Financial Emergency Measures in the Public Interest Bill 2009: Second Stage.

Thursday, 26 February 2009

Seanad Eireann Debate
Vol. 194 No. 3

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Question proposed: “That the Bill be now read a Second Time.”

Minister of State at the Department of Finance (Deputy Martin Mansergh): Information on Dr Martin Mansergh  Zoom on Dr Martin Mansergh  This Bill has been brought forward in light of the unprecedented economic challenges now facing our country. The world economy is in deep recession, a recession which has no parallel in modern times, and which is linked to a serious crisis in the international financial markets that has had profound effects around the world.

Industrial production in the United States fell by approximately 8% in December. In Germany, it fell by 12% in 2008. In the United Kingdom, industrial production dropped by approximately 9%. The economy of Japan, which relies heavily on exports, is in acute difficulties. Many of the 2004 European Union accession countries of central and eastern Europe, which enjoyed high growth, are equally exposed to the global downturn.

Unemployment is also increasing. In the US, the rate has increased to 7.6% of the workforce with approximately 600,000 people losing their jobs in the month of January alone. In the euro area, average unemployment is now 8%.

As a small trading nation, Ireland is heavily exposed to those international developments. In 2008, our GDP declined by approximately 1.4%. In 2009, GDP is projected to contract by
4%, which would be the sharpest decline in activity on record. A further reduction in activity is forecast for 2010.

The rise in unemployment, which is affecting people throughout the country, underlines the serious social impact of what is happening. No one can ignore those developments. The Government has had to take clear and decisive action in the national interest, and needs to go on doing so for as long as is necessary. The economic sea change has had a very negative impact on the budgetary arithmetic. We have seen an exponential increase in the budget deficit and in Government borrowing that must be reined in.

The Government must borrow €18 billion this year at far steeper interest rates to finance capital spending and also to meet the current budget deficit. The national debt is likely to rise to more than 45% of GNP, and spending on interest costs will come to €4.5 billion, or 12% of total tax revenue in 2009. In short, Ireland is fighting to recover its economic stability in the face of an exceptional combination of circumstances. The economic independence we have enjoyed through times that were often very challenging in other ways could be at risk if we further put off the decisions that need to be made now. Painful decisions must be implemented as a matter of urgency. Otherwise, the public finances and the level of public debt will become unsustainable, and control will pass out of our hands.

The stabilisation pact agreed with the social partners pointed to the urgent need to manage the public finances over five years through a combination of tax and expenditure measures, with an expenditure adjustment of the order of €2 billion required immediately in 2009. The need to eliminate the current budget deficit by 2013 has been set out in the fiscal plan submitted to the European Commission.

Regrettably, it was not possible to reach agreement in the social partnership framework on the details of the required measures in the time available, and the unions were not in a position to agree to the pension-related deduction for public service workers. The Government therefore had to take action in the national interest and without delay. I understand perfectly the difficulties of the trade unions and the reaction of their members but I believe social partnership, which I have always strongly defended, not least in this House, still has an important role to play in resolving our difficulties.

[185]This Bill provides for measures to reduce or control public expenditure. These are the pension-related deduction on the total earnings of all public servants to realise €1,160 million in 2009 and €1,350 million in a full year. The deduction applies at 3% on the first €15,000, 6% on the next €5,000 and 10% on the remainder, which amounts to 7.5% on average; the reduction in fees for certain professional services to realise savings of €67 million in 2009 and €80 million in a full year; the changes in the early child care supplement to reduce the payment from €1,104 to €996 per annum and to set a new age limit for payment of five years, to realise savings of €51 million in 2009 and €77 million in a full year; and the deferral of certain payments under the farm waste management scheme.

I do not accept the argument that the pension-related deduction to be paid by the non-commercial public sector is “unfair”, because it singles out the public sector from the rest of the workforce. A number of sectors within the economy have to make a contribution to the adjustment measures, which are now so urgently required. It is not just about the public service. The ambit of the Bill is wider than that, and that should be acknowledged. Measures past and to come relating to a broadening of the tax base and the raising of further revenue and also further substantial economies in expenditure will all be needed to redress the situation.

Having said that, the public service pay and pensions bill has to be part of the measures taken, given its relative size, and of the overall balance. Public servants have significant pension benefits. Those benefits are higher than for many in the private sector and those benefits are secure, particularly when viewed against the recent severe loss in value suffered by many private sector pension plans. In light of that and the overall budgetary position, the Bill proposes that all public servants serving on or appointed after 1 March 2009 will have an additional pension-related deduction from their annual pay with effect from 1 March 2009.

My Government colleagues and I, who naturally are included in this, as are Oireachtas Members, are well aware of the important role played by the public service and are conscious of the natural concerns of public servants regarding this measure. However, the situation requires that we all have to be prepared to contribute, particularly those in established positions with the benefit of job security.

The claim has been widely made that the pension deduction falls too heavily on the lower paid, but this is not the case. The deduction is progressive, as people on higher incomes will continue to pay proportionately more than those on lower incomes. For example, taking account of all taxes and other mandatory stoppages such as income tax, PRSI, standard pension contribution, the health and income levies and the new pension-related deduction, an unmarried public servant earning €20,000 a year — and no full-time employee earns less — will pay 11% of his gross income in total deductions when the new deduction is introduced. An equivalent public servant earning €100,000 a year will pay total deductions of 43%. It is claimed the deduction should not apply to non-pensionable pay. However, it must do so to achieve the public expenditure savings the country needs at this time. No additional pension benefits arise from the deduction and it does not alter the pensionability of these elements of pay.

A number of specific issues are worth addressing. I will explain the integration system whereby pensions are calculated for public service employees insured for full PRSI who are members of public service pension schemes. 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. This has the effect of improving the benefits payable to part-time employees who are fully insured. With effect from 1 January 2004, a new system of calculating pensions for employees insured for full PRSI was introduced. This delivers increased pensions to members of public service [186]pension schemes whose full-time salary is less than three and one third times the contributory State pension, CSP. Currently, this amounts to some €40,000.

The new integration formula takes into account the value of the CSP 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 as follows: (a) for that part of the employee’s pensionable remuneration which is less than or equal to three and one third times the current rate of CSP, one two hundredths of pensionable remuneration multiplied by the number of years of reckonable service plus (b) for any part of the employee’s pensionable remuneration which exceeds three and one third times CSP, one eightieth of 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. In addition, 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 every person who meets the requirements of the pension scheme will receive an occupational pension, regardless of income. A good example is someone on low pay with a full 40 years service. Under the previous system, he or she might have received little or no occupational benefit but he or she will now receive two fifths or 20% of his or her final salary as an occupational pension benefit, in addition to his or her State pension. The new integration system ensures every person who meets the eligibility criteria of the pension scheme receives an occupational pension, regardless of income, and this will not change following the introduction of the Bill.

With respect to other claims that public servants can receive, on retirement, benefits that are worth less than the contributions they will make, there are considerable in-service benefits. If a public servant dies in-service, his or her family receives a death gratuity, which is a minimum of one year’s pay. In addition, a pension may be paid to the public servant’s spouse and dependent children, where the public servant was a member of the spouses and children scheme. These valuable features of public service employment are rarely mentioned. Public servants also receive a pension lump sum, which is a tax free payment made on retirement that 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 would receive €75,000.

It has been said that those earning €30,000 would pay a higher percentage of their salary than those earning €45,000. It must be understood this is due to the operation of tax relief. If one takes a wider view and looks at the overall picture, a person on €45,000 pays 29% to the State in tax, levies and the pension deduction, while a colleague on €30,000 only pays 21% in total. The overall system is progressive and this is as it should be. It is important the figures are stated clearly. For someone earning €20,000 a year, the net reduction in take home pay as a result of the Bill is €11 per week. For someone on €50,000, which is close to the average salary in the public service, the reduction is €38 per week. It is recognised that these are real changes and that it will not be an easy adjustment for any of us, but this necessary adjustment has to be seen in the context of the situation facing our national finances and the economy.

The Government has taken the decision that this deduction is not related to the scale and extent of one’s public service pension benefits, which are, in any event, unique to each individual. The value or expected value of these is a direct function of length of service, grade and pay scale and is indirectly related to personal familial circumstances, age and career expectations. It would not be sensible to attempt to quantify or cost these for the public service, and then try to relate the deduction to this quantification.

[187]Many people working in other sectors of the economy have had to face pay cuts, shorter working weeks and, unfortunately, redundancy. Those still at work, many of whom had made pension provision, have seen the value of their pension reduced because of the devastating effects experienced by investments in equity markets. Against that background, it is reasonable that the Government and those in a position of secure, pensionable employment and with Government guaranteed pensions, make their contributions towards addressing both today’s difficulties and the long-term sustainability challenges facing public service pensions.

I will refer to the Bill’s provisions. The Bill includes recitals, which follow the Long Title, and link its provisions to the current economic and financial challenges facing the State. Section 1 of the Bill defines “public service body” as the Civil Service, the Garda Síochána, the Permanent Defence Force, local authorities, the Health Service Executive, the Central Bank and Financial Services Authority of Ireland and vocational educational committees. The definition encompasses primary and secondary schools, third level institutions, and the non-commercial semi-State bodies where a public service pension scheme exists or may be made.

“Public servants” are defined as office holders or employees of public service bodies. Members of either House of the Oireachtas, members of the European Parliament, and qualifying office holders such as Ministers, the Attorney General, the Ceann Comhairle, the Leas-Cheann Comhairle, the Cathaoirleach and Ministers of State are also covered by the Bill. Under the Constitution, the President and members of the Judiciary cannot be included in this measure. “Remuneration” is defined as total earnings, including allowances, overtime or any other like payment, payable by or on behalf of a public service body to a public servant for his or her services as a public servant. This definition draws on the definitions in the Taxes Consolidation Act 1997. Under these definitions, the deduction shall be made from the remuneration accruing from 1 March 2009 at the rates decided — a 3% deduction on the first €15,000, 6% on the next €5,000, and 10% on the remainder. The deduction will not be paid by those with no entitlement to a public service pension. In this context, three conditions broadly apply. A person must be a public servant, must be working in a public service body and must be a member of a public service pension scheme or analogous arrangement.

Section 4 provides that regulations are to be made relating to the deduction and collection arrangements and the deductions are to be paid into the Exchequer in accordance with the directions of the Minister.

Section 5 provides that public servants, except the Permanent Defence Force which has particular terms and conditions, who have less than two years service on 1 March 2009 may before 1 April 2009 terminate their employment without giving notice, if they do not wish to make the deduction. Deductions are to be repaid to those who leave the public service with no preserved pension benefit, that is, with fewer than two years service. The Bill provides that no additional pension benefit is conferred by the deduction. The Minister for Finance has power under section 8 to exempt certain groups from the deduction or to modify its extent if he is satisfied they are materially distinguished by some particular aspect of their employment terms from others subject to the deduction.

The Government has decided that not only public service employees should contribute to tackling the serious problem of the deterioration in the public finances through a deduction from their remuneration, in that professionals providing services to the Government should also contribute their fair share through an 8% reduction in fees. A twin track approach will be taken to secure this reduction. To secure value for money, administrative steps will be taken by Departments and public bodies that engage the services of professionals through a public procurement process or that engage professional services on a scale of fees. For professionals such as those engaged under the General Medical Services, GMS, scheme who traditionally [188]have had their fees and contracts determined through negotiation, this legislation provides for a separate process for reducing their fees.

All Departments and public bodies under their aegis will be written to and instructed to revise the scale of fees for legal services downward by 8% from 1 March. The Departments will also be required to review the notice and change provisions of all contracts for all professional services to give notice of a reduction in fees for services of an amount equivalent to 8% from 1 March. Professionals who are unhappy with this approach will be given the option of withdrawing from their contracts and ending their provision of services.

Sections 9 to 11 provide for a process of consultation, which will allow the Minister for Health and Children or any other Minister to determine payments for professional services in the case of contracts of indefinite duration, such as those under the GMS. In the interests of fairness, the relevant Minister will be required to take account of the opinions of the professionals involved, their contracts, expenses and obligations and the exceptionally serious situation facing the public finances.

The reduction of 8% in professional fees will be secured administratively for other professional services engaged on a scale of fees or on foot of a public procurement process to secure best value for money. Departments and public bodies under their aegis will be required to review the notice and change provisions of all contracts for all professional services to give notice of a reduction in fees for services of an amount equivalent to 8% from 1 March. Professionals who are unhappy with this approach will be given the option of withdrawing from their contracts and ending the provision of services.

The savings will be made by reducing the Voted allocation for the Departments and bodies concerned in the Revised Estimates Volume when it is published. I trust that all professionals who have and continue to enjoy the benefit of a substantial contribution to their incomes from taxpayer funds will fully co-operate with the steps being taken by the Government in the exceptional situation in which we find ourselves.

Section 12 facilitates the payment of grants under the scheme of investment aid for farm waste management on a phased basis.

An annual review of the operation of the measures in the Bill is provided for in section 13. This will involve consideration of whether the Bill’s provisions continue to be necessary and the making of findings as the Minister believes appropriate. A report of the review will be laid before each House of the Oireachtas. It is considered wise to make this provision when introducing measures applying to some 330,000 people.

Section 15 was introduced on Committee Stage in the Dáil. This “removal of doubts” provision is similar to a provision in the Public Service Superannuation (Miscellaneous Provisions) Act 2004 and provides an avenue for dispute resolution in respect of whether a person comes within the scope of that Act. The consultation referred to could, for example, be with another Minister or the Attorney General.

The Taxes Consolidation Act 1997 and the Income Tax (Employments) (Consolidated) Regulations 2001 will be amended by section 16 to ensure the tax deductibility of the payment. Public servants paying the new pension contribution will be treated for tax purposes in the same way as those making pension contributions in the private sector. Contributions will be deducted from gross pay by employers before income tax, PRSI and health levies are calculated. As such, pension contributions will be effectively relieved of tax at the marginal rate. Public servants making additional voluntary contributions or other pension contributions will not be brought above the relevant Revenue limits as a result of the deduction.

[189]The Government decided the new pension-related deduction would apply to local authority staff. It was also agreed that, to realise savings to the Exchequer, it is necessary to amend the Local Government Fund legislation. Section 4 of the Local Government Act 1998 requires that the Exchequer contribution to the fund be increased annually in line with inflation. Accordingly, section 17 of the Bill repeals section 4 of the 1998 Act and introduces a new provision under which the annual allocation is agreed between the Ministers for the Environment, Heritage and Local Government and Finance.

It is proposed under section 18 to amend the social welfare legislation that is the statutory basis for the early child care supplement, ECS, to provide for a reduction in the age limit for eligibility for the payment from five and a half years to five years and a reduction in the annual sum from €1,104 to €996. These changes will result in savings of some €77 million in a full year.

When the ECS was first introduced in 2006, the age limit for eligibility was set at six years, the age at which school attendance becomes compulsory. This was a generous approach, but most children start school between the ages of four and five years. Given that the payment is specifically targeted towards parents caring for preschool children, it is considered the payment will continue to meet its target and to represent an important direct support for those parents.

Following the enactment of this legislation and the imposition of the pension-related deduction, the Minister for Finance will make the necessary savings each year by bringing the proceeds to account as appropriations-in-aid for departmental Votes. The net Exchequer grants for the health and education sectors and the Local Government Fund will be reduced by the amount of the contribution, with the proceeds of the deduction remaining with the relevant bodies and agencies. The funding of these sectors will remain unchanged. For 2009, the changes will be made in the forthcoming Revised Estimates Volume.

The Bill asks public servants, professionals and other members of the community to contribute to the required expenditure measures. It must be seen in a context in which all of those who are able to do so must shoulder some of the burden of solving the current national difficulties. I commend the Bill to the House.

Senator Liam Twomey: Information on Liam Twomey  Zoom on Liam Twomey  As the Minister of State is well aware, there has been widespread opposition to the levy, which is considered to be inherently unfair, given the way in which it strikes at people on the lower income levels in the public and civil service. The public views it as another piecemeal reaction by the Government to a serious financial crisis in the economy. In acquiring some of the funding being sought by the Minister, the Civil Service and public service were easy targets.

This is an income levy, not a pension levy, and is unrelated to pensions. It is purely a means of taking additional income from civil and public servants. How can calling it a pension levy be justified? A public or civil servant may earn a significant income from over-time payments or allowances, which have no bearing on his or her pension upon retirement, but he or she must pay the levy on that income regardless. It should be called what it is, namely, an income levy and not a pension levy. This should be cleared up, as the truth is not being told.

It was expected the Government’s reaction would comprise a broader base and that more people would be asked to contribute. We expected other taxes and reductions in services to be considered, but that has not been the case. We have been told that an bord snip is considering the issues. However, given the rate at which the finances are deteriorating, if the Government has plans to introduce further cuts, tax increases or borrowings, there is an urgent need for more open debate with those who represent the public, namely, the Members of both Houses of the Oireachtas, regarding what is happening.

[190]A sentence omitted from the Minister of State’s speech to this House this evening, but which was included in the Minister for Finance’s contribution to the other House, stated that he envisages that growth will regress for the next three years. It is expected that growth will regress in our economy this year by 6% but hopefully this will not recur in 2010 or 2011. Has the Department of Finance considered the impact on the economy were such a regression to take place over the next three years? I refer to regression of 6% this year and to making projections for 2010 and 2011. Only one year ago to the day, the former Minister for Finance and present Taoiseach, Deputy Cowen, envisaged growth rates of 2.5% for 2009 and higher growth rates for 2010 and 2011. Consequently, for Members and the public to understand what will happen over the next couple of years, the Department of Finance should perform due diligence on the economy. It should consider different rates of growth regression over the next couple of years so that we can understand the problem.

This year the Government will be obliged to borrow €30 billion. The gap between Government expenditure and income will be at least €20 billion and tax revenue will be €10 billion lower than anticipated. As for the Government’s response that has appeared in the public domain thus far, namely, its two-four-four formation of €2 billion this year, €4 billion next year and €4 billion in 2011, I noted in last night’s debate that it is exactly the same as someone whose spending has gone out of control and who only makes the basic repayment on his or her credit card. Even the Minister of State himself has noted that the interest on what we are borrowing at present is approaching €4.5 billion. Government debt is ratcheting up at an unbelievable rate and will reach more than 45% of GDP by the end of this year. Shades of the 1970s are returning in this regard and that is what led us into such trouble in the 1980s. We are selling off the family silver in that we are selling off the good name of Ireland Incorporated. Essentially, we are running up debt rather than examining what has gone wrong with our expenditure.

This worries me, because the Government is not in a position to have its debt reach 100% of GNP by the end of 2011, which was the point it reached in the 1980s. This is because personal debt also is running at that level. By personal debt, I mean that which has been incurred by ordinary men and women, who have borrowed for houses, mortgages and cars. Their personal debt also is running at approximately 100% of GNP. If one combines the ratcheting up our borrowing and the fact that our GNP is falling every year, which means we will reach that 100% figure faster, and if taxes are not increased or if Government spending is not controlled, the Government deficit also will accelerate and we could be borrowing €23 billion this year, €25 billion next year and an unknown quantity thereafter. The problem with this financial crisis is that we do not know. While I do not believe that anyone claims to be an expert and it is difficult to know what the final outcomes will be, the more information that can be made available to the public and exchanged between Members, the more realistic we can become regarding our position at the end of this year and the year after and the better we can face up to what has happened to our economy.

At the outset of the Celtic tiger and possibly during the first five years of the Fianna Fáil-Progressive Democrats Government, growth was focused on exports. At some point during the lifetime of that Government, it switched to being driven by consumption within the internal market, which led to accelerated borrowing on everyone’s part. Although the Government received enormous tax takes, what did it do with them? Government spending on public services accelerated at twice the rate of the growth level within the rest of the economy. Public spending had gone out of control, while at the same time people were borrowing all around them.

[191]We are faced essentially with an economic crash in Ireland and I do not believe the figures as to what must be done to restore competitiveness in our economy have sunk home. Ministers appear on “Morning Ireland” or “Prime Time” and talk about restoring competitiveness in our economy, as well as preserving or creating jobs. By the same token, however, this applies across the economies on this island. Members should forget about Eastern Europe, as I have repeatedly pointed out the difference in pay between hospital consultants north and south of the Border. This also applies to nursing staff and senior administration staff within the HSE, as an unbelievable difference exists between the pay of staff who provide health services on either side of the Border. We are an indigenous group of people north and south of the Border, more or less. However, the cost of providing such services is huge.

If, for instance, one considers the minimum wage and the cost of labour within the hospitality industry, there are matters one must discuss. While I do not know what we will do, we must talk about such issues. I spoke to a hotelier who told me that costs for labour in the hospitality industry in the Republic are approximately 30% higher than in Northern Ireland. The impact is that people from the United Kingdom and Ireland will begin to take their holiday and weekend breaks in Northern Ireland. People will no longer go north of the Border simply for their shopping. We are not facing up to such enormous contradictions between the two economies that share this island and I have not discerned suggestions from the Government as to how we may resolve this problem. Although the economy went mad for a couple of years, it is not a bad economy and actually is quite solid. However, if we are to correct the underlying problems, they must be dealt with quickly and we must be reasonable in respect of how we do so. We must stay away from the piecemeal measures we have seen thus far.

This financial crisis also constitutes an enormous political crisis, although this issue has not quite entered the heads of the Government. The Minister of State has stated that everyone is suffering in this regard and that the more income one makes, the more one pays. Nevertheless, there are a few minor measures that would make little or no difference to the actual outcome, but which would make the entire picture look different. Can Members imagine how the public or international investors would have felt if two or three senior executives at Anglo Irish Bank had been led out of their headquarters in handcuffs on the morning of the Garda raid? When this happened at Enron in the United States, where people were marched out by federal officers in handcuffs facing charges of white-collar crime, it had a dramatic effect. Although it made no difference to the outcome, it made a great difference to people’s perceptions that something was being done in their name.

The Bill proposes taking what to the Minister of State are small amounts of money from people on low incomes. However, no consideration has been given to the case of retired civil servants who, having retired from the Civil Service, are appointed to new jobs within the public and Civil Service and are paid a wage for their new job, while collecting their pension for their previous jobs. Ministers also do this and ministerial pensions are generous, to say the least. Even our ex-Taoiseach is engaged in this practice. He has a substantial pension and still draws a Deputy’s salary as a public servant. While I accept this is only a minor matter, such measures also should have been included in this legislation. The Government should consider these matters because this simply constitutes another form of double payment that people are making to themselves and it should be taken into account. While the Minister of State might say that the amounts involved would be very small and would not be worth the Government’s while, it would make a difference to perceptions regarding our common suffering in this respect.

The actions taken by the Government are striking people’s pay packets without effectively addressing the problems they are apparently designed to tackle. For example, I have called on several occasions for the Minister for Health and Children, Deputy Harney, to come to the House and tell us whether she agrees that there are too many administrators in the Health [192]Service Executive. Since her announcement that she intends to reduce staffing in the health service by 1,000, we have had the director of finance at the Health Service Executive and various Ministers speaking about this initiative on the radio. All that is happening, however, is that beds are being closed in hospitals throughout the State, home help services are being scaled back and people are being told they will no longer be able to access physiotherapists and other health care professionals because the funding is not available. The cutbacks taking place in the health service are quite savage. For example, Wexford General Hospital has lost 10% of its beds. In the meantime, however, not one administrator, let alone 1,000, has been removed. This is the type of injustice that will turn the public completely against the Government. There is little evidence that its actions are carefully considered. The changes being made are relatively easy to implement but they will have little positive impact in the long term. The same applies in the case of many of the cutbacks in education. Again, the relatively easy options are being taken but these actions target the wrong people.

I am disappointed that my time is almost up as I hoped to obtain answers from the Minister of State to the questions which were put to him in the other House. How does the Government propose to stabilise the public finances? Will we have a broad debate in both Houses on how this will be achieved? What does the Government intend to do about the failure of the repeatedly promised reform agenda throughout the public service? What does it propose to do in the area of jobs protection? There is much talk but few concrete proposals as to how employment will be protected in the mainstream economy as distinct from the Civil Service and public service. The debate on job losses tends to degenerate into a question of private sector versus public sector. I am not in favour of that type of dichotomy. However, there are large numbers of jobs in the mainstream economy which also require protection. The Government has offered promises in this regard but no policy details.

Senator John Hanafin: Information on John Gerard Hanafin  Zoom on John Gerard Hanafin  This Bill does exactly what it says on the tin. It is interesting to hear Opposition Members set out all the actions the Government must take to restore our economy, yet they will not support the effort which is clearly in this Bill to do exactly that. This is despite the inclusion in the Title of the Bill of the words “emergency” and “public interest”, which is an accurate reflection of the nature and objectives of the legislation.

I begin by acknowledging the excellent work performed by the public service through the decades. Since the foundation of the State, it has been true to its founding principles. The State would not be in the position it is today were it not for the good work of the public service through the difficulties of the Depression years, the Emergency years and through the 1950s. It was Dr. Whitaker and Seán Lemass, working together, who started us on the road to economic recovery in the 1960s. In recognising the value of the public service, I merely offer what is due. Public service workers are a fine group and I am proud to be an elected member of that group. I strive always to do my best in that role, just as I see others in the public service performing their duties in a highly professional manner.

There has always been a benchmark between the public service and the wider economy. It was never intended that any member of the public service should be significantly better or worse off than a comparable employee in the private sector. The objective was always that there be equivalence. That equivalence must now be judged in the light of our current economic difficulties. None of us takes pleasure in these measures and we all wish we were in a different position. However, we are where we are. Current challenges arise not because of the actions of the Government but as a consequence of international events. It was clearly stated by the Government that a downturn in the construction industry was expected. This was factored into its considerations. There was talk for many months of a soft landing and how we should prepare [193]for that. That soft landing would have happened had events not overtaken us. Developments in the international economy have put us in a position far worse than any of us could possibly have anticipated.

The Government is taking the measures outlined in this Bill in order to redress an immediate imbalance in the public finances. It is not possible for any state to borrow on a continuing basis as much as we will need to borrow on a day-to-day basis this year. Therefore, we have taken immediate action to ensure that, over time, we will once again be in a fiscally sound position. This legislation represents the beginning of that process. As such, I welcome its introduction. This Bill results from not a knee-jerk reaction but rather a proper assessment of the situation which involved, as much as possible, an effort to bring the social partners with us and to ensure all parties were on board.

The reality is that 1,000 jobs are being lost every day. We must match that reality with appropriate supportive actions. There can be no question of waiting until everything is perfect before we accept what must be done. There is little point in focusing exclusively on what has happened in the banking system. Nobody can deny that serious, probably criminal, abuses have taken place. However, that does not mean we can wait until the world is perfect before implementing measures that require to be implemented immediately. There is a tendency for people to say that while they accept there must be changes in taxation, reduced spending and increased levies, those changes must not affect them personally.

Unfortunately, we are not in a position to look at it that way. Everybody must share the pain but this is being done in a progressive way. A person on the average industrial wage pays very little income tax. While workers here are liable for no tax on the first €18,000 of their earnings, their counterparts in the United Kingdom pay tax on all income above €6,800. In the case of a worker on the average industrial wage, who will pay social insurance and some tax, the net tax wedge after the transfer of other funding from the State is a negative position. In other words, such a person, in either the public or private service, is receiving more money from the Exchequer through State supports than he or she must hand over in tax and social insurance.

Earlier today, the President of the European Central Bank, Mr. Jean-Claude Trichet, pronounced his belief that Ireland has the strength to ride out the economic downturn and that we are well placed to benefit from the eventual recovery in the global economy. Unfortunately, there has been much negative comment on our economy, particularly from commentators who look to the City of London as their model. It is surprising they should do so given that this is where we can find the people who are partially responsible for current difficulties. The pride of the Lehman Brothers, the call of the masters of the universe, have been shown to be false. These people thought they knew everything but their world has collapsed around them. That was inevitable. It is disingenuous for such people to talk down the Irish economy. They are utterly incorrect in their pronouncements.

In response to suggestions that Ireland may default on its debt, Mr. Trichet said he would “not comment on absurd assumptions”. He asserted full confidence in the Government to make the appropriate policy choices to convince everyone that there will be “a sustainable handling of the fiscal policy”. He went on to say he trusted the Government and the Minister for Finance to operate the appropriate fiscal policy to prove we are acting prudently. The President of the European Central Bank thinks we are on the correct path and we are. I hope we are not talking only about cuts because we are aware that we must re-engage with the social partners as soon as possible. Social partnership has been hugely beneficial in bringing Ireland to where it is and we will need social partnership again because we are certainly not getting support from the Opposition.

[194]Senator Paul Coghlan: Information on Paul Coghlan  Zoom on Paul Coghlan  That is slightly unfair.

Senator John Hanafin: Information on John Gerard Hanafin  Zoom on John Gerard Hanafin  Totally accurate.

Senator Paul Coghlan: Information on Paul Coghlan  Zoom on Paul Coghlan  Senator Hanafin does not know what is happening today, with respect.

Senator John Hanafin: Information on John Gerard Hanafin  Zoom on John Gerard Hanafin  Social partnership has proved to be hugely beneficial and, if we need to make adjustments, it is incumbent on us to ensure that when this passes over us we remember those who made the cuts, the savings and the sacrifices. Some 120,000 people marched and they genuinely felt that something needed to be done. We must take action, it is very easy to make a decision when one has no choice.

This Government has started on a programme of economic recovery. It reduced Government expenditure in July 2008 because it saw tax revenue falling sharply. The budget brought forward measures to stabilise the public finances. The Government introduced a system whereby bank deposits were guaranteed. We published a plan for a medium-term recovery, Building Ireland’s Smart Economy. It was the right thing to do to invest at a time when it is more difficult but necessary. We did this in the 1960s when we invested in education and it paid off to a great extent. We nationalised Anglo Irish Bank because it was systemic to the Irish economy and not, as was stated by the Labour spokesperson on finance, because the bank was a friend of Fianna Fáil. Words take flight and they have meaning. With the international markets as nervous as they are now, it did this country no service to suggest the Government would nationalise the bank because its friends were involved. This put us at some point lower than a banana republic. We continue to engage with the social partners and I hope that process re-opens.

The measures taken now and those that will be taken will be seen as the steps that took us closer to recovery. The current Swedish Prime Minister, who was finance minister in the 1990s when Sweden had a banking crisis, told the country that it needed to cut pay by 4% and increase taxation by 4%. Within three years Sweden had started on the road to recovery. In good times people forget the bad and in bad times people forget the good. We are less than one year into this recession and it feels like ten years already.

We are starting from a base from which we can work well. One part of this is our tax base, which is solid but, over time, we will need to spread the tax base. Some 38% of workers are entirely exempt from income tax. The top 20% pay 77% of all income tax. It is not iniquitous to have a progressive tax system, it is just. Some 2.5% of the top income payers pay one third of all income tax. The top 6.5% pay half of all income tax and the top 12.5% pay two thirds. This proves that we are committed to fairness and equity. We have also made suggestions on reductions of 8% in fees. This is only right when the economy is slowing down and I am sure it will be taken on board. There is a ready acceptance that something needs to be done and we are doing it. There is also a reduction of €100 on the €1,100 social welfare payment to parents of children up to the age of six years. This is correct and when there is deflation in the economy social welfare payments have had a significant increase this year, beyond the 3% increase and including the extra 2% of deflation.

The actions we are taking are the first steps on the road to recovery and I call on the Opposition to play its part in supporting them. It is ironic when we think back to the 1980s. Despite the fact that a Government fell in 1981 on taxing children’s shoes, when Fine Gael went back into government in 1982 there was public acceptance of the need for fiscal prudence. It was one of Fine Gael’s best results. I accept that people find it hard to accept the initial pain. In the full and certain knowledge that this Government is totally committed to fairness and equity and to the idea that all should share the burden equally, an idea to which the Taoiseach is committed, we will benefit and the Opposition would benefit if it took on board the reality that the public is sensible enough to know, namely that we are doing our best for [195]the economy. The Opposition should come on board and support the Government in what is a national emergency to ensure we put our finances on a sound footing. We are losing 1,000 jobs per day and we must get back. If the President of the ECB said we were on the right path, who am I to say we are not? I am certain that we are.

Senator David Norris: Information on David P.B. Norris  Zoom on David P.B. Norris  I propose to share time with the Senator Quinn. I welcome the Minister of State but with lukewarm enthusiasm. I listened with interest to Senator Ross, who has led this debate in this House and on the back page of his newspaper, this morning when he said it would be an indication of the Government’s seriousness if the Minister for Finance, Deputy Lenihan, came to the House. He did not intend disrespect to the Minister of State. He appealed to the Minister for Finance to do so and hoped the Minister of State would not take the debate because that would be an indication the Government was rushing this legislation through. There are other indications, both in the structure of the speech and in its delivery, that suggest this is the case.

I have just come from Trinity College, where I was speaking on a motion about the attitude of the Roman Catholic church to sexuality. In one curious way this seems to fit into that debate. If one makes an acronym of the Bill, the Financial Emergency Measures in the Public Interest Bill, it becomes FEMITPIB, which almost sounds like the female condom. One could see this as the tax or revenue equivalent of such an instrument because its workings are completely uncertain. There are various views on whether it is an income levy or a tax; it seems to straddle both. One of the problems is that it is very unfair. People would accept legislation if it was fair but this patently is not and the language of the Minister of State makes it clear it is a matter of indifference to the Government whether it is fair.

  9 o’clock

Money is being extracted from people who simply cannot afford to pay it. There is plenty of anecdotal evidence. I am prepared to pay and many people who can afford it are prepared to pay. A woman who was recently separated, left with three children, is a civil servant and approached MABS for advice. She is living on that advice and does not have enough money to go to the cinema once a month or to buy a packet of cigarettes once a week. What is she to do? She will have to borrow the money and she is in a trap. That is madness, in my humble opinion. All Members have received e-mails. I received one from a man who says he will emigrate, such is the impact on him. He would be prepared to pay an increase in taxation. Why do we not have that? He suggests there will be unrest if tax is imposed on top of a levy. That is one of the problems, it is a piecemeal approach. The Government was not sure about the most basic elements. Two Cabinet Ministers contradicted each other as to whether this applied to gross or net income. At least the Minister of State has spelled out that it applies to gross income. At least we have that degree of certainty but it is not much to rely on in this kind of crisis. The Minister of State indicated the kind of crisis in the language used, which is quite apocalyptic. He refers to exceptional circumstances. There is certainly an awareness of that critical situation.

One of my correspondents has stated that a tax increase would be preferred. There is a suggestion of a 4% increase in 2009, which would yield €1.48 billion, 3% in 2010 yielding €1.01 billion and 4% in 2011 yielding €1.53 billion. That would produce the €4 billion from the PAYE system. There is a suggestion for a draconian 95% on anybody getting over €400,000. That is what happened in Britain in the 1970s and we may have to squeeze the fat cats.

The Minister of State’s speech was fatally dull and the figures were anaesthetising when they were separated from the apocalyptic language. His speech referred to an exponential increase in the budget deficit. If it is a budgetary problem, let us have a budget. We need a comprehensive approach to the matter.

[196]Senator Paul Coghlan: Information on Paul Coghlan  Zoom on Paul Coghlan  Hear, hear.

Senator David Norris: Information on David P.B. Norris  Zoom on David P.B. Norris  The Minister of State spoke about using figures from the Department of Finance, but when did the Department of Finance last get any figures right? I cannot remember, as the Department seems to be permanently wrong. Where were those people for the past seven years?

Senator Paul Coghlan: Information on Paul Coghlan  Zoom on Paul Coghlan  They were playing catch-up.

Senator David Norris: Information on David P.B. Norris  Zoom on David P.B. Norris  As we are firing people from the banks, how about firing a few people from the Department of Finance? There is also the matter of the social partners. It is obscene that people are taking 3% or 6% pay increases and saying they got them under the agreement. Nobody should be taking an increase of any kind, private or public. That should be made clear before we start taking anything from people. We can do that afterwards. I do not know how anybody would have the brass neck, in these circumstances, to take any pay increase. Although they are legally entitled to it, they are not morally entitled to it.

The Minister of State indicated:

These are all percentages and there is no understanding of the impact on somebody living on the barest margins of a 1% increase. Issues are being compared mathematically, arithmetically and in a Dickensian way that shows no comprehension of the human reality underneath. I find that distressing.

Considering the language in the speech, we have the same phrase time and again along the lines, “It has been said that someone earning €30,000 will pay a higher percentage of their salary than somebody earning €45,000.” It is as if by stating, “It has been said” the Government is excused from a proper explanation. The explanation we get is that it must be understood that this is due to the operation of tax relief. Big bloody deal, as it still pinches the people. Stating the mechanism by which it is done does not prove that it is fair, just, appropriate or acceptable from the people’s perspective. I do not believe for one minute that it will be accepted.

I made a very restrained intervention when the Minister of State stated:

That does not mean anything. It is completely absurd and total nonsense. Although he probably did not hear me, I asked the Minister of State if we could have a verb. I am rather partial to verbs and an occasional verb here and there does tend to help make sense of a sentence.

Deputy Martin Mansergh: Information on Dr Martin Mansergh  Zoom on Dr Martin Mansergh  I inserted the verb at the end.

An Leas-Chathaoirleach: Information on Paddy Burke  Zoom on Paddy Burke  The Senator, without interruption.

[197]Deputy Martin Mansergh: Information on Dr Martin Mansergh  Zoom on Dr Martin Mansergh  There is occasionally a misprint in a speech.

An Leas-Chathaoirleach: Information on Paddy Burke  Zoom on Paddy Burke  Senator Norris, without interruption.

Deputy Martin Mansergh: Information on Dr Martin Mansergh  Zoom on Dr Martin Mansergh  I believe I am allowed a point of order.

An Leas-Chathaoirleach: Information on Paddy Burke  Zoom on Paddy Burke  I do not believe that is a point of order.

Senator David Norris: Information on David P.B. Norris  Zoom on David P.B. Norris  I like to hear the Minister of State speaking but I do not believe he actually put in a verb. He put one in later but not at that point.

Deputy Martin Mansergh: Information on Dr Martin Mansergh  Zoom on Dr Martin Mansergh  It was not in the script and so I placed one in the sentence.

Senator Eoghan Harris: Information on Eoghan Harris  Zoom on Eoghan Harris  What page is the Senator on?

An Leas-Chathaoirleach: Information on Paddy Burke  Zoom on Paddy Burke  Senator Norris, without interruption.

Senator Fiona O’Malley: Information on Fiona O'Malley  Zoom on Fiona O'Malley  The Senator thinks he is giving a lecture in college.

Senator David Norris: Information on David P.B. Norris  Zoom on David P.B. Norris  The Minister of State is a formidable opponent.

An Leas-Chathaoirleach: Information on Paddy Burke  Zoom on Paddy Burke  I understand the Senator is sharing his time. He has 30 seconds left.

Senator David Norris: Information on David P.B. Norris  Zoom on David P.B. Norris  I will take another minute if Senator Quinn agrees.

Senator Eoghan Harris: Information on Eoghan Harris  Zoom on Eoghan Harris  What page is the Senator on?

An Leas-Chathaoirleach: Information on Paddy Burke  Zoom on Paddy Burke  I do not know.

Senator David Norris: Information on David P.B. Norris  Zoom on David P.B. Norris  I am referring to page ten of the Minister of State’s script, in which he deals with section 1. He spoke about the definitions of public service bodies as “the Civil Service, the Garda Síochána, the Permanent Defence Force, local authorities, the Health Service Executive, the Central Bank”. In this regard I draw the Minister of State’s attention to a case from the Supreme Court, the Central Bank of Ireland v. Martin Leo Gildea from 14 March 1997. In the judgment, the Supreme Court found as follows concerning the status of the defendant:

He is not a member of the staff of any of the organs of State created by the Constitution and accorded a role in the constitutional order separate and distinct from the three organs of Government, Legislative, Executive and Judicial, such as the Attorney General. He is not a civil servant in any of the Departments responsible to the individual Ministers who constitute the Government and hence is not a “civil servant of the Government” and thus a person “employed [...] under the State.” He is employed by a body which has been created by statute, the powers of which, however essential they may be to the functioning of the State, can be removed from them at any stage by the Oireachtas. He is thus in no different position from those employed in a vast range of what have come to be called “semi-State bodies”, the employees of which may, by specific legislative provision, be deemed to be civil servants but who, in the absence of any such provision, are not to be so regarded.

It seems from this that the Central Bank and Financial Services Authority of Ireland should not be mentioned in the body but put in the Schedule, where one finds all the other semi-State bodies to which the court refers. It seems this mis-classification is a result of a desire to fine the employees of the Central Bank. I have put down an amendment to remedy this difficulty. I look forward to hearing what the Minister of State has to say about this and many other matters.

[198]The Minister of State should address a real financial issue, the fact that rents in central Dublin are skyrocketing under the reviews. We have an absurd position in that rents can only be reviewed upwards. People like Pia Bang are going bust and getting out. The city is full of shuttered shops and we must consider the issue.

Senator Feargal Quinn: Information on Fergal Quinn  Zoom on Fergal Quinn  I thank Senator Norris for allowing me to share time with him. I met a widow at Christmas whose husband died some years ago. She received practically no pension this Christmas. Those with guaranteed pensions and those who are State employees have something very valuable. I have just used the word “guaranteed” but such pensions and jobs are not guaranteed because if this country goes bankrupt, even pension and dole cheques could bounce. The public does not realise the very serious position we are in.

Senator Hanafin spoke of Mr. Trichet, whose speech I attended today. He spoke with great confidence about Ireland but we do not realise the serious nature of our position. We must tackle our serious budget deficit. The Government has indicated there must be cuts in expenditure, leading to measures like this. We will have a pension levy now and there will be an increase in taxation next year.

I appreciate the Minister of State’s indication that this Bill has been brought forward in light of the unprecedented economic challenges now facing the country. He also indicated that painful decisions must be implemented as a matter of urgency. We are taking one bite now, which is hoped to save us approximately €2 billion, and we will wait until later this year or next year for the Commission on Taxation to tell us when the next steps will be taken. If this is a serious matter, I do not understand why we are not taking the necessary steps now. The country was ready for this last October and last month.

In business, if there are tough decisions to be made and a crisis is to be faced, one can go to the employees, open the books and indicate how serious the problems are and how tough medicine must be taken. I have found that generally that medicine will be accepted, as long as it seems fair and even-handed. That is not understood by the Government.

Our economic position is worsening and we need massive budget cuts. The Government is going about these spending cuts in the wrong way. Taking small bites — such as the pension levy on public sector workers — is not the best strategy on its own. The Government has indicated the wealthy will have to take a hit further down the line when the Commission on Taxation reports later in the year but they are not being seen to be hit now. Therein lies the problem. Those in the public sector believe they are being unfairly targeted and consider there is an imbalance in that not everybody is being hit. If everybody was seen to bear an equal part of the burden, people would be much more supportive. The PAYE tax marches of the 1980s were based on the idea that PAYE workers were bearing more than their fair share of correction in the public finances. People were scared about the future in 1987 and they were willing to take cuts if they believed they were fair. That situation has not changed. People still want a fair deal.

Our deficit is more than €20 billion. The Government proposes to save €2 billion this year, €4 billion the year after and so forth. It would have been much fairer to start with a reduced deficit now of, say, €5 billion when people were willing to accept it. It would have been seen to be fair and everybody would be playing a role in addressing it. Amazingly, the Tánaiste said yesterday the public finances are “under control” and ruled out further spending cuts or changes to the tax regime until next year’s budget. She said, “spending cuts of €2 billion this year have been found and the Government is working on a plan to reduce spending by €4 billion next year”. Where is the urgency in that? Is she the only person in Ireland or the world who believes this? The only possible explanation I can think of for this sort of talk is that it is [199]for international consumption. We need action now, sooner rather than later, rather than this sort of attitude. The Government needs to spell out to all of us how bad our situation is.

I heard Mr. Trichet speak today and I believe he was being too optimistic because we can see what is happening elsewhere. Peter Sutherland pointed out in an article in The Irish Times the day before yesterday that there is an unexpected inequality when it comes to the present tax system and that less than 10% of taxpayers contribute half of all income taxes. In regard to most if not all of those earning above €70,000 a year, we will need to adopt a new realism because the required tax rises and the scale of them will be much greater than heretofore. Cuts such as the pension levy will not be enough.

I read a European Commission document published last week which estimates the pension levy will save only 0.5% of GDP on an annualised basis. That is a long way from the Government’s objective and prediction of a saving of 1.4% of GDP. The Government argues our percentage of national debt is not as bad as it was for instance in the 1980s and that is correct. That is such a complacent attitude to take that it is plainly not the issue. Our real debt is the issue. The situation is very serious but that message is not being conveyed to the public. People can only get a view of the real situation by reading more.

A recent article in the Financial Times states that “Last week speculators bet on an Irish default, and these bets made it more expensive for Ireland to refinance its debt, thus threatening to turn into a self-fulfilling prophecy”. The comment by the financial historian Niall
Ferguson was different. He said:

I cite these comments because there is a belief that because we are in the eurozone we are safe and that everything is all right. We cannot rely on the euro being able to hold the countries in the eurozone together, if we are the ones who are defaulting.

Senator Eoghan Harris: Information on Eoghan Harris  Zoom on Eoghan Harris  Hear, hear.

Senator Feargal Quinn: Information on Fergal Quinn  Zoom on Fergal Quinn  There is a real danger now that we will become bankrupt as a nation. I hate saying that and I am not crying wolf. What if a person goes to cash his or her social welfare cheque next year and it bounces? What happens if one’s dole payment bounces? What happens if a person goes to pay for his or her groceries by cheque but the grocer says he cannot accept it because the cheque the customer gave him last week bounced? I hate threatening these things but there is a danger that countries can go bankrupt. We need to solve this crisis and to do so fairly quickly. The citizens of Ireland will take the tough medicine now, but the Government should not ask them to take minor medicine now, heavier medicine next year and heavier medicine the year after. If we take the tough medicine now and get it over with, I believe we can get the economy back on track.

Senator David Norris: Information on David P.B. Norris  Zoom on David P.B. Norris  Hear, hear.

Senator Feargal Quinn: Information on Fergal Quinn  Zoom on Fergal Quinn  How can the Government hope to get any support for its measures if people do not know how bad the situation is, if they are told that the public finances are, as was said by the Tánaiste yesterday, “under control” and they see taxes allocated in an unfair manner? The Government needs to show leadership and implement fair steps now across the public and private sector. These have to be harsher otherwise we will not have a functioning economy very soon.

[200]I suggest the Bill does not go far enough. I listened to Mr. Trichet speak today and of course I accept that we can succeed. I do not want to sound negative. I am optimistic and I think I am realistic. I believe we can succeed, but we have to spell out the scale of problem. If a doctor tells a person he or she will become very ill or die if he or she does not take some nasty medicine, he or she would take the medicine rather than become very ill or die. The Government has to tell us that the economy is in a very difficult situation, that it is very ill, so to speak, but that the medicine we could take will make it better, that it will be difficult to take but if we take it now, we will find the economy will be in a healthy state next year. I encourage the Minister of State to take those steps.

Senator Ivor Callely: Information on Ivor Callely  Zoom on Ivor Callely  I wish to share some of my time with Senator Harris.

An Leas-Chathaoirleach: Information on Paddy Burke  Zoom on Paddy Burke  That is agreed.

Senator Ivor Callely: Information on Ivor Callely  Zoom on Ivor Callely  The measures contained in the Bill are exceptional and we should acknowledge that the road we are travelling without the support of the social partners is not of our choice alone. The economic and financial difficulties facing the Government are different in nature from anything we have ever experienced previously and that is the reason exceptional measures are necessary. The measures are designed to bring order and help balance our public finances. It reflects the determination of this side of the House to implement Government decisions, albeit painful ones, but failure to act decisively would be negligence on our part. We must take a responsible and sensible view of the grim reality that prevails. By and large there is agreement on the need to take exceptional action by those who understand the difficulties that confront us. The Taoiseach, Tánaiste, Minister for Finance and Government colleagues have consulted widely, there has been careful assessment of the extent of our problems and recognition of the exceptional effort it will take to improve the situation.

It is difficult for the ordinary man or woman, young or old, to understand the seriousness of the situation. Unless there is an understanding and an appreciation of the facts, the general public will continue to express their dismay, which will fuel further anxiety and alarm. I ask the Minister of State to put into the public domain a clear and succinct picture of the scale of the problem and the recovery plan. An important part of the plan is the recovery period. Like the previous speaker and others, I believe the recovery period should be short and sharp.

In layman’s language, this year the Government’s outgoings will be approximately €55 billion, our income is expected to be approximately €37 billion, leaving a shortfall of approximately €18 billion. The question is from where can we get the €18 billion required. Like most people who find their outgoings exceed their income, they check how they can rebalance outgoings with income. We can foolishly and solely travel the road to increase our income and let our outgoings continue regardless. I will quickly explore increasing our income side. Do we do more business with our trading partners or do we generate billions of euro in additional taxes? The sad reality is that those countries with which we trade are all going through an exceptionally turbulent period and at this time there is no extra business to generate the level of extra income required. Our tax take is decreasing. Unemployment and social welfare demands are increasing at a time when our financial institutions need billions of euro of taxpayers’ money to keep our banking sector operational. The reality check of our current situation is that the economy is simply not providing us with the resources required to meet the demands the community as whole are placing on it to the extent of an €18 billion shortfall this year alone, which will have to be borrowed.

There must be an appreciation of this fact and an acceptance by all to resolve our difficulties with widespread public consensus. As a first step, this Bill calls on a number of sectors to help [201]resolve our difficulties with one of the primary areas being public service pay and pensions. Given the relative size of the Government’s €55 billion outgoings and its shortfall in income of €18 billion, this is the right first step. I believe the public will sign up to an acceptance to resolve our difficulties in a fair, open and transparent fashion, once the new coping classes of the lower and middle income earners are not being burdened much more than the higher income groups. A mechanism should be put in place so that everyone feels part of the plan and shares some level of the pain. There is an acceptance by the majority of people to participate. The Minister of State, in referring to the pensions, said: “The deduction is progressive, as people on higher incomes will continue to pay proportionately more than those on lower incomes.” It is very important to get this message out as my concern is the escalation of social and industrial unrest. With social and industrial unrest there is no gain, only pain.

We are at a point in our history where our ability to come together in difficult times has never been more important. The answers to our difficulties are not beyond our reach. We should not underestimate our challenge or overstate our difficulties, but face them together with unity of purpose, firmness of resolve and a belief in our ability to overcome difficulties, succeed and remain positive.

In the recent past, Ireland has proved it is capable of enormous success on the world stage. We have achieved success beyond measure and beyond the expected capacity of a nation of our size. The sober, cold and stark reality is that the global recession has weakened our position, public confidence is shaken and the level of uncertainty is frightening. It is our responsibility and duty as Members of this House to confront this challenge boldly, restore hope and confidence, take charge of our future and make the difficult choices to restore our economy.

Now is the time for a universal commitment by all the people to help each other so that we can pull ourselves out of the current difficulties. We all have a stake in each other’s commitment and success because the more each individual succeeds, the more Ireland succeeds. Together we can and will resolve our current difficulties. It requires change and sacrifice by all. We have never been afraid to adapt to changing circumstances. We owe it to ourselves and to future generations to rebuild and recover. In our recovery we will emerge a stronger, more progressive and more prosperous nation.

Senator Eoghan Harris: Information on Eoghan Harris  Zoom on Eoghan Harris  I thank Senator Callely and wish to develop one of his most important points which is the need to draw people in. I will not discuss gloom and doom tonight. The Minister of State, like the entire Cabinet, is showing the signs of the long days and nights. I do not know from where they get their stamina; they certainly earn their few bob.

I appeal to the Minister of State, because he will understand, that the recovery programme or fightback be tailored to the national psyche. We are not Swedes or Germans or people who like the long haul. The genius of Irish people is in improvisation. One will see in any town or village in Ireland that people hate being told that Monday five months from now, they are going to lift the boat from the harbour or do something else. I have seen people in west Cork do that in one night in a hurry with pontoons because they want to get on with it. We are bored by plans such as giving up smoking in March 2015. That is not us.

The two letters “FF” should stand for “Fast, fast”. Everything should be faster. What we particularly need to do is draw people in to a national programme of recovery that suits the Irish psyche. Our people should be drawn in by small measures. The young generation could be drawn in by putting a penny on every text. The banks should be required to supply free textbooks to schools for the next ten years to pay back some money. We should do imaginative things such as leaving the unfinished Anglo Irish Bank headquarters on the Liffey unfinished as a monument to everything that went wrong. We should forget about school uniforms for a [202]while and they should not be mandatory so as to lift that burden from people. We should ask retired teachers to come back and act as special needs teachers.

There are many things we can do. There should be a designated Minister to do imaginative things to draw people in as they were drawn in during the Emergency. This may not sound fashionable but the people of Ireland actually enjoyed the Emergency. There is an upside to the current situation. The recession is a grim reaper and is exposing a lot of the fat-cattery, so to speak, that went on in this country. A lot of reform is going on and a lot of good stuff is happening.

We should draw in young, middle aged and older people. Why not ask old age pensioners if they want to pay a voluntary fare of €1 on public transport provided it is linked to a job? I know many elderly people and old age pensioners who would be happy to give a euro if they thought it would create a job in the private sector. We should start linking these levies. I think there should be many more of them and the Government did not cut deep enough.

Above all, it is very wrong that the Government intends to draw this pain out. It is bad and I appeal to the Minister of State to talk to his colleagues about it. The pain should not be extended over four or five years. Irish people get bored and annoyed by these long timescales. Let us have the misery over with now, and fast. The hard stuff should be done over the next two years. Let us really live with tight belts buckled tight now. Let us not drag it out. We should have more levies and an increase in taxation.

I heard Cathal MacCoille on RTE the other morning and he was effectively appealing to the Tánaiste to get on with the job, stop drifting and dig in deep. He is speaking for many of us. Many people would rather get it over with now than drag it out. We are not Germans. We do not want 30-year plans.

Senator David Norris: Information on David P.B. Norris  Zoom on David P.B. Norris  Bravo.

Senator Michael McCarthy: Information on Michael McCarthy  Zoom on Michael McCarthy  I welcome the Minister of State. People throughout the country are sitting around kitchen tables discussing the downturn in our economic fortunes. Many of them have lost their jobs and those of them who were not unlucky enough to lose their jobs are earning much less. They are still paying the same bills, struggling to pay mortgages, send children to school and trying to make ends meet. There is a whole generation of people who have never had to countenance such a situation

There are people who never had to seriously consider emigration. There are people who do not realise what the tax rates were. I went to school back in the 1980s when income tax was at 60%, interest rates were 22% and thousands of people were leaving our shores every week to seek better pay and conditions in other countries. The country was in an economic mess.

For the first time ever, we are now in a situation that I believe is, quite frankly, much worse than obtained in the 1980s. If one considers what people have had since and the level of personal debt, there are major pressures on people nowadays. It is probably the most serious financial and economic crisis this country has ever witnessed. There are many aspects of this Bill that merit vigorous and long debate. It would be impossible in the short timeframe we have in this debate to make a lot of points so I will only make a few.

The pension levy should be called what it actually is, which is a tax and a pay cut. That is precisely what it is. I made this point on the Order of Business. The Government is legally prohibited from introducing a tax without introducing a budget. Therefore, it introduced a pay cut or tax and called it a pension levy. What this debate requires to begin with is a level of honesty. Let us be honest with people. This is a tax and not a pension levy. It is a pay cut for thousands of public sector workers.

[203]We need not forget these are the very same people who were subjected to an income levy in the budget last October. It is the second blow many of these workers have been dealt. It is very regrettable that public sector workers have been singled out and targeted by this Government. The income levy itself made a mockery of the social partnership process and the talks. It was introduced at the eleventh hour. There was no consultation. In fact, some social partners were outside Government buildings late that morning and did not even get the courtesy of a visit from a Minister.

It was put on the table and in all reason and reality could not possibly have been dealt with by any degree of debate. It did not merit any level of attention because it was introduced so late. The situation was to take it or leave it. It was Hobson’s choice. There is a complete absence of fairness or balance in the pension levy and pay cut. There is a wide body of belief that we are in deep economic trouble and a major effort is required by all to get us out of this mess. A fair and balanced effort is required, but unfortunately this Bill is not it.

Why are the people who have caused the turmoil not affected by this taxation? Why are they getting off scot free? Why are they not included in the remit of this legislation? A common mantra among many Ministers is that we are all in this together. If we are all in this together, where are the bank executives, the board executives, the property developers and the people who got us into this mess in the first place? If we are all in this together, why is the chief executive officer of Bank of Ireland earning just under €2 million per annum and why does he not pay a levy? Why does he not pay a tax, albeit he is on a much lamented reduction from €3 million to €2 million? Why is a public sector worker earning one eighth of what the CEO of Bank of Ireland earns paying €1,000 in pension levy, which is actually a pay cut? If we are all in this together, why is the Government not touching the 6,500 self-administered pension schemes which attract huge tax relief? A national consensus could be reached and if we are to get out of this mess, it must be reached. However, I would not hold out much prospect for economic recovery if there is not a genuine attempt to bring everybody on board.

The week prior to this announcement, the Taoiseach said, albeit in the heat of the moment in the Lower House, that it was his way or the highway. In many ways, that describes how this whole issue was approached. The 11th hour Hobson’s choice has aggravated people and has made them justifiably angry.

There were a number of high profile comments from people in IBEC. As Senator Norris rightly pointed out on the Order of Business last week, on Monday of last week a stockbroker from Davys had the temerity and the cheek to suggest that because there was negative inflation and prices had come down, we should reduce social welfare. That is from a stockbroker who will never have to countenance living on just over €200 per week. He had the cheek to start to dictate to those on social welfare. IBEC’s solution was almost as ridiculous, that is, put more people on the dole and that will get us out of this mess.

The much lauded speech the Taoiseach made to the Dublin Chamber of Commerce this night three weeks ago, which was partially broadcast on “Morning Ireland” the following day, was a rousing one and received many plaudits from commentators. Why did the Taoiseach not display the same level of enthusiasm and command of his belief in either the Dáil or the Seanad? The Dublin Chamber of Commerce is not an appropriate forum to start to explain our way out of the current difficult situation.

Why have tax cuts over the past ten or 12 years favoured the super wealthy? Why do we allow people who have made millions of euro from being Irish to avail of generous tax schemes whereby they do not contribute one single cent and behave like Cinderella, flying out of the country at 12 a.m.? They can fly off to Washington and sing at Barrack Obama’s inauguration, but I do not consider that patriotic, I consider it treason.

[204]Why did the Minister for Education and Science announce €9 million in cuts in special education two weeks ago? If we are serious about putting our shoulders to the wheel and expect the public to support cuts, we should not go into a special needs classroom and sack the teacher, or pick on the most vulnerable people in our society. Any measures required to bring us out of this economic mess require fairness and balance. There is a marked absence of fairness in all this. Those who contributed most to this problem should be the ones to contribute most to the solution.

The march last Saturday, organised by the Irish Congress of Trade Unions, when more than 100,000 people took to the streets of Dublin, the march by 3,000 members of the GRA yesterday — like it or lump it, that is democracy and they are entitled to air their views — the picket this morning by the CPSU and the level of support from private sector workers remind us that the wedge the Government has tried to drive between public and private sector workers has not worked. That is a good thing in the sense that workers have united in the spirit of unity for fairness and balance. It suits people to imply that public and private sector workers live on different planets.

The bankers, the people who lent recklessly and irresponsibly, incentivised by generous salaries and bonuses, have yet to be held accountable. We have bailed them out and they have not yet returned any guarantees. There does not seem to be a system of accountability whereby those people have suffered. I do not say that lightly. I mean it in terms of accountability, that is, with salaries capped and no bonuses.

Does the Minister realise that if a young garda is asked to do overtime by a chief superintendent, he or she is obliged to do it? If he or she refuses, he or she is subjected to disciplinary action. If a garda is around Trinity College at 2 a.m. or 3 a.m. dealing with a couple of drunken yobs, the money he or she earns for that hour will be subject to this levy. The money he or she earns is not pensionable but it is now subject to pension levy. Does the Minister accept that is unconstitutional? Has the Government taken legal advice on this? Has the Government any shame? Has it any word of hope to offer the young teacher, the young nurse or the young garda who negotiated a mortgage in the past two to three years based on earnings which did not allow for the 1% income levy or the pension levy?

Another example of the unfairness of this tax is that somebody earning €37,000 will be required to pay €1,960 in this pension levy, that is, tax cut, while somebody earning €40,000 will pay €1,622.50. Does the Minister believe that is fair? Does he accept that we will starve this country of a decent public service, whether the health service, with young nurses and midwives, or the police force? Is he giving an advantage to criminals, who will now see a public sector police force that is not being given the resources it needs and a recruitment campaign that effectively has been abandoned?

When will we see a jobs creation strategy and a jobs protection strategy from this Government? In the past 12 months, more than 145,000 people have lost jobs. If this is the first instalment in the Government trying to restore public finances, it has fallen at the first fence.

Senator Fiona O’Malley: Information on Fiona O'Malley  Zoom on Fiona O'Malley  I am glad to have the opportunity to speak on this Bill. I listened to Senator McCarthy and I have no doubt he is very sincere in his concerns about those people he mentioned who took out mortgages based on certain levels of earnings. It is all very well to make the case for those people and he is right to do so, but just as important are the 145,000 people who have lost their jobs and who must also make mortgage repayments. Senator McCarthy is making an either-or case for people in the private sector or the public sector. The difficulty is that we face a very grave situation.

[205]It has been very interesting to listen to the speakers. The contributions got better as they went along. Senator Quinn’s contribution, in particular, was very good. Senator Callely followed it with a great contribution, but Senator Harris took the biscuit altogether with a terrific contribution. The case has been made for having somebody from the Seanad at the Cabinet table. I would like to see Senator Harris there because he is full of bright ideas about how to save money. He was also right in regard to this sense of a wartime spirit. Talking to people around the country, there is a palpable sense that they are prepared to have tax increases because they want——

Senator Ivana Bacik: Information on Ivana Bacik  Zoom on Ivana Bacik  Why are we not seeing tax increases?

Senator Fiona O’Malley: Information on Fiona O'Malley  Zoom on Fiona O'Malley  This is the beginning. They are to come.

Senator Ivana Bacik: Information on Ivana Bacik  Zoom on Ivana Bacik  The Government has just ruled them out for this year.

Senator Fiona O’Malley: Information on Fiona O'Malley  Zoom on Fiona O'Malley  If Senator Bacik would allow me to speak without interruption, I would come to the point. As Senator Harris said, we must grasp this nettle fast and furiously. It is not that long ago since the devastation of the 1980s. None of us wants to go back to the 1980s. In those years, if one could get the fare to leave the country, one would do so but things are so bad globally now there is nowhere to go and we must stay put and make the most of it. That means dealing with this problem fast and furiously. The Government must arrest the decline in the public finances.

This is an important first measure. The reaction is somewhat understandable, given the growth in the economy and the increases everybody got used to on a year on year basis, in particular those in the public sector. People in the public sector were well rewarded as a result of benchmarking and because they enjoy job security, they have been asked to make a contribution. Nobody likes to see a decrease in his or her income but the reality is we are in a terrible situation. I applaud the Government for having the bottle to ask these people to take this measure. I agree with those who say we need to see tax increases and the Minister has also said this. It is never wise for a Minister for Finance to indicate there will be tax increases if they are not going to be fairly immediate. The idea that he is going to wait until the next budget to implement the tax increases he mentioned yesterday is not wise. I agree we need to deal with this quickly. There is a sense in the public mood of the anger and annoyance of people. They are facing into the unknown and when facing into the unknown, into uncertainty and into a declining financial income, they want to see tough measures and they want to see them fast. Senator Quinn used a very good analogy about when one is ill, one does not want a slow and lingering death but, despite how unpalatable the medicine might be, one wants to take it so that one’s recovery will be all the quicker and one will be able and adapted to deal with a recovery when it comes. This is the reason the Government needs to respond to the public need for action in dealing with the finances. This Bill is an important first step but the second half will be to look at how to expand the tax base. My party, which is now in decline, has never espoused increases in taxation, particularly on labour. However, we are in a situation where we need to expand the tax base in some shape or form. We cannot deny and continue to spend in the way we are doing without increasing the tax base in some shape or form and it needs to be done.

People need to be honest about what price they themselves are prepared to pay. The trade unions are doing a very good job of using this argument of unfairness but I do not accept it. If people look at the broader picture it is a progressive measure and all progressive tax measures are much fairer. It should be on the basis of one’s ability to pay and this is what is outlined in the Bill.

[206]I wish to make a point about the wartime spirit which has been referred to. I do not think the Opposition has an easy job. Members of the Opposition know they must be responsible because the day will come when they will be in Government. However, when the Opposition is trying to show that sense of responsibility it will see the political advantage and will make overtures towards public sector workers at the moment and say this proposal is not good enough and is unfair but the Opposition is not saying what it would do.

Senator Maurice Cummins: Information on Maurice Cummins  Zoom on Maurice Cummins  It never worried the Senator when she was in Opposition.

Senator Fiona O’Malley: Information on Fiona O'Malley  Zoom on Fiona O'Malley  The fact the Leader of the Opposition had indicated there was a flight of capital and that the banks would be nationalised is not very good for the national interest abroad. People sitting at market desks in international finance offices will say the Leader of the Opposition thinks the banks are going to be nationalised, let us just sell. The Opposition has to think about the long-term interests of the country rather than just the political advantage that can be gleaned from a difficult situation like this. We need to see that wartime spirit of working together. I notice a different tone around the Dáil in particular this week. People in business are now getting on to politicians to say we should work together in dealing with this. It is time we came together and dealt with this situation.

I listened to the points made by Senator McCarthy. It is grand to whinge about what is going wrong and about what measures should be taken but it is never said what measure they will take and there is a responsibility to do so. It is not easy to be asking people to take cuts in their income but because it is in the national interest it must be done.

Because of this wartime spirit and because it is so expensive now for Ireland to borrow money in the markets, the Government should consider issuing patriot bonds because Irish people want to see their country survive and thrive. If it was made easy for people to buy these bonds I am sure older people in particular who might have a few pounds available would buy them if they were not crippled by inheritance tax. Asking Irish people to invest in their own country has worked before and it has worked in other countries and we need to consider measures such as this.

Senator Paul Coghlan: Information on Paul Coghlan  Zoom on Paul Coghlan  I wish to share time with Senator Maurice Cummins. I ask that I be allowed six minutes and Senator Cummins will speak for two minutes.

An Leas-Chathaoirleach: Information on Paddy Burke  Zoom on Paddy Burke  Agreed.

Senator Paul Coghlan: Information on Paul Coghlan  Zoom on Paul Coghlan  Like all the other speakers I welcome the Minister of State to the House. He has been very faithful to this House. I was going to refer to him as a man of the House but that would not be too kind given his status now. Senator Norris referred to his speech being rather dull which may be the fault of the figures and the situation. I refer instead to the speeches he wrote himself in a previous existence and supplied to people who were then in his position. Senator Norris quoted Senator Ross who bemoaned the fact on the Order of Business today that we would not have the Minister for Finance in the House this evening. He referred to the Minister for Finance as the real McCoy and did not think the Minister of State fitted the bill. If I may say so in a kind way, I think this Minister of State is the real McCoy.

I will move on to deal with this measure. The watchword must be fairness and balance. This pension levy must be fair in respect of people’s ability to pay and this must be the acid test. However, I think it starts too low. It does not meet all the tests in regard to being fair and balanced. I would have something to say about the public bodies and the reduction in professional fees. It is not that I do not welcome a reduction in fees and value for money and [207]reducing costs, but it is the method proposed in section 9 of the Bill that I refer to. There is no doubt that in our time, this is a unique crisis. The national finances are sadly in a mess. Of course we are all in this together to save our economy. These are truly exceptional circumstances. In a sense this is too easy a first step perhaps, it lacks comprehensiveness and it is missing an overall dimension. I assure Senator Hanafin who referred to the Opposition as not being interested or committed to social partnership that of course we are and he might learn more of that tomorrow. My party in particular and the Opposition in general is in touch with all the social partners and we are totally committed to fairness. This Bill should provide for a review in the short term. We hope we will not languish in this state of affairs forever.

I can identify with much of what was stated by previous speakers. Senator Quinn spoke about small bites. However, small bites are not enough when the Government should have more front-loaded measures. Senator O’Malley referred to tough medicine and perhaps we should have this rather than the drip drip we seem to have. Any good business model has a good comprehensive plan. This measure lacks this with regard to an economic recovery plan.

Like other speakers, I enjoyed Senator Harris and we always do. He struck a chord when he spoke about drawing in people. Of course he is correct. Everybody wants to get on with it, we are all playing on the same side with regard to our economy, gaining stability in our banks and moving forward as quickly as we can. I particularly liked his proposal and I am sure people would measure up to their patriotic duty. Senator Harris spoke about retired teachers being willing to step into the breach and become special needs teachers or fitting the bill in whatever other respects they could and should and I have no doubt they would.

Senator O’Malley gave us on this side of the House a slight lecture on responsibility. I assure her and I think it is patently obvious that Deputy Richard Bruton’s middle name is “responsibility”. It is stamped all over us and the leader of our party, Deputy Enda Kenny. I spoke here one day on something Senator O’Malley touched on, namely, a national bond. Call it what one will, a national recovery bond or whatever, I am sure people in our diaspora throughout the world would contribute to such a bond. Senator O’Toole spoke about such a bond approximately one month ago and I supported him at the time. I felt a bond could come from the other side of the social partnership. Several bonds could be put in place and they would all do well. Perhaps this is what is needed.

The Minister of State spoke about the Government needing to borrow €18 billion this year at steep interest rates to finance capital spending. He stated the national debt would rise to more than 45% of GNP and spending on interest costs will come to €4.5 billion or 12% of total tax revenue in 2009. These are frightening figures. I have thought always, as I am sure have most Senators, that the first basic rule in economics is that we must cut our cloth according to our measure. With regard to this, we know now that less than 10% of those paying income tax pay half of all of the income tax collected. In recent days, I was surprised to learn we have 6,000 citizens——

An Leas-Chathaoirleach: Information on Paddy Burke  Zoom on Paddy Burke  Is Senator Coghlan sharing time?

Senator Paul Coghlan: Information on Paul Coghlan  Zoom on Paul Coghlan  Yes, I am allowing Senator Cummins two minutes.

We have 6,000 so-called “tax exiles”. These people hold Irish passports, they have very generous terms with regard to the number of days they can be in the country and I do not wish them to be out of the country. Their spouses, girlfriends and everyone belonging to them are Irish citizens and they are resident here. As we know, many of them do very good charitable work. I am sure a measure could be put in place by the Department of Finance or the Revenue Commissioners. I feel many of these people want to contribute. I would like to think they would.

[208]Senator Maurice Cummins: Information on Maurice Cummins  Zoom on Maurice Cummins  People on the other side of the House spoke about fast and furious action being needed and grasping the nettle. I could not agree more with them. This is what is needed. However, what we have seen here, in particular during recent months, is Government by report. It is waiting for the Commission on Taxation and for everything without making a proper decision.

When it did make a decision it was on a levy which is unjust and unfair. I am getting weary of people on the other side of the House lecturing the Opposition on responsibility when they should be offering an apology to the people for the reckless policies which they adopted and which brought the country to its knees where it is at the present time.

Section 1 of the Bill states the President, the Judiciary, military judges and the CEOs of semi-State bodies, who are on greater wages than the Taoiseach, are excluded from the levy. If one wants just and fair policies one must start at the top and not at the bottom which is what we see with regard to this levy. There is no overall plan from the Government. We hear of more taxes coming and of the possibility of the introduction of third-level fees. We have drip feed all the time instead of the Government coming out and telling us what is the position and what is the plan for the coming years. This is what the people want.

My nominating body is the ICPSA which includes the Army and the Garda Síochána. Today, I met with them and they are very unhappy. They believe it is an unfair levy and that it is unjust. I will not repeat what Senator McCarthy stated but he mentioned some of the anomalies they raised. They have members who are up in arms with regard to commitments given for mortgages based on salaries.

We heard there will be tweaking of the system for the lower paid in the public service. Where is the tweaking? We did not receive it in the Dáil. Will we have it here on Committee Stage? I doubt it. We are misleading the people and those working in the public service by mentioning tweaking. This is typical of Government action over recent years. It drip feeds everything instead of coming out and giving the people hope for the future by producing a plan which people will be able to accept and not introducing a policy such as this which is so unfair.

Senator Dan Boyle: Information on Dan Boyle  Zoom on Dan Boyle  The figures in front of us are stark. Of the €55 billion we intend to spend in 2009, €20 billion will go on social welfare, €20 billion on public sector pay alone and only €15 billion will go to all other services. Our expectation, which could yet prove to be very optimistic, is that at best we will raise €37 billion in tax this year. We are getting used to using the word “billion” without putting it in its proper numeric context, which is €1,000 million. On the surface, the gap is €18 billion. In the October budget we decided to cut public expenditure by €2 billion, raise additional taxes by €2 billion and secure the rest through borrowing for capital expenditure.

The Exchequer returns for November and December were even more disappointing and resulted in a shortfall of a further €2 billion and the Government has taken direct action to try to alleviate this. This shortfall is in public expenditure which means we must look at the main area of public expenditure to see how it can be alleviated. Public sector pay is the option chosen by the Government but it could have done so in a number of ways such as through a pay cut or a reduction in numbers, as proposed by Fine Gael which seeks a reduction of at least 5,000 in the public sector.

The mechanism the Government is using is a levy on public sector pensions. There is no doubt we need to tackle the long-term costs of public sector pensions. We in this Chamber and many in the political system benefit from a system of pensions which is hard to justify and is far from sustainable. Everyone in the political system must take cognisance of the ballooning cost of pensions. The reality is that, on average, the cost of a public sector pension is not met [209]as economically as the cost of a private sector pension. The proposed mechanism allows pensions to be maintained and protects the interests of existing pensioners. A pay cut, which probably would have been more honest, would have meant pensions would be reduced in the future and existing pensioners would have their entitlements reduced. Perhaps that would have been a better approach but the current proposal is perhaps more honest in terms of reducing the public pay bill.

The public sector pay bill is at its current level because public sector workers’ incomes were well below those of private sector workers in the past. Processes such as benchmarking helped redress the imbalance but we did not try to redress it as private sector workers’ wages decreased by comparison with those of public sector workers. A comparison between public sector workers here and in the North, where the proportion of GDP is 60%, will show many equivalent grades in the North are on a far lower level of pay, albeit with a lower cost of living.

  10 o’clock

We must recognise the proposed formula is to maintain as many jobs in the public sector as possible and to achieve the true cost of employing public sector staff and of providing pensions in the future. Obvious anomalies arise as a result of the standard and higher rates of taxation and the circumstances arising from pre-1995 and post-1995 pay arrangements. If it were possible to create a formula to deal with these now, it would certainly be preferable, but I am confident that in the course of the coming months, by way of the White Paper on Pensions and the subsequent budget, we will get rid of the anomalies. If one judges every public sector employee by way of a paper exercise, one will note that Department of Finance figures show the new levy, added to existing levies, PRSI and taxation, results in progressivity with regard to total reductions in pay.

The difficulty is that we need to make public sector workers subject to the kinds of fiscal changes that are required. I have heard Opposition parties state they have answers, particularly for making savings of €2 billion. Arguments were made, certainly by the trade unions, that the way to address the shortfall is solely by means of taxation, but there is a problem with that argument.

Senator Joe O’Toole: Information on Joe John O'Toole  Zoom on Joe John O'Toole  They never said “solely”.

Senator Dan Boyle: Information on Dan Boyle  Zoom on Dan Boyle  Largely.

An Cathaoirleach: Information on Pat Moylan  Zoom on Pat Moylan  Senator Boyle, without interruption.

Senator Dan Boyle: Information on Dan Boyle  Zoom on Dan Boyle  I saw the ten points and went on record as saying I welcome most of them. The idea that the shortfall in question and all subsequent shortfalls, including the €4 billion at the end of this year and the following year, and the €3.5 billion at the end of the year thereafter, can be met by that formula if tax receipts remain constant is not very honest. The reality is that this year’s budget will largely consist of new taxation measures because there is no way out of the predicament. By doing so, we will get rid of many of the anomalies that arise in respect of the public service levy.

The fear is that tax revenue may not be constant and that we might be dealing with bigger revenue holes than exist at present. If the Opposition parties are not prepared to address that, the dissent we see at present may, unfortunately, be amplified because of irresponsible politics. It is easy at this time, which must be accepted as the most difficult fiscal period the country has ever faced, to do nothing, say nothing and play to a Visitors Gallery by saying what people want to hear.

The essential point is that this measure is only the first of a series that must be made by whoever is in government over the next decade to correct our public finances. If one believes this can be done easily and without upsetting many citizens by decreasing the standard of living [210]they are enjoying and have enjoyed, one is not being honest with the people. Until we come to terms with the health of our public finances, we will not come close to securing the public buy-in that is needed.

Senator Joe O’Toole: Information on Joe John O'Toole  Zoom on Joe John O'Toole  I wish to share time with Senator Bacik.

An Cathaoirleach: Information on Pat Moylan  Zoom on Pat Moylan  Is that agreed? Agreed.

Senator Joe O’Toole: Information on Joe John O'Toole  Zoom on Joe John O'Toole  I will begin with one figure, that is, one out of ten. Every member of the Government should listen to the news tonight and examine the results of the opinion poll tomorrow because we have clearly failed to make it known across the floor that the Government measures are neither understood, accepted nor supported by the vast majority of people. It seems desperately useless, therefore, for Members to blame the Opposition parties and others for this. Can someone explain to me how nine out of ten people could be wrong? It reminds me of Abraham Lincoln’s statement that one can fool all the people some of the time, and some of the people all the time, but not all the people all the time. It just does not work and the reality is very simple.

I hear Members state every day they are not receiving support from the Opposition, mainly Fine Gael. When did the Government speak to Fine Gael? When did it indicate the problem and its proposals to Fine Gael and request the party’s views? It seems Fine Gael is more than ready to offer support. The same applies to the social partners, who do not know what the Government wants. They were in the middle of negotiations with the Government that began with a phrase to the effect that all sectors of society should contribute in accordance with their ability to do so, and that the most vulnerable, low-paid etc. should be insulated against the worst effects. People said this was a very fair way to start and that they should get down to business. I listened to Senator Boyle talking about people not understanding the issues. How can the people outside the gate today understand why the wealthy people in the private sector are not being taxed?

I want the Minster of State, Deputy Noel Ahern, to think about my next question. I do not want him to respond because he will not give me the answer. The people on strike today and others know about the private sector because they have sons, daughters, wives and husbands who have lost jobs and who have taken salary cuts, but they also know that more than half of the 1.3 million private sector employees are in safe, secure, comfortable jobs. That is the reality and if I am wrong I will eat my hat. If somebody can give me figures to show I am even partially wrong, I will do so. My question is whether we cannot introduce a tax such that everybody earning over €80,000 or €90,000 per annum, in both the public and private sectors, would be subject to a new third rate of taxation. Why will the Government not do so? The reason is very clear — there is extraordinary dishonesty such that the Government will not use the word “taxation”. Its members cannot get it out of their mouths and they use the terms “income levy” and “pension levy”. It is a misnomer to refer to the proposed measure as a levy because the moneys that accrue will not go towards paying pensions but into the Exchequer.

I know a little about what I am talking because I sat for five years on the Commission on Public Service Pensions, which was referred to by the Minister of State’s colleague, the Minister of State at the Department of Finance, Deputy Mansergh. The reality is that we did value it and get a costing on it. We also required that it would be actuarially adjusted. At that time it was felt that the cost of public sector pensions was approximately 18%. Nowadays they are saying it is approximately 25%. If one takes the normal employers’ contribution of 10% out of it then we know what we should put in to pay for it. We can come to those figures.

[211]Society is fragmented because nobody knows what the Government is doing. Currently, one person in ten supports the Government. That is the lowest figure in my time in politics and I am sure in the time of the Minister of State, Deputy Noel Ahern. If the Government will not listen to me it should listen to the people.

Senator Ivana Bacik: Information on Ivana Bacik  Zoom on Ivana Bacik  I echo Senator O’Toole’s words because I, too, watched the news at 9 p.m. and the one in ten figure stood out starkly for me, as it is doing for people all around the country tonight. Clearly, there is a lack of confidence in what the Government is doing to tackle the enormous economic downturn and problem we are facing. There is a will among people to share the burden. All of us want to play our part in trying to bring about an economic recovery. That includes Members on both sides of this House and of all shades of political opinion in the country.

What we are not seeing from the Government is any leadership or sense of strategic planning to get us through this economic recession and to point us towards recovery. Instead, we are seeing some piecemeal measures. In fact, Senator Boyle referred earlier to the Bill before us as an introductory measure, the start of a series of measures. Where is the series? Where is some sense from the Government of the shape and structure the series will take in the coming months or years? We just do not know.

The ICTU has done us all a favour in putting forward a coherent ten-point plan. It said itself that it is flawed, that it is by no means perfect, but at least it is based on a model of recovery that was used in Sweden. Many of us heard the architect of that plan, the Swedish policymaker, speak about it and he said the main point of the plan was that it hurt all interest groups — that everybody complained. He knew then that it would be more effective that way. It was fair and it had general application. That is exactly what we are not seeing from the Government’s Bill before us tonight. We are seeing a mere tweaking of cost cutting in this plan but what we are not seeing, as Senator O’Toole said, is any honesty about the need to raise revenue by raising taxes through a progressive taxation system that hits the rich and those on high incomes, both in the public and private sector.

I have put on record previously the fact that I approve in principle of the need for public servants to pay a levy, if one wants to call it that, in recognition of the fact that we have secure pensions. What I do not approve of is the inequitable application of the levy to those on very low incomes in the public service. All of us on higher incomes should be paying something more than those who do not have security of tenure and the benefit of a public sector pension. I do not believe the low paid, namely, nurses, firefighters and those on entry level in the Civil Service, those we saw out on pickets from the CPSU today, should pay a levy of 3% or even 6%. The threshold should have been set higher.

The Government had to tweak what it called the 1% levy — the income tax measure that was introduced last year — to exempt those earning below a certain amount. I do not know whether the Minister is listening but it is fair to say that his colleagues said initially there would be no tweaking of the 1% levy and there was subsequently a tweaking. It is unfortunate that people then came to expect when the pension levy was introduced that there would be some tweaking or adjustment. There is some indication in section 8 that an exemption can be provided if the Minister so wishes. There is an uncertainty about the application of the levy.

I have been approached by people who work in the public sector who do not have security of tenure, who are on fixed-term contracts but who get some payment in lieu of pension and therefore will be covered by the legislation. They are concerned about having to pay a levy on very low incomes. Clearly, it will hit them more than it will hit those of us on higher incomes in the public service. What we need is a more coherent plan, one that will impact fairly and equitably on all sectors of society, especially the higher paid.

[212]Senator Larry Butler: Information on Larry Butler  Zoom on Larry Butler  Nobody likes to contribute more than he or she has to, regardless of how the economy is functioning. The Government has made the first step in making us fulfil our obligations. If one considers how other countries have been handling the downturn in their economies, it is apparent they have handled it in a way that is not very different from what we are trying to do.

On the one hand we are trying to deal with a banking crisis and on the other we are trying to deal with the public finances. We have put together a small package of measures that we intend to implement in the next two to three years. We decided to tackle the problem over a specified period. We have a plan.

If we were to administer a sharp shock to the economy we would destroy it. We are already taking €2 billion out of it through the taxation levy and we are taking a further €2 billion through budget taxation measures. A total of €4 billion will come out of the economy this year. If we were to take any stronger measures than that we would shock the economy into a worse situation than we are in currently.

It is important that the public sector is now going to play a major role in fighting back and helping the economy to recover because 350,000 people are unemployed. People who have secure jobs are paying only a small percentage — 4.5% — towards a pension. If they were in the private sector they would be paying 25%. They are still well below the mark in terms of what they are paying towards their pensions and they have guaranteed pensions. Waterford Glass employees who paid into a pension for 40 years found themselves with no pension. Public sector employees have secure jobs with secure pensions and that is why they are asked to pay a contribution.

I am concerned that people are making a fuss about such a small contribution, which is what it is. We need €16 billion to breach the gap and this is a small contribution towards that amount. It is very welcome and necessary and we must be seen to do that. The social partners are on the street and not playing their part to ensure the economy recovers. When things were good they were playing ball and everything was working well. They were represented on this board and that board, but where are they now that we need them? They are like the snow; they are gone. They walked away when we needed to make a decision to bring in revenue and they left their members high and dry. That is not taking responsibility.

Problems are evident in various industries in the private sector. For every person in the public sector, two or three people in the private sector are supporting their jobs. We are not living in the real world if we do not realise that. We need to put a plan in place that will work. The banking sector will have to be dealt with after that. Any economic recovery will require a good banking sector. We need to move quickly on that. We have to be cautious also because every day we can see that banking shares have gone to the floor in Ireland, London and New York. We therefore may have to consider nationalising all our banks. I would not rule that out. That may be an important step on the road to ensuring security of the banking system. It is an option but I am not a banker and I would like the present banking system to continue as it is.

It is important that the social partners return to talks as soon as possible and that they produce a plan. We have an overall plan and it is important to bring the social partners back in to support it. Senator Harris proposed a national bond to get people involved in other ways to support the economy. That could be a good way to put the nation first. People would like to make a contribution and the cost of the bond could be pitched as low as €10. People could make small contributions to the bond, which would demonstrate their solidarity with the State and that everybody was working together to solve our problems. I am grateful for the opportunity to make a contribution and I commend the Bill to the House.

[213]Senator Brendan Ryan: Information on Brendan Ryan  Zoom on Brendan Ryan  I wish to share time with Senators McFadden and Fitzgerald. The so-called pension levy is clearly unfair. It is targeted at one group of workers in our economy only. It does not target the people who caused the problems or those who benefited most from the Celtic tiger area. It will hurt people on low to middle incomes who can ill-afford to pay, yet it does not target the wealthiest in our society. For example, medical professionals, many of whom are among the wealthiest in our society and can charge what they like, are not being asked to contribute. A friend of mine who attends a private consultant for a debilitating condition recently found the fee for a follow up visit had increased from €100 to €150, a 50% increase.

RTE celebrities and bankers and developers are not being asked to pay the levy. It is justified by Government spokespersons on the basis that public servants have great pensions for which they do not pay and they are guaranteed jobs for life, while private sectors workers are losing their jobs. However, many public servants such as those working for local authorities and the Health Service Executive in lower grades have dreadful pensions. The levy pits one group of workers against another. I agree with Senator Harris that we need to pull all sectors of the economy and society together in the effort. People are willing to play their part but there is no fairness in this measure. The levy does not bring the people together with a sense of solidarity and it represents a missed opportunity in that regard. If people could see all sectors of the economy were sharing the burden, they would accept and play their part.

The Labour Party is opposed to this measure not because of an association with, or loyalty to, the public service or the unions but because of its inherent unfairness. While workers in the private sector have lost their jobs, not everyone has and many are in secure and well-paid employment an are not being asked to contribute, which is clearly unfair. I am amazed that despite this obvious unfairness, the Government continues to argue otherwise and I have heard more of the same from many Members on the Government side in this debate. The lack of logic in this matter is baffling. The leader of the Labour Party stated earlier that our party would facilitate the bringing forward of a budget, if required, to introduce fairer measures. The Minister should do what needs to be done and introduce hard measures. However, he should make them fair. Let us do this together.

Senator Nicky McFadden: Information on Nicky McFadden  Zoom on Nicky McFadden  I thank Senator Ryan for sharing time. I seek clarification on two issues. Will gratuities paid to Army personnel be affected by the levy? These people work all their lives serving the State. I also have serious concerns about the position of retained firemen. These are among the low paid public servants to whom Senator Ryan referred. They are heroic men and women who are called out at all hours. Their retainer is low and it would be most unfair if it were levied.

I resent the lecturing of the Opposition during the debate and I am sick of it. Will the Minister of State ask his party colleagues and Senator Boyle to stop lecturing the Opposition because we do not deserve it? As far back as last July, Deputy Bruton made proposals and offered solidarity with wise and good support. Senator Butler referred to the workers in Waterford Wedgwood who will lose their pensions. The company asked the Government for a loan only last year when money was available but it was refused. The Senator should not pay lip service to those who have lost their jobs, given the cost of this to the State.

Senator Larry Butler: Information on Larry Butler  Zoom on Larry Butler  I was giving an example.

An Cathaoirleach: Information on Pat Moylan  Zoom on Pat Moylan  Senator McFadden, without interruption.

[214]Senator Nicky McFadden: Information on Nicky McFadden  Zoom on Nicky McFadden  A total of 52% of the people want a general election because they do not have faith in the Government parties. They believe the parties have let the country down. As Senator Boyle said, Members on the Government side should be honest and take their own medicine for once.

Senator Frances Fitzgerald: Information on Frances Fitzgerald  Zoom on Frances Fitzgerald  I welcome Senator Boyle’s statement that there are anomalies in the legislation. If the Government parties accept this, why were they not rectified? Why were the amendments tabled by Fine Gael not accepted in the Dáil? It is disgraceful for a Member on the Government side to admit there are anomalies, say they will be corrected some time over the coming year and expect those who are subject to them to put up with them.

Senator Boyle also stated Fine Gael was playing to the gallery and it had not put forward hard proposals. That is nonsensical. At this time of national crisis, the Government parties should examine the proposals made by Fine Gael because they are tough and do not play to the gallery. However, we did not receive a respectful hearing from the Government on any of them. Government Members should not mention national partnership when they have not reached out or reacted to the proposals made in good faith by us. They should not say we are playing to the gallery because we are not and we have put forward tough, constructive proposals. We were the first to suggest a pay freeze in the public sector, which is not easy to recommend. That is tough medicine for the public sector and it was tough for Deputy Bruton to propose this. The proposals deserve respect because they are proactive and constructive.

This is a time of national crisis and the political system is under severe scrutiny. It has been found wanting but this is a two-way street and the Government must respond to constructive proposals. It is extraordinarily distressing when going house to house to meet the number of people who have lost their jobs or who are on a two-day or a three-day week and who do not know how they will cope. The major problem is not the levy per se but the context in which it is being sold. It is not perceived as fair and equitable because a package of measures has not been introduced across the board. People will not experience it as being fair and they do not believe every sector is being targeted.

The Commission on Taxation’s work should be brought forward as we need a comprehensive package of measures, not the current drip feed. Everyone should be asked to sacrifice and to play a part.

An Cathaoirleach: Information on Pat Moylan  Zoom on Pat Moylan  The Senator’s time has concluded. Time is tight and she has gone way over hers.

Senator Frances Fitzgerald: Information on Frances Fitzgerald  Zoom on Frances Fitzgerald  A strong national engagement between the political system and the public is necessary. The public would not be found wanting were the Government to reach out.

Senator Terry Leyden: Information on Terry Leyden  Zoom on Terry Leyden  As it is a question of trying to use the maximum time allowed, Senator Walsh will share Senator Feeney’s time and I have agreed to Senator Ross’s request to share two minutes of my time.

An Cathaoirleach: Information on Pat Moylan  Zoom on Pat Moylan  Is Senator Leyden also sharing time with Senator Walsh?

Senator Terry Leyden: Information on Terry Leyden  Zoom on Terry Leyden  No. In our discussions beforehand, Senator Ross asked whether he could share time and I agreed to give him two minutes.

An Cathaoirleach: Information on Pat Moylan  Zoom on Pat Moylan  Is that agreed? Agreed.

[215]Senator Terry Leyden: Information on Terry Leyden  Zoom on Terry Leyden  I welcome the Minister of State, Deputy Noel Ahern, to the House and commend him. While I cannot divulge any information concerning my parliamentary practice, his proposals floated at our meetings have always been constructive. I also commend him on his openness and willingness to have a dialogue at national level.

Senators Feeney and Cummins and I were among seven of the candidates nominated by the Irish Conference of Professional and Service Associations, ICPSA, to contest the 2002 and 2007 Seanad elections. We met in Buswell’s Hotel today to discuss the body’s concerns. As the Senators selected by the ICPSA and elected by councillors, TDs and Senators, and as Fianna Fáil members, it is our responsibility to articulate the ICPSA’s concerns on the Bill. It is better that we speak inside the Oireachtas than speak into it from the outside.

The ICPSA is not a member of ICTU and has no voice in terms of a national partnership. It depends on its representatives and organisations to table its opinions. The ICPSA has expressed to us its deep concern about the proposals and is asking for a refinement, to say the least. It believes that the proposals are unfair and inequitable and target the wrong people. Had I the choice, I would choose to increase the top rate, the next rate and possibly another rate of tax to encompass everyone in the private and public sectors. It would be fair and equitable and would not separate the public and private services.

Given the number of issues addressed in our discussion today, the ICPSA has received many representations. It has been inundated concerning those on low incomes who must pay the 1% levy and the new rate. As they have taken out mortgages, have educational costs and so on, this is a serious issue. Will the Minister of State examine the overall package to try to alleviate the difficulties being experienced by low paid public servants?

Many people resent the Judiciary’s exclusion from the Bill under Article 35 of the Constitution. While we cannot discuss the Judiciary, I do not know why we cannot vote on a constitutional amendment on 5 June.

Senators:  Hear, hear.

Senator Mary M. White: Information on Mary M. White  Zoom on Mary M. White  It is ridiculous.

Senator Terry Leyden: Information on Terry Leyden  Zoom on Terry Leyden  As parliamentarians, we are entitled to put an amendment to the people to allow for the levy’s deduction from the country’s highest paid officials. They should not be above reproach. If they wanted to take a case against it, no one would be able to hear the proceedings. We are the arbitrators in this regard and it would be a productive measure.

Some time ago, I proposed the bond that has been mentioned today and approved by SIPTU. A low rate, ten-year investment and-or pension bond worth €10 billion would be raised by the public for those without pensions. Its contributors’ means should not be investigated. Doing so would lead to its collapse. A new approach is necessary. Since Anglo Irish Bank is at our disposal, we have a vehicle through which to raise money to assist the State. The money is available.

PDFORRA has asked for the tax bands to be considered and believes that the levy is a blunt instrument. The body has been inundated with representations in that regard. The AGSI, which has never before received so many calls from its members, has expressed a deep concern about the situation. Given the fact that they are defending the State, it is concerned that the levy will affect its members.

An Cathaoirleach: Information on Pat Moylan  Zoom on Pat Moylan  The Senator is sharing two minutes of his time with Senator Ross.

[216]Senator Terry Leyden: Information on Terry Leyden  Zoom on Terry Leyden  The Army is also concerned and its members believe the levy is an unfair tax. Everyone should share the burden and the levy should hit the highest paid initially. If there is unfairness in the system——

An Cathaoirleach: Information on Pat Moylan  Zoom on Pat Moylan  The Senator is taking from Senator Ross’s two minutes.

Senator Terry Leyden: Information on Terry Leyden  Zoom on Terry Leyden  Will the Minister for Finance tweak the Bill, consider the lowest paid public servants and bring about as much equity as possible?

Senator Shane Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  I thank Senator Leyden. The Bill is neither fair nor enough. The Government has succeeded, in an extraordinary ham-handed way, in creating a new class of victims, which it need not have done had it a balanced package. It is not enough. The world markets, impartial and independent observers, do not believe that we will get enough money from the Bill to scratch the surface. Next year, we will need to raise at least €4 billion, but probably much more. Introducing a complete package now would have been more realistic. This would have included not only public service cuts, but also other expenditure cuts and the tax measures that everyone believes are necessary. Instead, we have a group of victims that can evoke public sympathy and justifiably plead that they are carrying an untimely burden on their shoulders.

Why could we not have introduced the necessary taxation measures in respect of other people? Why could we not have introduced public expenditure cuts? The feeble excuse is that we are waiting for the Commission on Taxation. We do not need to wait for commissions. The feeble excuse in terms of public expenditure is that we are waiting for “An Bord Snip”.

Before I sit down, why does the Government refuse to consider the sale of State assets? Mr. Peter Sutherland or someone stated that capital expenditure must be cut. Why could we not sell the ESB or Bord Gáis? Billions of euro in capital that we could sell are locked up in both. While it is not a palatable suggestion, these are not palatable times.

Senator Paschal Donohoe: Information on Paschal Donohoe  Zoom on Paschal Donohoe  I welcome the Minister of State, Deputy Mansergh, to the House and thank the Cathaoirleach for the opportunity to speak on this Bill.

I wish to refer to two groups that, so far, have not featured much in the debate. The first group comprises people working for low pay in the private sector. They have clerical jobs in banks or multinational companies. They work in the construction sector and are worried that they will not be able to work for much longer. A considerable amount of tonight’s discussion has been on gardaí, nurses, social workers and so on. There is no doubt that those groups must be represented and supported.

However, Members must keep in mind others who work in the private sector and who provide the capacity that allows the entire economy to continue ticking over. The reason this group must be mentioned tonight is because the one thing they will need and will rely on Members to provide for them to maintain their incomes and jobs is sound public finances. If there is one lesson that can be learned from the experience of other countries that have turned themselves out of the difficulties into which we now face, it is getting the public finances under control quickly in order that there is confidence for people who are living in our economy to spend and for those who live outside of our economy and businesses inside the economy to invest in it.

The other group to which I wish to refer briefly are the financial markets. For obvious reasons, whenever anyone talks about the financial markets, there is a sharp intake of breath. We talk about their greed, avarice and so on. However, we do not often talk about how often [217]they have been correct in respect of some of the issues Members have discussed in this House. I will provide the analogy of the banking sector. For the past year, the Government and different people associated with it have been saying there is no problem with the banks, that everything is under control and nothing is going on that we will not be able to handle at some point in the future. During that period, the financial markets considered what was happening with the banks and decided not to believe us. The share prices plummeted month after month and that assessment has turned out to be correct. That is the assessment upon which we are acting and the analogy, unfortunately, on which Members now must draw, pertains to what is happening to our standing within the financial markets at present. While I have raised this point in this House in recent weeks, the financial markets currently believe it is a safer bet to buy Israeli Government debt or debt from Thailand, Malaysia or similar countries than it is to buy Irish Government debt. The implications are so great for our country that they require radical and strong action and I wish to emphasise three points in this regard.

There has been a great deal of discussion in this House about the need for an overall plan for the economy, the need to find €2 billion worth of savings this year, €4 billion next year and €4 billion the year after. I have to hand the document from which all those figures come. It is entitled Addendum to the Irish Stability Programme: Update, and was published in January 2009. I encourage every Member to read it. I particularly encourage them to read page 5 of that document which contains the table on which everything is based. I will examine some of the economic assumptions on which this plan is based. It assumes that next year, in 2010, gross national product, GNP, will contract by 1% and that it will grow by 2% the year after. It assumes that unemployment this year will peak at 9% and at 10% the year after and that it will begin to fall the year after that. Many Members within this House have observed that the economic conditions we face are far worse than what is laid out here. I have an awful fear, which I must raise in this House, that the figure of €16.5 billion that everyone is discussing is based on a document and a strategy that repeats the mistakes Members have debated for so long, namely, that one comes up with an assumption to allow one to get through this year, this month or the next budget.

Three measures are required in this regard. First, there is a need for complete honesty with the people and, more importantly, with ourselves about the true state of the economy, the our society and the dangers that lie ahead. I do not say this with any joy but I am convinced the assumptions upon which Members are basing their debate at present will not stand up and, unfortunately, that some of them are too optimistic.

Second, we must have a more buoyant and determined outlook as to what we are going to do. I am not an accountant. Before I entered this House, my profession in the private sector was as a salesman and I was proud to be one. When contemplating a hole in my figures, I did not think in the first instance about how I was going to pare back. My first instinct was to ascertain how I would create the activity and business that would allow such figures to be filled. I am convinced that the piece of work that must happen alongside this measure is to identify what parts of our economy and what industries can be developed and guided that will deliver the requisite tax revenue to ensure essential services are provided and to ensure our taxation levels are on a par with maintaining a spirit of enterprise within our country and on a par with allowing us to have a spirit of social solidarity. What worries me so much is that having examined the aforementioned document that guides Government thinking, none of this is present at all. None of that is clear.

I wish to conclude with some words I heard President Obama speak in his address last night. He used one phrase that struck me, when he said, “We cannot afford to govern out of anger [218]or yield to the politics of the moment”. Obviously, this is highly true of America and is even more so of Ireland. The situation we face is of the utmost gravity. While there is a need to be honest with the people, there is a far greater need to be honest with ourselves about where matters stand. We must acknowledge the situation we are in. Undoubtedly, public expenditure will be cut and taxation and unemployment will rise. We must be honest with ourselves that such things will happen. However, together with such measures, there must be an absolute, rigid and unrelenting determination from all Members of this House, but especially from the Government, which has the privilege to lead, to come up with the ideas that will fill the holes in this document. While this can be done, if we do not, our national morale and economy will be strangled.

An Cathaoirleach: Information on Pat Moylan  Zoom on Pat Moylan  Senator Feeney, just four minutes remains of the allotted time. Do you intend to share your time?

Senator Geraldine Feeney: Information on Geraldine Feeney  Zoom on Geraldine Feeney  Yes, but——

An Cathaoirleach: Information on Pat Moylan  Zoom on Pat Moylan  Two minutes each.

Senator Jim Walsh: Information on Jim Walsh  Zoom on Jim Walsh  Would it be possible to extend the time?

An Cathaoirleach: Information on Pat Moylan  Zoom on Pat Moylan  No, the time was ordered today on the Order of Business and I must call the Minister of State at 10.50 p.m.

Senator Geraldine Feeney: Information on Geraldine Feeney  Zoom on Geraldine Feeney  Very well. It is regrettable that I cannot share with Senator Walsh but I wish to put my contribution on the record of the House. Like Senators Leyden and Cummins, I attended the meeting of our nominating body this afternoon and my two colleagues have outlined what transpired at it. I will approach it from a particular point of relevance to the Irish Conference of Professional and Service Associations. The current discontent within the ranks of the Garda Síochána at all levels and within the Defence Forces is related to the perceived unfairness of the pension levy. However, it also stems from understandable frustration among many fine men and women, good public servants, who wear the uniform with distinction but who are excluded from trade union membership. As members of a representative body rather than a union, members of the AGSI and the GRA, together with the Defence Forces, are banned from striking and all take an oath to serve the country. The exclusion of gardaí and soldiers from trade union membership is based on an historic view of the special position of those entrusted with upholding public order. However, in Ireland, where social partnership has played such a crucial role in shaping public policy, I consider it to be wrong that a group of public servants are excluded from a process which has profound implications for their terms and conditions of employment.

They cannot participate in broader industrial mechanisms and have no recourse to the machinery of the State, including the Labour Relations Commission, the rights commissioner service and the Labour Court. I believe it is time for a rethink and it should not be beyond the imagination of the State to devise a mechanism which would allow gardaí and soldiers the right to collective representation and negotiation and grant access to the industrial relations machinery of the State without compromising national security, law and order or the maintenance of essential services. I apologise for not welcoming the Minister of State, because of the minor kerfuffle at the outset of my contribution, and I do so now. Perhaps the Government might consider a high level working party to bring forward recommendations.

[219]I agree with Members who suggested an amendment to the Constitution to deal with the issue of the remuneration of judges. Consideration should be given to changing the Article which provides protection to the salaries of the Judiciary. I am confident the latter would not be found wanting in this regard. I have spoken to several judges who are willing to play their part at this difficult time of economic crisis.

Minister of State at the Department of Finance (Deputy Martin Mansergh): Information on Dr Martin Mansergh  Zoom on Dr Martin Mansergh  I propose to share time with Senator Walsh and ask that he be allowed to speak first.

An Cathaoirleach: Information on Pat Moylan  Zoom on Pat Moylan  Is that agreed? Agreed.

Senator Jim Walsh: Information on Jim Walsh  Zoom on Jim Walsh  I thank the Minister of State for sharing time. At a time when we are faced with a very difficult fiscal position, I am not enamoured by the behaviour of some of the social partners. I will return to that presently. According to the Government, our revenue will fall back to something like €37 billion this year. Goodbody Stockbrokers estimates it will be €33 billion. Our projected current expenditure, on the other hand, is €20 billion for public sector pay, €20 billion for social welfare and €15 billion for non-pay areas. This leaves a deficit, according to Government figures, of €18 billion. If one accepts the prediction from Goodbody Stockbrokers, the deficit will be €22 billion.

As a compromise, I will assume a shortfall of €20 billion. Therefore, we must reduce the public sector pay bill by €6 billion to €14 billion, and this must be done as a matter of urgency. As such, it is my proposition that this Bill takes us in the right direction but that we must accelerate savings in the public sector pay bill in order to reduce it to €14 billion. Some €2 billion must be saved from the social welfare budget, which I acknowledge will be difficult to achieve in a situation of growing unemployment. If we are to make an additional reduction of €2 billion in the non-pay area, we will achieve a saving of some €10 billion, reducing our expenditure to €45 billion.

I understand the public sector pay bill was €8.8 billion in 2000. If one increases that at a compound rate of 4% for the last decade, one arrives at a figure of €13 billion. That is the target for which we should aim. I referred to the social partners, who walked out of the talks, because they are part of the problem and part of the creation of the problem. I refer specifically to the benchmarking payments that were made across the public sector. I accept that I make this point with the benefit of hindsight. We were all pleased to avail of those salary increases at the time. However, we must recognise that we went too far and paid ourselves too much, in both the public and private sectors. This must be corrected as a matter of urgency. There is a responsibility on the social partners to play their part in correcting what can now be seen definitively as a mistake that is adding to our problems.

The proposed pension levy is progressive. I utterly reject the claims it will impact on the lower paid to an unfair extent. Those on €15,000 will lose €450 per annum; a person earning €25,000 will make a contribution of €1,250; workers earning €45,000 will pay €3,250; and a person on €105,000 will pay €9,250. This represents a progressive system. On retirement, a person on a salary of €60,000 will receive a pension of 50% of salary, or €30,000 per annum. If that worker is making a 15% pension contribution, as we in these Houses are, he or she will pay €9,000 per year. Over 40 years, this equates to €360,000. Such a pension would cost a private sector worker €1.1 million.

If we are to move in the direction of salvaging this country, we must go further than we have done in this legislation. Everybody must accept this requirement and play their part. We must deal with public expenditure as a matter of priority. At the same time, we must be careful [220]about taking more tax out of the productive sector of the economy. That is where the jobs will be saved and where more jobs will be created for the future.

Deputy Martin Mansergh: Information on Dr Martin Mansergh  Zoom on Dr Martin Mansergh  I thank Senators on all sides of the House for their contributions to this exceptionally constructive and stimulating debate. There are various formulae of words that can be used on such occasions but in everything I say, I try not to gloss over what I consider to be an exceptionally grave situation. Members will find reflections of this in my opening contribution. At the same time, one must not overlook the many strong positives remaining in this society and economy. We must look not only to fill holes but to find positive initiatives we can take to encourage economic activity and inspire people. Senator Harris made several suggestions in this regard. There are others, including those set out in the Government’s framework document, Building Ireland’s Smart Economy.

Although it would not be entirely accurate to describe it as a pension levy, the core of the Bill is what I would describe as a pension-related levy. It relates to the cost of pensions and the advantage enjoyed by public servants in this regard. For people who reach the end of their career at a senior level, in particular, we have seen striking examples of how advantageous are the pension arrangements. Broadly speaking, taking all deductions into account, the levy is progressive. The provisions of the Bill apply not only to public servants but also to professionals and the farming sector.

I heard an interesting radio interview this morning with a former Taoiseach, Mr. Garret FitzGerald, which dealt with some of the issues which the various political parties might not necessarily wish to stress. Mr. FitzGerald made the valid point that our tax system is exceptionally favourable by European standards to low and middle-income earners, which is fine when revenue is flowing in through stamp duty, corporation tax and capital taxes. We have all benefited from this in the past, but we are now in a situation where we must broaden the tax base.

One of the threads that underlined Senator Harris’s contribution and those of several other Members was the question of whether all the pain should be imposed in one fell swoop or whether it should be spread out. I am of the view that no matter how virtuous we had been in the past, economically speaking, and no matter how ruthless we might be now in terms of doing anything and everything to try to close the gap in short order, we could not get out of the woods in a short timeframe. We are dealing not only with a national problem but with a global one. I understand Senator Harris’s frustration and what he said about the psyche in terms of appealing to public opinion, with all of which I agree. However, in substance, would it achieve the aim of getting us out of the woods? I contend it would not. No country is even close to getting out of the woods at the moment. I have never had anything to do with the Judiciary, but whether one is a member of the Judiciary or the Legislature, we come from a particular standpoint and, to a limited degree, we have self-interests and one must make corrections for that. While there are Oireachtas Members of various ages who may be under financial pressure, we are not the section of the community under the most financial pressure at present. There are large sections of the community that would be in no position to bear that and we must proceed by stages. As quickly as we can, through the Commission on Taxation, the McCarthy committee and other mechanisms, we must define where we are going and what we must do. The case of those who were protesting outside the gates could not be summarised as suggesting that the Government is not hitting them half hard enough. They may be saying that there are certain sections of society, perhaps a relatively small number of people, that are not being hit hard enough. The Government may be right or wrong but it has taken the view that we must pace ourselves. This crisis will not be over in the short term, regardless of what we do. We [221]must pace ourselves, try to contain the situation and correct the situation. This is an important part of what we are doing. It is important to the minimum confidence that we need to pass and enact this legislation.

  11 o’clock

Once that has happened, I hope it will be possible to get around the table with the social partners and discuss the broad framework further. It is not the view of everyone in this House but, broadly speaking, social partnership has served the country very well. I do not want to accuse the Government of which I am a member of being unreasonable but it was a bridge too far to expect the unions to underwrite something like the pension levy. They must make their protest; the Government must do what it must do. I want to see the social partners continue to engage. That is one reason, among others, that I do not follow the suggestion made by Senator Ross about privatising ESB and Bord Gáis. I like the idea of public service and I defended it in the other House too. We should not abandon the ethos of that but I should abandon speaking further because the Cathaoirleach is looking at me.

Senator Paul Coghlan: Information on Paul Coghlan  Zoom on Paul Coghlan  The Minister of State will have another opportunity tomorrow.

Question put.

The Seanad divided: Tá, 27; Níl, 14.

Information on Dan Boyle  Zoom on Dan Boyle  Boyle, Dan. Information on Martin Brady  Zoom on Martin Brady  Brady, Martin.
Information on Larry Butler  Zoom on Larry Butler  Butler, Larry. Information on Ivor Callely  Zoom on Ivor Callely  Callely, Ivor.
Information on John Carty  Zoom on John Carty  Carty, John. Information on Donie Cassidy  Zoom on Donie Cassidy  Cassidy, Donie.
Information on Maria Corrigan  Zoom on Maria Corrigan  Corrigan, Maria. Information on Mark Daly  Zoom on Mark Daly  Daly, Mark.
Information on Déirdre de Búrca  Zoom on Déirdre de Búrca  de Búrca, Déirdre. Information on John Ellis  Zoom on John Ellis  Ellis, John.
Information on Geraldine Feeney  Zoom on Geraldine Feeney  Feeney, Geraldine. Information on Camillus Glynn  Zoom on Camillus Glynn  Glynn, Camillus.
Information on John Gerard Hanafin  Zoom on John Gerard Hanafin  Hanafin, John. Information on Eoghan Harris  Zoom on Eoghan Harris  Harris, Eoghan.
Information on Cecilia Keaveney  Zoom on Cecilia Keaveney  Keaveney, Cecilia. Information on Terry Leyden  Zoom on Terry Leyden  Leyden, Terry.
Information on Ronan Mullen  Zoom on Ronan Mullen  Mullen, Rónán. Information on Brian Ó Domhnaill  Zoom on Brian Ó Domhnaill  Ó Domhnaill, Brian.
Information on Labhrás Ó Murchú  Zoom on Labhrás Ó Murchú  Ó Murchú, Labhrás. Information on Francis O'Brien  Zoom on Francis O'Brien  O’Brien, Francis.
Information on Dennis O'Donovan  Zoom on Dennis O'Donovan  O’Donovan, Denis. Information on Fiona O'Malley  Zoom on Fiona O'Malley  O’Malley, Fiona.
Information on Ned O'Sullivan  Zoom on Ned O'Sullivan  O’Sullivan, Ned. Information on Ann Ormonde  Zoom on Ann Ormonde  Ormonde, Ann.
Information on Kieran Phelan  Zoom on Kieran Phelan  Phelan, Kieran. Information on Jim Walsh  Zoom on Jim Walsh  Walsh, Jim.
Information on Mary M. White  Zoom on Mary M. White  White, Mary M.  

Information on Ivana Bacik  Zoom on Ivana Bacik  Bacik, Ivana. Information on Paddy Burke  Zoom on Paddy Burke  Burke, Paddy.
Information on Paul Coghlan  Zoom on Paul Coghlan  Coghlan, Paul. Information on Maurice Cummins  Zoom on Maurice Cummins  Cummins, Maurice.
Information on Paschal Donohoe  Zoom on Paschal Donohoe  Donohoe, Paschal. Information on Frances Fitzgerald  Zoom on Frances Fitzgerald  Fitzgerald, Frances.
Information on Michael McCarthy  Zoom on Michael McCarthy  McCarthy, Michael. Information on Nicky McFadden  Zoom on Nicky McFadden  McFadden, Nicky.
Information on David P.B. Norris  Zoom on David P.B. Norris  Norris, David. Information on Joe John O'Toole  Zoom on Joe John O'Toole  O’Toole, Joe.
Information on John Paul Phelan  Zoom on John Paul Phelan  Phelan, John Paul. Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  Ross, Shane.
Information on Brendan Ryan  Zoom on Brendan Ryan  Ryan, Brendan. Information on Liam Twomey  Zoom on Liam Twomey  Twomey, Liam.

Tellers: Tá, Senators Camillus Glynn and Labhrás Ó Murchú; Níl, Senators Paul Coghlan and Maurice Cummins.

Question declared carried.

An Cathaoirleach: Information on Pat Moylan  Zoom on Pat Moylan  When is it proposed to take Committee Stage?

Senator Donie Cassidy: Information on Donie Cassidy  Zoom on Donie Cassidy  Tomorrow at 10.30 a.m.

Committee Stage ordered for Friday, 27 February 2009.

[222]Senator Frances Fitzgerald: Information on Frances Fitzgerald  Zoom on Frances Fitzgerald  Will there be an Order of Business tomorrow?

Senator Donie Cassidy: Information on Donie Cassidy  Zoom on Donie Cassidy  Yes.

An Cathaoirleach: Information on Pat Moylan  Zoom on Pat Moylan  When is it proposed to sit again?

Senator Donie Cassidy: Information on Donie Cassidy  Zoom on Donie Cassidy  Ag 10.30 a.m. amárach.

The Seanad adjourned at 11.15 p.m. until 10.30 a.m. on Friday, 27 February 2009.

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