Andrew Doyle
Question:6 Deputy Andrew Doyle asked the Tánaiste and Minister for Finance if he has assessed the implications for the Irish economy of the new EU climate change commitments. [15678/08]
Other Questions.
Climate Change Strategy.
I refer the Deputy to my previous replies regarding the proposals published by the Commission that will lead to an agreement on the contributions of individual member states towards meeting the EU targets agreed at the 2007 spring Council. The Commission proposes that Ireland reduce its greenhouse gas emissions by 20% by 2020 based on 2005 emissions figures and achieve an overall target of 16% of final energy consumption from renewable energy by 2020. The proposals will take effect from 2012 after the current Kyoto arrangements.
The proposals set out by the Commission are complex and far-reaching and require detailed analysis and discussion at EU and domestic level and negotiations on the suite of directives are currently under way. The cost in budgetary terms and the economic impact will depend on the methods used to achieve whatever target is set and the framework agreed in the final directives. Obviously, we will try to be as fiscally neutral as possible.
As we have made clear, the Government supports the overall objectives agreed and the leadership shown by the EU's ambitions in respect of climate change. It is important that national circumstances and competitiveness impacts are considered in the context of finalising the EU's measures. In making decisions on what policies would best achieve the final targets, we must have regard to national competitiveness and the impact of policies on different sectors. The Government, through its actions on taxation of motor vehicles, new building regulations and the energy efficiency promotion, has begun the process of adapting the economy to a lower carbon footing. This is a challenge for all citizens, not just the Government, and will involve choices and changes in behaviour being made to realise the ambition of reducing greenhouse gas emissions.
In recent years, the Government has been acting to begin to address the challenge and we will continue to work towards reducing emissions. These are Commission proposals and there is still some way to go before they become agreed policy. The Cabinet sub-committee on climate change and energy security, chaired by the Taoiseach, has met a number of times to co-ordinate our negotiation approach.
Does the Tánaiste accept that the climate change strategy published in 2000, which was designed to secure a 20% reduction, failed? The Minister for Transport, Deputy Dempsey, admitted this. What does the Tánaiste believe are the lessons to be drawn from the fact that the then Government set itself the same EU ambition he is now praising, but in respect of which the Government did not deliver? What implications are we to draw about the implementation of this public policy under the stewardship of the Tánaiste and his colleagues and what changes does he plan to make to ensure the same result does not recur?
The targets are challenging and the objective is to try to meet them on the basis of avoiding a detrimental effect on economic growth, jobs and investment. A serious behavioural change on everyone's part will be required. We are discussing with the Commission the method to achieve the targets. As matters stand, they would be difficult to achieve were there no flexibility. Part of the political process of interaction between governments and the Commission is to work out the details and to determine how to achieve targets in a way that does not have a negative or more expensive effect than would otherwise be the case.
I asked about the Government's 2000 programme, which was not delivered on.
We were not able to meet the rate of growth requirements set out in our programme for Government. A number of available mechanisms, such as the emissions trading system and the non-emissions trading system, must be considered. This is a lesson for the future. Regarding carbon sinks and so on, we must determine to what extent we can ensure a comprehensive approach by the Commission——
I must allow other Deputies to ask questions.
——to allow us flexibility. We need flexibility to try to reach the targets.
The previous programme failed.
I agree with the Tánaiste that the target is difficult in that we will need to reduce our emissions, which are 25% above the target level. There is a 2% annual increase in emissions despite the need for a 3% to 4% reduction. I agreed with the Tánaiste's comments on maintaining the national development plan's investment spending, but why has the Government announced later dates for the implementation of public transport projects when the largest portion of emission increases comes from increased car ownership? Our country has little public transport in that there are not enough buses or trains. As the Tánaiste moves into his new role as Taoiseach, does he propose to put serious emphasis on public transport? His colleague has set back by years the dates for the delivery of the bulk of Transport 21.
It is not fair to say that they are being set back by years.
The website in question contains a long list.
When one sets about putting in place complex and ambitious public sector projects, some of which are proceeding quickly——
Roads, not public transport.
The Luas extensions are proceeding through their various phases. We must give credit to public service agencies when they are doing a good job on our behalf. Surely we have not become so politically correct that we must criticise everything. The Railway Procurement Agency, RPA, has been doing a good job in moving those extensions through the various phases that must be passed in our democracy. This situation is similar to the matter of land acquisitions in other major projects and we must ensure that we can provide a means by which they can be financed.
These are not simple, get-up-in-the-morning and dig-a-trench-type projects, rather they are complex, necessary and ambitious and we are committed to them. Without making a political point, we all know of the historic underinvestment in this area for generations. As I remind the House often, we first required a railway safety programme before we could engage in an investment programme. We could not verify something was safe.
Let us be logical. The commitment to the projects remain. We must bring them forward as quickly as possible and the methods to do so are outlined in Transport 21. It is not a question of providing money today and having builders in tomorrow, rather it is a matter of working the consultative process with communities. Deputy Burton is aware of the phases and what must be done even better than I am. The costs of land acquisition and so on are considerable issues and significant moneys must be defrayed to address them.
I agree we must move as quickly as possible in respect of modes of public transport. Other cities can be examined, but this city needs it in particular and we are committed to this work.
Pension Provisions.
Alan Shatter
Question:7 Deputy Alan Shatter asked the Tánaiste and Minister for Finance the basis of the State’s recalculation of public service pension provisions as published recently by his Department; and if a similar recalculation of the liability to social welfare pensions will take place. [15722/08]
The total accrued liability in respect of public service occupational pensions is estimated at €75 billion as of 2007. This figure represents the present value of the expected future pension payments to current staff and their spouses in respect of service to date with the full liability for all future payments to current pensioners and their spouses. The figure represents a projection of aggregate pension payments that will be spread over perhaps 70 years. However, the more meaningful measure of public service pension costs is the actual annual outgo on pensions, which amounted to approximately €2.3 billion in 2007, or 1.3% of GDP. This annual outgo is projected to rise to 2.6% of GDP in 2050. The projected increase arises from the growth in public service employment in recent years and increasing longevity.
The numbers of persons covered by the accrued liability figure are approximately 300,000 serving public servants and 100,000 public service pensioners. The liability is estimated at €45 billion in respect of serving staff and at €30 billion in respect of current pensioners. The liability was arrived at using standard actuarial methodology. The main factors determining the accrued liability figure are the assumed discount rate and the assumed future life expectancy of pensioners.
With regard to social welfare pensions, the appropriate basis for assessing the liability in respect of these pensions is the projected level of future expenditure as a percentage of GDP. The most recent projections, which were carried out in 2007, are for expenditure on social welfare pensions to rise from 3.6% of GDP in 2007 to 5.5% in 2025 and to 10.4% in 2050.
An actuarial review of the social insurance fund as at December 2005 was published last October. The focus of the review, which covers the period from 2006 to 2061, is the income of the fund and the contributory pensions and benefits paid from the fund. The review showed that on present trends, the fund will move into deficit in 2009 and that the deficit would increase significantly over time.
The estimate of the accrued liability should not be confused with the actual cash funding that will be required in the future. However, as indicated in the Green Paper on pensions which was published in October 2007, significant issues of sustainability will arise in the future.
Additional information not given on the floor of the House.
If pensions are to grow in line with wages, total expenditure on social welfare and public service pensions would, in the absence of policy changes, rise from 5% of GDP to 13% of GDP as a result of the projected increase in the numbers qualifying for a pension. That would be an unsustainable position. Measures to contain the cost of the increase in public service pensions have been put in place in recent years and options for further reform are outlined in the Green Paper. In addition, 1% of GDP is being set aside annually in the National Pensions Reserve Fund to help fund future costs. However, the great bulk of the projected long-term increase in pension costs arises in respect of the social welfare pension and from the technical working assumption that such pensions are indexed to the growth in wages over time. Options for addressing the sustainability issue will be considered by Government in the course of the coming months in the context of the Green Paper.
The figure of €75 billion for the public service certainly is scary. As a previous estimate suggested the social welfare liability was at least double that again, which would give a figure in the region of €230 billion. As this is 120% of GNP, it is a substantial liability. Does the Tánaiste share the view repeatedly expressed in reports from the EU, the IMF and others that Ireland is not planning adequately to meet the challenge of the so-called pensions time bomb? If not, what is the thrust of his proposals to prepare Ireland more adequately for this challenge?
Based on previous estimates, my understanding was that the figure in question was approximately €50 billion. As it now has risen to €75 billion, what caused the sudden adjustment upwards by what appears to be 50% from the estimates I had seen in the past? As this came as a surprise to me, how did it come about?
The large size of the accrued liability figures, €75 billion, is due to it comprising the total of pension payments for many years into the future. It will continue until the last spouse of serving staff has died, which probably will be in more than 70 years time.
This figure used to be €50 billion.
I must check on where the Deputy is coming from with that figure. I will try to get that information for him. This is where it is coming from at present.
I will answer the question in a manner that may be helpful to Deputy Bruton. Last year, the figure of €45 billion that was mentioned in a parliamentary question only covered serving staff, while the figure of €75 billion covers both serving staff and pensioners. The difference between the figures of €45 billion and €75 billion does not, therefore, arise from a recalculation of the amount. There is no implication that there should be a calculation of the social welfare pension liability. It merely is a more comprehensive figure.
Will the Tánaiste respond on the preparation issue?
On the Deputy's policy question, Ireland has a demographic window. Although it is not a reason to do nothing, Ireland is not at the stage reached by a number of our fellow EU member states, in which the time bomb is not only ticking but can be heard. The issue in Ireland relates to ending the consultation on the Green Paper in May and bringing forward a White Paper as soon as possible thereafter. This means the Government must consider this issue strategically and in a hard-headed way, which will include reinforcing the sustainability of pensions in the future and finding the mechanisms to so do. This could involve a variation of pension age or many other options set out in the Green Paper that must be considered, as must the question of how this will be funded in the future. While these are serious strategic questions, much good work has been done in respect of the policy formulation phase.
Some people, including Deputy Bruton, would argue the consideration is taking too long. However, because of the figures involved, the highly complex actuarial calculations that must be made and the underlying assumptions, one must check carefully what one's real options are in the short, medium and long term. Certainly, this will be a major challenge in the future. While we have some time before the issue hits us dead in the face, as the figures under discussion demonstrate, we must make some decisions in the short to medium term.
The Tánaiste gave me a similar answer a short time ago when I asked him the same question. Public service employees pay superannuation of approximately 6% as a contribution to the pension. It would be interesting to ascertain how much of a contribution the superannuation contributions of current public servants' pay makes towards the costs of those who retired in the past and who still are in receipt of a pension.
The National Pensions Reserve Fund has almost €19 billion available to it, which will meet some of the built-up accrued liabilities and so on in respect of pensions in the future. Does the Tánaiste envisage increasing the Government's contribution to the National Pensions Reserve Fund as one way to make provisions to meet public service liabilities in the future?
My recollection of the Act that established the National Pension Reserve Fund is that the Government is statutorily obliged to transfer at least 1% of GNP to the fund per year until 2025. Therefore, in the event of there being room to so do in good times, the prospect of continuing with a contribution that is greater than 1% is a matter that is open to any Minister for Finance to decide on in any given year. I recall however, that in the fund's early years, when the state of equity and other markets was such that the return on investments was low, there was a suggestion that the Government should not be putting in as much. This demonstrates the wisdom of the provision.
The suggestion was to invest it in public projects in Ireland.
That is correct.
That certainly was the suggestion made by the Irish Labour Party.
That is correct. There was a suggestion that the Government should raid the fund from time to time.
It was an excellent suggestion.
That is a matter for——
We might now have the roads and transport system we deserve, had we the benefit of doing so.
Please Deputy.
We certainly would not have a pension reserve of €19 billion for future liabilities, which is the purpose of this discussion.
The Tánaiste should wait and see what the results are like at present.
The purpose of this discussion is to debate how to meet future pension liabilities. While the Government was putting that 1% of GNP aside, it was still running surpluses and ensuring it could operate a capital programme from cash. Now however, when I try to borrow modestly to invest ambitiously, I am criticised for the deficit that might arise as a result. It is hard to win when one goes around in a circle.
However, to make a serious comment, it is open to a Minister for Finance to increase that allocation. It cannot be less than 1% and I do not believe there is a view in the House that the Government should withdraw that statutory imperative in the interest of ensuring it does not fall down the priority list as it might otherwise do, were it to be a more discretionary option available to the Minister.
Shane McEntee
Question:8 Deputy Shane McEntee asked the Tánaiste and Minister for Finance his views on changing the presentation of Estimates in order that they would show the extra pension liability that is being taken on by public service bodies. [15702/08]
The Estimates Volume provides information on voted expenditure by Departments and offices in respect of administration and programme costs. This includes expenditure in respect of civil servants' pension costs, as provided for in Vote 7, superannuation and retired allowances, and the pension costs of other public servants, including teachers, members and former members of the Garda Síochána and the Defence Forces, among others. This expenditure on pensions and its associated receipts are dealt with on a cash basis. Thus accrued liabilities are not shown in the Estimates publications.
As the Deputy is aware, there are two forms of accounting in the public service. The accounts of Departments and Government offices are prepared on a cash basis, while local authorities and commercial State-sponsored bodies, for example, prepare their accounts on an accrual basis. The appropriation accounts for central Departments and Government offices are required by legislation to be prepared on a cash basis.
However, a working group on better financial reporting has recently been set up to review the current position with respect to the contents of notes to the appropriation accounts, which include accruals, and make recommendations for their improvement in terms of quality and relevance, to help to present a more holistic and up-to-date view. The review will cover long-term liabilities, including pensions at the aggregate level. This information will be included in the finance accounts.
Substantial liabilities are incurred by the State when people are recruited into a new service, but this never shows up in any assessment. We should build that liability into decisions to recruit so that if, for example, a 15% or 20% pension liability is implied, the agency making the decision recognises the cost.
Similarly, while I do not want to return to the political arena, when we decide to give increases of, for example, €30,000 to senior public servants or Ministers, that represents a pension increase of €16,000 to €18,000. The actuarial cost of purchasing that in the marketplace is massive. I do not believe any serious thought is given to the true costs of these packages when they are blithely approved. The increases have significant implications for the Exchequer and, regardless of whether the decisions are correct, they at least need to be clear and transparent.
While I too want to avoid the political arena, I do not think it fair to claim these increases were blindly approved. Account is taken of the public-private pension differential in the benchmarking process.
Read the document.
Actuarial advice was taken to that effect and it was set out in much greater detail and transparency than was the case for the initial report. We can agree or disagree with the recommendations but we should fairly characterise the professionals involved and the work they did.
I accept the point about the costs which are incurred when permanent and pensionable posts are created. How to move away from a cash basis is perhaps a matter on which the working group on better financial reporting could report to me. I am not sufficiently au fait with the ups and downs of that at present.
Civil servants' superannuation and their contributions to the cost of their pensions are accounted for on a cash basis so, in a sense, superannuation payments by current civil servants contribute to the pensions of retired staff. Can we be given information on the extent to which current payments meet the cost of current pensioners?
Will the Tánaiste consider establishing an office of a national actuary, perhaps within the National Treasury Management Agency? Similar offices have been established in many other countries to regularly publish this important information so that people are informed on pensions. Many people do not realise that civil servants pay towards the cost of their pensions. They think superannuation is notional. The NTMA also manages the National Pensions Reserve Fund and, if it employed a national actuary, information on different parts of the public service could be independently published on an annual basis. It is not possible at present, for example, to get separate figures for the health services or the Garda.
I do not want to dismiss the Deputy's suggestion but actuarial advice is available on an independent basis to the Pensions Board, which has a statutory remit on advising the Government on pensions policy generally and is one of the vehicles through which we are proceeding with the pension policy review. It is a matter of examining that and deciding whether a case can be made. There is also a requirement on many agencies and State boards when submitting their annual accounts to report problems that arise in respect of pensions or where the sustainability of finances has to be addressed in the event of some major pension liability.
The figures are alarming to say the least. By 2050, 10.41% of GNP will be spent on public sector pensions. I ask the Tánaiste to publish a White Paper as a matter of urgency because, apart from the State sector, a significant number of lower paid people in the private sector have no pension provision.
Current pensioners comprise €30 billion of the €75 billion liability. I presume that ratio will be increasingly skewed towards retirees. It is imperative that we bring proposals to deal with pensions, particular given that the public sector payments will be in deficit by 2009.
Clearly, the demographics will change in coming decades. Some years ago we made assumptions based on certain population changes which did not prove correct. The assumptions may be robust in the short term but the further ahead one predicts, the lower the certainty of accuracy. The demographics ratio between those of working age and pensioners will obviously deteriorate, from 4:1 at present to predictions of 2:1 in 30 years time, if the population of people of a certain age does not expand. We have to be somewhat circumspect, while in no way denying the importance of the issue.
Improving one's pension provisions requires deferring present income to future consumption. That is an important aspect because the reason one should have a good pension is for the better chance it offers of spreading consumption over one's lifetime in a way that continues to contribute to demand and revenue. While everyone agrees with the objectives of pension policy, reaching agreement on the means of meeting them, which often requires the deferral of prospective income in the short term for a longer term consumption pattern, is the problem. It is difficult to sell the idea of waiting for a rainy day because it is human instinct to believe one will not be around by then. However, that does not detract from the validity of the argument.
Deputy O'Donnell noted that few people on low incomes have supplementary pensions, the simple reason for which is they do not have the disposable income which would allow them to consider the option.
We have to look at models.
Of course we do. Sometimes it is assumed that everything can be transformed with a wave of a magic wand.
It needs to be looked at.
It is being looked at.
Tax Collection.
Emmet Stagg
Question:9 Deputy Emmet Stagg asked the Tánaiste and Minister for Finance the source of concerns that certain charities may be claiming tax reliefs on false donations; the estimate of the likely extent of such a problem; if there are proposals under consideration by him to amend legislation for charitable tax status; and if he will make a statement on the matter. [15617/08]
The provisions of section 848A of the Taxes Consolidation Act 1997 govern the operation of the scheme for tax relief on donations to eligible charities and other approved bodies. The administration of those provisions is the responsibility of the Revenue Commissioners. To avail of the donations scheme a charity must be specifically authorised by the Revenue Commissioners for the purposes of the scheme and that authorisation falls to be renewed every five years.
The donations scheme was introduced in 2001 and a substantial number of authorisations under the scheme were issued in the years immediately following its introduction. Therefore, many of these are now due for renewal and, as part of the routine renewal process, the Revenue Commissioners are carrying out a programme of reviews to ensure that charities which have been authorised under the donations scheme are continuing to comply with the terms of their authorisations. This review involves contacting these charities and seeking their accounts and other relevant information.
There has been some media speculation recently that this exercise was triggered by fears that charity organisations were defrauding the State. However, the Revenue Commissioners have no evidence that there are significant or widespread problems in the sector. The level of review activity is in part a product of the level of authorisations coming up for renewal at the same time but it is also an ongoing feature of Revenue's compliance monitoring activity.
There are no proposals under consideration to amend the legislation governing charitable tax status, although the Charities Bill, which completed Committee Stage recently, provides for the appointment of a new charities regulator and sets out a framework for better regulation of charities. However, the Revenue Commissioners will retain responsibility for the administration of the donations scheme and charitable tax exemption.
There are reports that Revenue is concerned that bogus claims are being made by charities which seek to recover tax on apparent donations, which are not donations, certainly not donations to what the ordinary person would understand to be a good and proper charity. The difficulty is that the Charities Bill has been kicked around by the Government since 1997 and is still on Report Stage. It has had a journey through so many Departments, it must be suffering an identity crisis. As it is still on Report Stage, there is no legislation in Ireland governing charities.
Irish people are renowned for being extraordinarily generous to charities, both in Ireland and overseas, but there are serious concerns that the Revenue scheme is open to abuse. Is the Minister not concerned that if bogus claims are made for recovery of tax by bogus operators, it brings all charitable activity in Ireland into disrepute, including that by organisations which work hard and do excellent work here and abroad? Will the Minister elaborate on the trawl by the Revenue Commissioners? There are thousands of registered charities. How many are involved?
As I said in my primary reply, the review is part of the ongoing monitoring of the authorisations, many of which are coming up for renewal at the same time. It was suggested in the media that this was a result of a fundamental concern by Revenue that matters were not as they should be. The tenor and content of my reply is to the effect that Revenue is not indicating that this is the case. Instead, for the reasons I have given, Revenue is indicating that these are matters it must deal with but that it does not believe there is a serious or widespread problem, or a problem such as was perhaps communicated through the media because these reviews were taking place. People assumed the worst when, as I understand it, that should not be the case.
I do not know the number of authorisations Revenue is examining at present but I will try to get that information for the Deputy. Some 2,040 bodies have been approved under the donation scheme since its introduction in 2001. Last year, the number of PAYE donors was more than 81,000 and €25.3 million was refunded under the donation scheme to charities and approved bodies.
There are many reports to the effect that, for example, in regard to private schools it is possible for parents to construct schemes of donations within a charitable framework which effectively means that those schools have a benefit over and beyond that which an ordinary State-run school might have. When does the Tánaiste expect that the charities legislation will be implemented? I would be grateful if he could supply to me by written reply some of the figures to which he has just referred, or any other details he has.
I will try to get whatever further information I can for the Deputy in terms of what numbers are being examined at present. It is not correct to suggest there is a preference with respect to types of schools. Since 2001 all primary and post-primary schools providing education based on a programme prescribed and approved by the Minister for Education and Science automatically qualify as approved bodies for the purposes of the donations scheme. As the Deputy knows, there are approximately 4,000 such schools in the State. The matter of whether they are fee-paying schools is not a consideration.
As this is the last time the Minister will appear on finance questions, I wish him well in his future endeavours. I hope he will remember those of us who still labour here in the vineyard and that he will cast a kind eye towards us from time to time from his great position of authority. I wish him well. I have enjoyed working with him for more years than I care to count. Good luck with the job.
I too wish the Tánaiste good luck for his own sake and the sake of the country in the job and the challenges that lie ahead. I am sure he is very confident of being elected and I am sure everything will go right on the great day. I am not sure the Tánaiste has always enjoyed working with me, but let us hope we can kiss and make up at this point and look forward to a better relationship in the future. I have certainly found it very interesting, at times entertaining and usually quite instructive working with him. I wish him the best in the future.
I thank Deputy Bruton and Deputy Burton for their kind remarks. I know they are meant in the best possible way. As has been said, in the rough and tumble of politics we crossed swords now and again but never in a way that affected personal relationships, even if we did not foster them as much as we should have. As regards the exalted office, I will have to talk to Deputy Bruton about a fraternal understanding as to how exalted the office might be in the future.
I also wish the Tánaiste well.
Written Answers follow Adjournment Debate.