who are on €40,000, €50,000 or €60,000 a year are just as disturbed as those on €15,000, €20,000 and €25,000. It is a fact of life that people, particularly those who have a legitimate expectation of a job for life and an expectation that they will retain their salaries based on current trends and expected growth, build a lifestyle around their expectations. I recognise the major inconvenience, difficulty and burden of trying to restructure the life plans they had in place. Those of us who are in political life know we are not here for a guaranteed length of time and therefore we do not plan our lives in such an orderly way. I have great concern and understanding for people who are in that position.
The people I met were at one in terms of their desire to ensure there was equity and, more particularly, that any wrongdoing was rooted out and dealt with in an appropriate manner. I am not just talking about the banks. Many people I met were just as concerned about those who find ways of breaching the social welfare code or are self-employed and find ways to obtain financial support for students in college. Many of them recognised that there would be a necessity to return to payment of college fees, and they wanted equity in terms of how people apply for and receive grants. There is a perception in some people’s minds that there are some who find ways around that. We need to ensure that whatever safeguards need to be put in place work and appear to work to ensure the confidence of those people who are particularly affected by the introduction of this levy.
Deputy Timmy Dooley: People must be brought to book and there must be transparency. However, we must follow a process and we must be fair to all concerned. The notion of name and shame that was proffered in this House last week is, in my view, an absolute sham. Criminal wrongdoing must be punished. It is not just about retribution but about the restoration of the image of Ireland, which has been tarnished by the considerable wrongdoing which has taken place in various financial institutions over a prolonged period. The systematic deception which is now coming to light must be brought to an end and seen to be brought to an end, and the people responsible for it must be punished in an appropriate way.
Deputy Timmy Dooley: In my view, an appropriate method of punishment must take into account the damage that has been done to the reputation of the financial sector in Ireland. We have developed a strong financial sector. The financial services district is well recognised around the world and the damage that has been done to that by a small number of people has been of such proportion that it has reduced the esteem in which we were held. This has only been recognised in the current environment. We must show, for both the domestic and the international community, that we are prepared to take this on. I have great confidence in the Minister for Finance, particularly with the approach he has taken to ensuring that wrongdoing is found out and that the people associated with it are brought to book and punished in the appropriate way. I want to see — as do the domestic and international communities — that we have the capacity to root out corruption where it exists, wrongdoing where it has happened and deceit where it resides. However, our desire to seek results cannot descend into a willingness to placate in a manner that ignores and undermines the foundation stones of our democracy. A rush to judgment, a trial by media——
Job losses are of the greatest concern, and I am heartened by the approach taken by the Government to address this problem. The funding being provided to the banks under the recapitalisation plan, while it is perhaps not recognised on the international markets, will provide the necessary liquidity to ensure banks are in a position to continue to lend to small and medium-sized enterprises. However, we must go further. From a Government perspective, we must consider imaginative ways to provide tax breaks and mentoring programmes in order that we can instil a sense of entrepreneurial spirit in the people out there who have ideas. We must be careful about demonising people who have done well over the last number of years. There has been a desire in the media and among some members of the Opposition to suggest that people who have been successful are, just because they have made money, somehow distasteful or filthy. If we continue in that way it will be the biggest disincentive to creating the entrepreneurial spirit we need to encourage in people now to ensure they create jobs. Yes, there are wealthy people in Ireland. However, many of them have contributed in exceptional ways to the economy——
Deputy Timmy Dooley: It is vital that in our desire to root out wrongdoing we do not penalise or demonise those people who have developed businesses, worked well and generated employment and are in full compliance with the laws of the State.
I welcome today’s Garda fraud squad raid on Anglo Irish Bank and I hope, in view of the lapse in time since the scandal in this bank broke, that its members were not met by empty filing cabinets and deleted computer files. The bank should have been dealt with in this way long since instead of being nationalised, and the names of the Anglo Irish ten — Deputy Dooley, who is just leaving, would not agree with this phraseology — who are associated with the misconduct at that bank should be exposed, whether it is ten or 12 or 15, because I have no doubt we are looking at a number much greater than ten. They should be named and shamed, and the full facts about their shady deals should be established.
Even as the raid was going on we were reading of how a director, now resigned, of Anglo Irish Bank is still receiving fees of €28,000 of taxpayers’ money annually for sitting on two State boards, Forfás and Bord na Móna. This perk from the public purse is more than many low-paid workers currently receive in salary in a year. Another now resigned Anglo Irish director — Members should remember these are both recent resignations, immediately in advance of the nationalisation proposal — receives €16,846 annually for his role as chair of the Dublin Airport Authority. In contrast, I commend the more than 100,000 people who marched on the streets of Dublin last Saturday to demand fairness and equity in the measures taken to address the greatest economic crisis we have faced since the 1930s at least. Some commentators have tried to portray that great mobilisation in a negative light. It is important that we recognise the justifiable anger that existed on the streets last Saturday. Who can blame people for their considerable pessimism given the scale of the crisis we are seeing and the prospect that it will get much worse before it gets better?
However, there is also a willingness on the part of people to play their part in putting things right and Opposition voices have reflected this over the past several weeks. Those who marched clearly stated they are prepared to pay their fair share and to work for one another, their families, their communities and this country. There is a core of true patriotism in these sentiments. That is also why there is so much deep anger. We have seen, as we never have before, nakedly exposed greed at the head of the Irish financial system and in the upper echelons of big business. What is worse, we have seen how this greed, and, to call a spade a spade, criminal greed in some cases, was facilitated or connived at by this State’s political leaders and so-called regulators. As the HSE faces a shortfall of over €1 billion in 2009, we learn of the massive salaries and allowances paid at the top of the HSE, including €16,000 per month for an adviser to the HSE’s chief executive, Professor Brendan Drumm.
It is a misnomer to call what we are discussing this evening a “pension levy”. This is a further tax on all incomes across the board. It has to be roundly rejected. People in the public service are willing to make a further contribution, but they will not stand for the imposition of this discriminatory tax. This is in effect a tax on public service rather than public service pensions.  I reject efforts to divide public sector and private sector workers. They marched side by side on the streets of Dublin last weekend and, together, they are prepared to face the challenges of restoring this economy to what we hope it to be.
Deputy Aengus Ó Snodaigh: Ba mhaith liom an deis seo a ghlacadh go háirithe chun ceist mhná, i gcomhthéacs an cháin phinsin nua, a ardú. Ar dtús, tá sé de dhualgas orm an cháin nua a cháineadh amach is amach. Níl an cháin chothrom. Is pionós í orthu siúd atá tar éis obair a dhéanamh chun córas poiblí ceart a sholáthar dúinn. Má fhéachfaimid ar na hoibrithe ar a bhfuil an cháin dírithe, tá sé soiléir go gcaille siad siúd atá ar na leibhéil is ísle pá— múinteoirí, banaltraí, gardaí agus oibrithe údarás áitiúil — airgead, mar aon leo siúd atá ar leibhéil níos airde. Tá an Rialtas tar éis glacadh leis go mbuailfidh an cinneadh seo na hoibrithe Stát is leochailí. Cá bhfuil an cothromas ansin? Tá na boic mhóra ag éalúó aon phionós, in ainneoin go bhfuil flúirse airgid agus acmhainní acu.
This tax, the pension levy, is punitive and unfair. It allows the rich in society to get away scot-free while lower paid public servants are screwed. It is a long time since I saw such anger in response to a Government decision and it comes alongside the decision to end special needs education, which affects nearly 600 children, the slashing of the HSE’s budget, the debacle of last October’s smash and grab on medical cards for those over the age of 70 and much more over the past several months.
Other Deputies have spoken about the hurt that exists and outlined how this levy will impact on public servants. Given the limited time available to me, I will concentrate on the levy’s impact on women, who make up a large proportion of the public sector workforce and a disproportionate number of teachers and nurses. The Government’s proposal will have disproportionate and negative consequences for many of these women because they will never qualify for the full pensions for which they are paying. This makes a lie of the Government’s claim of imposing a pension levy. It is a pay cut.
Over the past few weeks, I have received numerous e-mails from women who left the public workforce to contribute to society in a different but equally valuable way by rearing their children and caring for their other dependants. One correspondent quit her professional career to rear her three children but her time out of the workforce is not recognised by the Government. Her contributions towards a State pension will be calculated from when she began working in 1967 until her retirement in 2016, for a total of 47 years, despite the fact that she was not in the workforce between 1972 and 2001. She will only have 15 years of service when she retires. Based on her current salary, her pension contribution is €42.82 per week. Her current pension entitlement is €48.25 per week. Her new contribution will be €82.99 with no increase to her ultimate pension. Another correspondent has worked for Offaly County Council since 1994 on a job-share basis in order to take care of her family. This means she has only 25 years of service. She pays €1,450 per annum for superannuation but the new levy will cost her €712 net per annum. I could provide many more examples. These women have been trying to persuade the Government to see sense. This measure will disproportionately affect those on the lower earning scales. No account is taken of ability to pay.
I also received correspondence from a staff nurse in the eye and ear hospital who stated that fewer than 5% of nurses and midwives receive a full pension. Service of 40 years is required for a full pension, which comprises half-pay and a lump sum equalling 1.5 years of salary. The majority of nurses do not perform 40 years of continuous service because of their studies or child rearing activities. She wrote that she is not a violent woman by nature and that she pays all her taxes and has never been to prison. However, she was working a night shift when the Government announced its proposals and found herself walking behind a doctor who she knew earned more than €300,000. She suddenly realised that he will pay only 1.5% more than her in the levy. She did not know whether she wanted to inflict an injury on the doctor or the Ministers who are protecting him and themselves by reducing the levy on all those who earn more than €100,000 while penalising those on middle and lower incomes. The Government still has a chance to do the sensible and decent thing by withdrawing this new tax.
Deputy Róisín Shortall: I wish to scotch the notion that public sector pensions are a free handout from the tax paying public. Public sector workers are among the most tax compliant members of our society because the State is their employer and, as a consequence, their tax is directly deductible from their earnings under the PAYE system. Every euro earned is tax accountable, unlike many others in this society. Any attempt to brand them as an incubus on the rest of society is wrong. They are the teachers, nurses, gardaí and civil servants on whom we all depend. Some enjoy comfortable salaries achieved after enduring a long incremental salary scale, which in the case of teachers is over 20 years, but many have very modest incomes.
The minimum direct contribution by State employees to their pension is 5% of salary, with an additional 1.5% to cover spouse’s and orphan’s benefit. The majority of State employees pay a direct contribution of 6.5% towards their pension, but that is not all. Since 1995, public sector workers have been required to pay the full PRSI rate, ranging from 4% to 6% of salary. Unlike workers in the private sector, this will not give them an entitlement to a separate old age pension. The old age pension will be integrated with the defined benefit, thus reducing their occupational pension by €230 per week on current values.
There is more. The second benchmarking report of January 2008 concluded that the pensions of public service groups covered by the benchmarking exercise are significantly more valuable than those in private sector groups and are decided in an arbitrary manner, that public service pensions should be quantified as 12% of salary and that a discount of this amount should be applied when comparing remuneration in the public and the private sector and, accordingly, no increase in salary was recommended for public sector workers. It is clear that in terms of increases foregone, full PRSI contributions and direct salary deduction, public servants are paying well in excess of 20% of their possible earnings towards pension.
What is this pension? In most cases, it is calculated at one eightieth of retiring salary for each year of paid pensionable service, up to a maximum of 40 eightieths. While there are some exceptions in respect of the Army, the Garda and firemen, mainline civil servants are required to work until 65 years of age, even though they may have completed 40 years of service before that time. They will continue to pay into their superannuation scheme even though they will not obtain extra benefit for the extra contributions. There are, of course, many who will never attain 40 years’ service because of late entry to the service. The proposed levy is on top of all this, ranging from 3% on a salary of €15,000 per annum to 9.6% on those earning more than €300,000, of which there are few. Most relevant is that the levy will be 6.4% on a salary of €35,000 per annum, in addition to the 1% levy already imposed.
The levy is unfair for many other reasons. It essentially treats public service pensions as a taxable benefit in kind. It would make as much sense and would be just as unfair to apply a levy to private sector workers who have company cars and phones or whose health contributions or crèche fees are paid by their employer. Why not charge Ministers for the use of the Government jet and writers-in-residence or live-in caretakers for the use of facilities?
There is also a problem with how the levy disproportionately targets low income workers. As has been pointed out to me by several of my constituents, the tax treatment of workers as their salary rises into the higher income tax bracket means that the pension levy will represent 4% of gross income for a person on a salary of €510 per week and 2.3% of gross income for a person on a salary of €550 per week. The levy will be 5% of the gross salary of a person earning €730 per week and 3.7% of the salary of a person earning €800 per week. In many cases, people on lower incomes will have more deducted from their wages than colleagues on higher wages. How is that fair?
There is a complete lack of clarity in the Bill on whether the levy will apply to temporary or fixed term contract workers in the public service or workers whose length of service is so short they are never likely to have enough contribution years to claim their pension. Has the Attorney General even been asked for his opinion on the legality of applying a pension levy to non-pensionable income? We still do not know if the levy will be applied to workers whose income is so low they will never benefit from their contributions. It would be a gross injustice if people who are already forced to pay worthless contributions are compelled to pay even more.
In the circumstances, these proposals are nothing short of outrageous. This is not an attempt to make a special case for public sector workers or to drive a wedge between public and private sector workers, many of whom have appallingly poor pension provision, it is an attempt to clearly show the injustice of these proposals which target one sixth of the workforce by the imposition of a totally unjust and inequitable levy. When this levy was announced, neither the Taoiseach nor the Minister for Finance seemed to know whether it was to be imposed on gross or net pay. The proposals had all the hallmarks of having been worked out on the back of an envelope.
There are still cloudy areas in respect of this levy. In some areas of public employment special allowances form a considerable part of total remuneration. These allowances will be liable to the levy but will not be reckonable for pension purposes. How can the Minister justify such an anomalous position? To my knowledge, most public sector workers accept that they must make a fair and reasonable contribution to their pensions. It is clear from what I have said that they are already doing so. What then is the need for this special levy on the State’s employees? The point must be made that this is not a pension levy, it is a wage cut. There is no indication that any of the money deducted will go to fund pensions, rather it will be used to bail out an economy that has been bankrupted by builders, bankers and friends of Fianna Fáil who, as of yet, have not been asked to pay a penny in compensation for the damage they have caused.
On that point, it was extremely galling to hear a banker say that he expected that his compensation package would be less than €2 million this year. That is the sort of compensation that might be expected in respect of a life-threatening injury or permanent disability and is more than the lifetime earnings of a worker on the average industrial wage. This person, who will earn €2 million this year, is not being asked to pay the levy while the Government is taking a €3.5 billion bail-out from the taxes of the ordinary worker. Modern societies have evolved a system for redistributing wealth. It is called a progressive tax system. Those who are rich pay most and those who are poor receive most from the national coffers.
When the whole house of cards came tumbling down, the first response of the Government was to remove medical cards from those over 70. When this did not work and it was compelled to partially back-track and introduce a means test, the Government decided to put a further tax on its employees. It conspired with its wealthy friends to try to set worker against worker and create further division within our society, but it will not work this time. The workers in Waterford Crystal and Dell know they have more in common with the teachers, nurses and gardaí they meet every day than with the members of the golden circle who support Fianna Fáil or the wealthy tax exiles who jet in and out and rub shoulders with our leaders in exclusive hotels and private mansions. The recent survey in The Irish Times has clearly shown that the penny has finally dropped and that many decent Fianna Fáil supporters have begun to see the light.
Deputy Barry Andrews: I cannot let go uncontradicted on the record of the House the last comments made by Deputy Shortall. The rehashing of soundbites by Labour Deputies in this House does them no service. While the merits of this issue need to be ventilated in the House, references to mansions, golden circles and jets, which delight hard-core Labour people, are completely inaccurate.
Deputy Barry Andrews: It is terribly insulting to all those people who give their time freely and voluntarily to the party to categorise them in such a blasé and ill-informed way. There was much else in Deputy Shortall’s speech which was ill-informed. The Deputy ignored the fact that the top 9% of income earners in the country pay almost 50% of income tax. It is true to say the top earners should pay the most and this is what occurs. That is the tax system in place in the country. As part of last week’s instalment of Labour Party populism, its finance spokesperson suggested we withdraw and redraw the pension levy. Now, Deputy Shortall is telling us to get rid of it altogether. Perhaps next week there will be a different suggestion.
Deputy Barry Andrews: That is contradictory and shows the lack of any coherence in the Labour Party in Opposition. One wonders what it would be like in Government. I wish to address the House on the Financial Emergency Measures in the Public Interest Bill 2009 as it includes provision under section 17 to effect changes to the early child care supplement. The early child care supplement was announced in the 2006 budget, as was the decision to create the Office of the Minister for Children, now the Office of the Minister for Children and Youth Affairs. The establishment of that office has been an important development in the delivery of Government policy and services for children and young people because responsibility for all the key areas which affect children and young people, other than school education and health, have been brought together in one office with ministerial input at Cabinet.
Deputies will be aware of the constituent elements of my office which include the former national children’s office and the area of child welfare and protection. The child care directorate and the youth justice service, both of which were areas previously under the Department of Justice, Equality and Law Reform, and the areas of early years education and youth affairs from the Department of Education and Science are also located within my office. Maintaining a general strategic oversight of bodies with responsibility for children’s services is also a key area of responsibility for my office.
As Minister of State with responsibility for these areas, I am aware of the benefits and coherence which the office brings to putting children and young people at the centre of our service delivery. However, the role of my office in harmonising policy issues that affect children in areas such as early childhood care and education, youth justice and other areas is not the object of today’s debate. I have referred to it briefly to set the background against which the early child care supplement was introduced in 2006.
The early child care supplement was introduced as a direct, non-taxable, quarterly payment of €250, equivalent to €1,000 per annum. The purpose of the payment was, and continues to be, to assist parents with the higher costs associated with caring for preschool children. Payment of the early child care supplement is administered on my office’s behalf by the Department of Social and Family Affairs.
When introduced, the early child care supplement was paid in respect of all children eligible for child benefit who were under six years of age, the rationale being that six is the age at which school attendance becomes compulsory. The approach taken at that time was the most generous possible to ensure no child would lose eligibility for the payment before starting school. The payment was increased by 10% in 2008 to €275 per quarter, equivalent to €1,100 per annum.
As we are aware, the economic environment has changed radically in recent months and it is necessary to reduce public expenditure and realise savings where possible. This process began in the 2009 budget which introduced a package of targeted interventions to contribute to the responsible management of the public finances. Included in these measures was a reduction in the age limit for eligibility for the early child care supplement from six years to five and a half years. At the same time, the step was taken to change the payment frequency from quarterly to monthly. In setting a monthly rate, the payment was rounded upwards to €92 per month, bringing the annual payment to €1,104.
The changes to the early child care supplement as a result of the budget will result in savings of some €93 million this year and €54 million in a full year. A greater level of savings arises this year owing to once-off savings of €39 million as a result of the change from quarterly to monthly payments. The changes to the early child care supplement were made with a view to continuing to target additional support to parents of preschool children. The same rationale underlies section 17 which provides for further amendments to the early child care supplement to achieve the additional savings required. In effect, the period of eligibility for the payment will reduce to children aged up to five years, the point at which the majority of children have started school.
In addition to providing for a reduction in the age limit for eligibility from five and a half years to five years, section 17 provides for a reduction in the rate of payment from €1,104 per annum to €996 per annum, to be paid in monthly instalments of €83. The changes to the payment proposed will result in savings of the order of €57 million this year and €77 million in a full year.
When it was first introduced in 2006, the supplement was payable in respect of all children eligible for child benefit who were less than six years of age, but the reality is that most children start school at the age of four or five, well in advance of their sixth birthday. In addition to continuing to oversee the early child care supplement, my office will also continue to provide significant levels of funding to support targeted interventions for disadvantaged children and young people. Funding in this regard will amount to almost €88 million this year. Taking account of this investment in children and young people together with the continued payment of the early child care supplement, I am satisfied the necessary amendments proposed in the legislation are targeted to the greatest possible extent given the major challenges facing the economy.
Deputy Pat The Cope Gallagher: I am pleased to have the opportunity to contribute to the debate. It is one of the most important debates to be held in the House since my election in 1981. Since I entered the House I have witnessed and participated in many debates of major significance to the country and to my constituents. During these years difficult decisions were taken in the best interests of the people, especially after 1987.
After the general election of that year and following the doubling of the national debt, all parties realised we could not continue to spend. At the time, interest rates were at unprecedented levels and the unemployment rate was spiralling. A decision was taken by the Government to try to create an economic atmosphere conducive to investment in the country. Strikes, work stoppages and demonstrations were common occurrences. There was a slowdown in foreign direct investment to the country. The Government at that time was a minority Government and I acknowledge that the former Deputy, Mr. Alan Dukes, through the Tallaght strategy was very supportive and put his country before his party. We created that economic atmosphere and established social partnership. All those involved in social partnership along with the Government of that time laid the foundation stones for the new economic Ireland. There followed throughout the 1990s unprecedented economic growth. Unemployment figures dropped and we almost reached full employment in economic terms.
Some people may be critical that we did not put more of the surpluses generated throughout the years towards the national debt. However, those surpluses were used to lower the tax rates. In the late 1970s the highest rate was 77% and people have forgotten this fact. The rates have been reduced now to 41% and 20%. Many surpluses went towards major capital projects, increases in the numbers of public servants, reductions in pupil-teacher ratios and the provision of child care facilities. If hindsight were foresight then perhaps a further €500 million each year could have been put towards reducing the national debt. That would have insulated us from the period we are experiencing now.
At that time there were substantial net transfers from the European Union, whether for roads, infrastructure, water investment programmes, agriculture or social programmes. As a Deputy representing a Border county, I am conscious of the role of INTERREG III, the International Fund for Ireland and the peace and reconciliation programme. Ireland was an Objective One area at the time and I am very proud that the income per capita at the time of our entry into Europe rose from one of the lowest in Europe, that is 55% of the average, to in excess of the average. Instead of being net beneficiaries we are net contributors to the European Union. Throughout the period when there were no surplus funds, the Government ensured that matching funds were provided to draw down the maximum funding from Europe. My peers and I never dreamt that we would experience the 1980s again, or worse. It is difficult for young people who have experienced the affluence of the Celtic tiger, and a high disposable income because they do not have the 1980s against which to benchmark this experience.
While there are internal factors at work here we are not immune to the worldwide credit crunch. We are not immune either to the despicable behaviour of our banks which competed with each other offering loans in excess of 100% to young couples. I do not blame those young couples while the banks were throwing money around as if it were confetti. They have contributed to the problem. Like every other Member of this House I welcome the clear signal sent out today by the fraud squad’s entry into Anglo Irish Bank.
Recognising the financial situation confronting us the Government acted quickly last summer by making adjustments to the tune of €440 million, the early budget in October, and the decision to find the €2 billion, €1.4 billion of which is coming from the pension-related contribution. Unfortunately, it appears that much of that will go towards funding the additional people receiving social welfare payments and not to the purpose for which it was intended.
I find in speaking to Members from around the country, meeting with lobby groups and individuals, and reading their e-mails that they are of the view that we all have a responsibility to do something and play a part in turning the economy around. We all accept that we have a serious problem and that we must play our part. The people are prepared to do that but in a fair and equitable manner. There should be no anomalies in this legislation. Whether we call this a contribution to the pension, a levy, a tax, or whatever, it is a reduction in the income of the public servants.
A fairer and more equitable system, with a broader base, should exist and those responsible for the situation in which we find ourselves, not those who are not responsible, should pay for it. Is there any point in telling those who must pay a levy from 3% at the low end of the scale to 9.6% at the top, young people or married couples whose children are going to university that this will protect their pensions? They are not interested in that now. They are interested in meeting their obligations, whether mortgages, car or education loans.
The Minister is a fair-minded man. He and his colleagues in Government must, over the next 24 hours or sooner, examine the anomalies I have detected in this Bill, such as people earning €20,000 being asked to pay 3.8%, or possibly those paying no tax having to pay €750. Those on much higher incomes will pay less because this is tax deductible. I hope the Minister will consider that anomaly.
There are other people in the country besides civil servants. I appreciate that the public servants have secure jobs but it is no use telling them that their pensions in 25, 30 or 40 years’ time will be secure and that their contribution is lower than that in the private sector. We should all play our part across the board. While the public service pension rates are generous they become effective only when the public servants start to draw down their pensions.
I had an opportunity to listen to, and address, a meeting of IMPACT in Donegal last week. It was interesting to hear people share their personal situations and what their positions would be after this deduction when they are paying crèche or higher education fees and trying to meet their mortgage payments. This affects not only individuals but also many couples. It was heart-rending to listen to them share their personal circumstances in public.
I hope that over the next few hours of debate on Committee Stage the Minister will examine the anomalies in the deduction and do something to broaden its base as quickly as possible. I have strong views on this matter and it was suggested to me at various meetings that the only way to demonstrate my opposition in principle was to vote against it. I am realist and a loyal member of my party and I prefaced my remarks wherever I went by saying that whatever I did within the confines of the House I would do within the parliamentary party but would impress my view on Ministers in my bilateral meetings with them. They are also public representatives as Deputies before becoming Ministers and are aware of the major issues and the problems that everyone in the public service and others are suffering. I know that the Minister will do his utmost to reduce the impact of this measure.
I fully understand the anger outside the House. It was palpable at the public meetings which I was pleased to attend because, like other Deputies, I have always described myself as the eyes and ears of the people I represent. I come from my constituency in south west Donegal, and my county, to impress on the Minister and the Government the seriousness of this for the many individuals affected. I realise, however, the difficult situation in which the Minister finds himself but let those who have caused this problem suffer and the people will contribute to the resolution. We will work with the Minister but the method must be more fair and equitable.
Deputy James Bannon: The heavy boots of war are on and Ireland is being attacked, not by a foreign aggressor but by its own Government. The democratic process is under fire. The voice of the electorate is being ignored and it is time for the people to fight back. We saw evidence of that last week and will see more tomorrow and the next day.
As in all wars, lives will be lost due to lack of medical provision, families will be left homeless, employment will be lost, education will be inaccessible for those with special needs. The public sector is in the front line of the war, as this Bill is primarily concerned with deductions in the form of a pension levy to be made from the pay-packet of public servants. This does not, however, apply across the board to everyone in this category. Last week, under Standing Order 32, I raised the exemption of the Judiciary. I am fully aware that the remuneration of judges is copper-fastened under the Constitution to protect their independence, which is undoubtedly valid. I ask the Minister to amend this legislation or the Oireachtas Allowance to Members and Ministerial, Parliamentary and Judicial Offices (Amendment) Act 1997, to allow the Judiciary to join the rest of the public sector in making a contribution at this difficult time.
Section 8 of the Bill exempts the Judiciary from deductions under the pension levy. Perhaps the public will argue that the Judiciary is hiding behind the constitutional protection afforded to it by Article 35 of the Constitution. This is not a desirable example from a group at the top of the public sector. The general perception is that as judges pay tax, they should pay the levy. Why should those who are struggling to make ends meet have to tolerate the members of the Judiciary, who are at the top of the public service pay scale, escaping the payment of this levy? The levy, which would not noticeably affect the standard of living of the Judiciary, will cripple those on low and middle incomes. If our judges cannot be compelled to contribute in this way, perhaps they could make a voluntary contribution in the spirit of showing solidarity and setting a good example.
The pension levy is a bitter pill to swallow for those whose lives are endless struggles for survival. It is particularly difficult to accept that this jaded Government, which is out of touch, is led by a Taoiseach whose annual salary exceeds that of the most powerful politician in the world, the US President. The Government is top heavy with Ministers of State and is burdened with costs such as ministerial cars and Government jets. There are too many Oireachtas committees and too many Deputies get extra allowances in respect of them. The position of chairman or convenor of an Oireachtas committee should not be regarded as an honorary one.
Section 12 of this Bill relates to the farm waste management scheme, the mishandling of which by the Government is driving many people in the farming sector to bankruptcy. The farmers of this country have been plunged into a cash-flow crisis. The Government can afford to plough in excess of €7 billion into the banks, but farmers are being abandoned. They were forced to borrow heavily to build slatted sheds to meet regulations under the farm waste management scheme. They are now facing ruin. Who will bail out the farming sector? The Minister for Agriculture, Fisheries and Food has failed to deal with this matter in a balanced way that would support our farmers. The current situation is scandalous. Farmers were forced to make untenable financial commitments to meet the provisions of the EU directive on the disposal of farm waste. They made those commitments on the understanding that grant aid would be forthcoming.
Last October, I argued in this House that the failure of the Minister, Deputy Smith, to extend the deadline for the farm waste management scheme beyond 31 December 2008 was another nail in the coffin of the farming industry. Farmers were already suffering undue hardship as a result of the Government’s inability to manage the scheme effectively, for example, by paying approved grants on time. This mismanagement is threatening the viability of the farming sector. It has echoes of the manner in which the nitrates directive was bungled. I am reminded of the inability of successive agriculture Ministers to handle the delicate balance between the well-being of our farmers and the need to negotiate constructively with the EU. The refusal of the Minister, Deputy Smith, to extend the deadline for the scheme showed a criminal disregard for the economic viability of the farming industry. An extension would have eased the frantic demand for payment and diluted the impact of the Minister’s breathtaking blunder. The Department is unable to pay the bill of €400,000 that is owed to our farmers as a result of that error. The Minister’s incompetence is driving farmers off the land and into bankruptcy.
Some 18,000 Irish farmers have applied for the waste management grant to enable them to repay the loans they took out on the basis of a promised payback. What are they supposed to tell their banks? Should they refer them directly to the Minister for Agriculture, Fisheries and Food? The farmers in question were disproportionately affected by last year’s budget. The future of the farming industry was threatened by the attack on grants for young farmers and on allowances for older farmers who want to take early retirement. The dioxin crisis shattered global confidence in Irish pigmeat. Payments under the rural environment protection scheme continue to be delayed. I ask the Minister, Deputy Smith, and his Cabinet colleague, the Minister, Deputy Brian Lenihan, to separate REPS 4 from the waste management scheme. The many Irish farmers who are involved in organic farming are being denied their REPS 4 payments. Fair play should prevail in that sector, just like every other sector of the community.
Minister for Finance (Deputy Brian Lenihan): I thank Deputies for their contributions. We have had a useful debate. I look forward, as the Bill progresses through the House on Committee and Report Stages, to a fuller engagement on the many issues relating to the Bill that have been raised. This emergency legislation has been drafted and introduced in the House over a short period of time. That is the nature of emergency legislation. I intend to table a number of amendments on Committee Stage. In particular, I propose to clarify elements of the Bill to avoid any doubt about what is intended by the Government in the application of the deduction. I propose to introduce a “removal of doubt” section in this legislation, similar in purpose to section 15 of the Public Service Superannuation (Miscellaneous Provisions) Act 2004, on which elements of this Bill are modelled.
Many Deputies have queried how these measures will operate. There is an understandable eagerness to know who will be covered, what elements of income will be included, what rates will apply and what the ultimate effect on the take-home pay of those affected will be. This debate gives me an opportunity to bring clarity to some of these issues. I want to respond to a number of specific points this evening.
Deputy Bruton queried the arrangements introduced in 2004 for those whom he feels may, through the integration of their occupational benefit with the social welfare system, qualify for little or no occupational pension despite being subject to the deduction. Although this issue is likely to come up again on Committee Stage, it might be useful to provide some detail in respect of it on the record now. I will begin by explaining how the integration system, whereby pensions are calculated for public service employees who are insured for full PRSI and are members of public service pension schemes, works. Some years ago, the Commission on Public Service Pensions made recommendations on the treatment of part-time employees and employees on lower levels of pay. With effect from 20 December 2001, the pension system for part-time employees was modified to a pro rata basis, by reference to the remuneration of whole-time employees. A new system of calculating pensions for employees insured for full PRSI was introduced with effect from 1 January 2004.
The new system delivers increased pensions to members of public service pension schemes whose full-time salary is less than three and a half times the contributory State pension. At present, this amounts to €40,000. The new integration formula takes into account the value of the contributory State pension in calculating occupational pensions. The method of calculating a pension for public service employees who qualify for benefits on or after 1 January 2004 is, for that part of the employee’s pensionable remuneration which is less than or equal to three and a half times the current rate of the contributory State pension, one two-hundredth of the pensionable remuneration multiplied by the number of years of reckonable service; and, for any part of the employee’s pensionable remuneration which exceeds three and a half times the contributory State pension, one eightieth of the pensionable remuneration multiplied by the number of years of reckonable service. The maximum number of years of reckonable service is 40.
The new formula is used in all cases of retirement on or after 1 January 2004. Pensions in course of payment on 1 January 2004 were revised by reference to the new formula in cases where this produced an improvement for the pensioner. The revised system improved the position for people on lower rates of pay and ensured that everyone who met the requirements of the pension scheme got an occupational pension, regardless of income. The new pension related deduction will confer no additional pension benefit and will be deducted from gross pay before income tax, PRSI and health levies are calculated. As the new integration system ensures that everyone who meets the eligibility criteria of the pension scheme gets an occupational pension, regardless of income, there are no consequences to the interaction of the pension related deduction with the integration system.
Deputy Bruton also asked about an actuarial valuation of public servants’ pension costs. The latest full valuation of the value of the public service pension was carried out by the benchmarking body. The estimated costs of pensions for the representative public service groups chosen by the body are 26% for a civil servant or engineer; 18.7% for a staff nurse; 38% for a garda, who has fast accrual terms in so far as his or her pension is earned in 30 years rather than 40 years; 24.5% for a national school teacher; and 16.5% for a special needs assistant.
The value of the ill health benefits and death in service benefits is not included in the figures I have listed. Once allowance for these additional benefits is made, the cost of public service benefits for the specimen groups range from around 18% to almost 40%. These costs represent the expected cost to the state of providing these benefits. However, the value to individual public servants of a public service pension is well above the costs shown. For example, no allowance is made for the substantial expenses that would be incurred by an individual in the private sector who wishes to attempt to provide for a similar level of pension.
There is a further benefit associated with a public service pension that is not quantified in the figures. Pensions for public servants are underpinned by the State. The security provided by this is a valuable additional benefit to public servants. Deputy Bruton also referred to those on low pay. A person on pay of €30,000 per year who is subject to integration will now pay a total contribution of 9.5% of pay. It is clear from the figures that the value of public service pension benefits is well in excess of the contributions public servants make. When we could afford it over the past ten years, we progressively reduced the tax burden on the lower paid to a point where 40% of all income earners are now outside the tax net. According to the latest figures, a married one-income couple with two children on average earnings in Ireland continues to have the lowest tax wedge in the entire OECD. When tax benefits from the State are taken into account, such families face a negative tax burden for the sixth consecutive year, receiving more money in cash transfers from the State than they pay out in income tax and social security contributions.
In Britain, all income above €6,860 is subject to income tax at 20%. In this State, workers can earn €18,300 before they start paying tax, PRSI or the income levy. Our minimum wage is the second highest in the EU. When it was introduced in 2000, it was subject to income tax and PRSI. It is now well outside the tax net. I want to put this on the record, because of the many inaccurate arguments advanced constantly about the unfairness as to who bears the burden of income tax. All public service workers are paid above the minimum wage, which is an hourly rate. Anyone earning below €18,000 in the public service is in that position because he or she is a part-time worker. I recognise that the pension levy is a burden on lower paid workers, but it must be remembered that those on low pay who work for the State do not pay tax.
It has also been claimed that some public servants will pay more in contributions than the benefits they will receive upon retirement. That claim takes no account of the considerable service benefits attached to public service pensions. For example, if a public servant dies in service, his or her family receive a death gratuity of a minimum of one year’s pay. In addition, a pension is paid to the public servant’s spouse and dependent children. These are valuable features of public service employment that must be taken into account in this debate. Public servants also receive a pension lump sum, which is a tax free payment made in retirement which equals three eightieths of the final salary of the retiring officer for each year of service. Someone retiring with 40 years’ service and a final salary of €50,000 receives a lump sum of €75,000.
Deputy Bruton stated that someone earning €30,000 would pay a higher percentage of his or her salary than someone earning €45,000. In terms of gross income, no public servant will pay more in pension levies than a higher paid colleague. Seeming anomalies may arise when tax relief is taken into account. In a progressive tax system such as ours, the more one earns, the higher the tax rate one pays, but this also works in the opposite direction. If the amount of an individual’s taxable income is reduced, as will be the case when the new pension levy is applied, the individual will pay less in tax and will suffer less of a net reduction in pay than someone who is not moved from liability to a higher tax rate to a lower liability as a result of the deduction in wages. Taking all the deductions into account, our tax system remains highly progressive, and those who earn the most, pay the most. Taking account of taxes and other mandatory stoppages, such as income tax, PRSI, the standard pension contribution, the health and income levies and the new pension related deduction, an unmarried civil servant earning €20,000 per year will pay 11% of his or her gross income on total deductions when the new deduction is introduced. This compares with 43% of gross income for an equivalent civil servant earning €100,000 per year. The only way to avoid anomalous positions in the pension levy is to have one income tax rate and no tax credits, or not to give tax relief on the levy. The point is that the overall system is progressive, and this is as it should be.
For someone earning €20,000 a year, the net reduction in take-home pay as a result of the Bill is around €11 per week. For someone on €50,000, which is close to the average salary in the public service, the reduction is around €38 per week. These figures are substantial and we recognise that it will not be easy for people, but they have to be seen in the context of the situation facing the economy.
Deputy O’Donnell asked me to confirm whether a freeze on the increments due to public sector employees in 2009 is built into the sum of €1.4 billion. That figure, which is a full year’s saving, is made up as follows. A total of €1.35 billion comes from the pension related deduction across the public service, with the remaining €50 million relating to other savings, mainly reductions in travelling and subsistence rates. There is no freeze on increments and consequently no such element is built into the figures. Stopping the payment of increments, as has been suggested by Deputy O’Donnell’s party, would bear disproportionately on lower grades in the public service.
Deputy O’Donnell also asked about section 8 which gives the Minister for Finance the power to alter the extent of the deduction if there are materially distinguished classes of public servants. I do not anticipate the need to use this authority, but it is wise to make such a provision when legislating for such a wide and varied group.
I pay tribute to those in other Departments and offices who have worked at short notice to produce this Bill. The Department of Agriculture, Fisheries and Food, the Office of the Revenue Commissioners, the Department of Health and Children and the Office of the Attorney General have all assisted staff in my Department in drafting the Bill and in the myriad tasks that accompany emergency legislation such as this. This is not to mention those in every public service body, who have to work on the practical arrangements arising from the measures in the Bill.
On the issue of overall fairness, I must once again emphasise the seriousness of the situation facing the public finances and the nation at large. Many people working in other sectors of the economy have had to face pay cuts, shorter working weeks and redundancy. Everyone in this House knows how redundancy has stalked this land in recent weeks. For those still at work, many who had made pension provisions have seen the value of their investments suffer because of the devastating effects of the international downturn in equities, and Irish blue-chip equities in particular. Against that background, we ask those in a position of secure pensionable employment and with Government-guaranteed pensions, to make their contribution towards addressing both today’s difficulties, and the longer-term sustainability challenges facing public service pensions.
I accept that this is not an easy pill to swallow and that for many, the financial contribution will mean a significant drop in their take-home pay. Some of this effect will be ameliorated by the falling prices forecast for the remainder of this year. Falling interest rates have fed through to lower mortgage repayments for householders, and a similar correction in fuel prices has reduced the cost at the petrol pumps and in terms of home heating for many. While I do not expect that this will necessarily satisfy the public servants affected, the drop in the cost of living we are seeing in the economy must be taken into account in assessing the effect on the overall circumstances of individuals.
Ultimately, this is not the time for equivocation. It is not the time for evasiveness or for woolly thinking and vague half measures. There are no popular initiatives that will deliver the savings needed to meet the day-to-day demands of the Government, and in particular the growing cost of providing for those currently out of work. The country is facing some of the most difficult times in living memory. Serious and difficult decisions are called for. We have gone beyond point-scoring. We must take action now to deal with the problems we confront. On that basis, I commend the Bill to the House.
|Ahern, Dermot.||Ahern, Michael.|
|Ahern, Noel.||Andrews, Barry.|
|Andrews, Chris.||Ardagh, Seán.|
|Aylward, Bobby.||Blaney, Niall.|
|Brady, Áine.||Brady, Cyprian.|
|Brady, Johnny.||Browne, John.|
|Byrne, Thomas.||Calleary, Dara.|
|Carey, Pat.||Collins, Niall.|
|Conlon, Margaret.||Coughlan, Mary.|
|Cregan, John.||Cuffe, Ciarán.|
|Cullen, Martin.||Curran, John.|
|Dempsey, Noel.||Devins, Jimmy.|
|Dooley, Timmy.||Fahey, Frank.|
|Finneran, Michael.||Fitzpatrick, Michael.|
|Fleming, Seán.||Flynn, Beverley.|
|Gallagher, Pat The Cope.||Gogarty, Paul.|
|Gormley, John.||Grealish, Noel.|
|Hanafin, Mary.||Harney, Mary.|
|Haughey, Seán.||Healy-Rae, Jackie.|
|Hoctor, Máire.||Kelleher, Billy.|
|Kelly, Peter.||Kenneally, Brendan.|
|Kennedy, Michael.||Kirk, Seamus.|
|Kitt, Michael P.||Lenihan, Brian.|
|Lenihan, Conor.||Lowry, Michael.|
|McEllistrim, Thomas.||McGrath, Mattie.|
|McGrath, Michael.||McGuinness, John.|
|Mansergh, Martin.||Martin, Micheál.|
|Moynihan, Michael.||Mulcahy, Michael.|
|Nolan, M. J.||Ó Cuív, Éamon.|
|O’Brien, Darragh.||O’Connor, Charlie.|
|O’Flynn, Noel.||O’Hanlon, Rory.|
|O’Keeffe, Batt.||O’Keeffe, Edward.|
|O’Rourke, Mary.||O’Sullivan, Christy.|
|Power, Peter.||Power, Seán.|
|Roche, Dick.||Ryan, Eamon.|
|Sargent, Trevor.||Scanlon, Eamon.|
|Smith, Brendan.||Treacy, Noel.|
|Wallace, Mary.||White, Mary Alexandra.|
|Bannon, James.||Barrett, Seán.|
|Behan, Joe.||Breen, Pat.|
|Broughan, Thomas P.||Bruton, Richard.|
|Burke, Ulick.||Burton, Joan.|
|Byrne, Catherine.||Carey, Joe.|
|Clune, Deirdre.||Connaughton, Paul.|
|Costello, Joe.||Coveney, Simon.|
|D’Arcy, Michael.||Deasy, John.|
|Deenihan, Jimmy.||Doyle, Andrew.|
|Durkan, Bernard J.||English, Damien.|
|Feighan, Frank.||Ferris, Martin.|
|Flanagan, Terence.||Gilmore, Eamon.|
|Hayes, Brian.||Hayes, Tom.|
|Higgins, Michael D.||Howlin, Brendan.|
|Kehoe, Paul.||Lynch, Ciarán.|
|Lynch, Kathleen.||McCormack, Pádraic.|
|McEntee, Shane.||McGinley, Dinny.|
|McGrath, Finian.||McHugh, Joe.|
|McManus, Liz.||Mitchell, Olivia.|
|Morgan, Arthur.||Naughten, Denis.|
|Neville, Dan.||Noonan, Michael.|
|Ó Caoláin, Caoimhghín.||Ó Snodaigh, Aengus.|
|O’Donnell, Kieran.||O’Dowd, Fergus.|
|O’Keeffe, Jim.||O’Mahony, John.|
|O’Shea, Brian.||O’Sullivan, Jan.|
|Penrose, Willie.||Perry, John.|
|Rabbitte, Pat.||Reilly, James.|
|Ring, Michael.||Shatter, Alan.|
|Sheahan, Tom.||Sheehan, P. J.|
|Sherlock, Seán.||Shortall, Róisín.|
|Stagg, Emmet.||Stanton, David.|
|Timmins, Billy.||Tuffy, Joanna.|
|Upton, Mary.||Varadkar, Leo.|
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