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Dáil Éireann debate -
Wednesday, 15 Dec 2010

Vol. 725 No. 2

Leaders’ Questions

Information given to Deputy O'Dowd through a series of parliamentary questions indicates a bonus culture exists within elements of State agencies and some Departments. This creates an enormous credibility problem. Outrage was felt across the country at the proposal to pay bonuses to bankers in particular areas. The Minister for Finance, after a degree of consideration despite the advice of the Attorney General that claimed nothing could be done about the bonuses and which the Minister put on the record, did a solo run and rightly stopped their payment. Today's newspapers indicate a bonus culture still exists in State agencies and Departments, however.

In 2008 the Minister for Finance issued a circular stating this bonus system should cease. From the majority of parliamentary replies to Deputy O'Dowd on this matter, it seems to have been applied in all Departments expect the Department of Finance and several State agencies. In 2009, performance related bonuses were paid to the chief executive of the National Treasury Management Agency, amounting to €200,000, to the chief executive of the Personal Injuries Assessment Board, amounting to €31,000 and to the chief executive of Horse Racing Ireland amounting to €40,539.

These payments present a credibility problem. Last week's budget, presented as fair and equitable, asked ordinary public servants, be they teachers, gardaí, nurses, cleaners or carers, to take salary reductions and pay more levies and taxes. Now they find in some areas of the public sector that a bonus culture is alive and well. It is as if a separate club exists.

Will the Taoiseach confirm this bonus culture will be ended across the public sector and the Civil Service? As the Minister for Finance has direct control over the pay of senior civil servants above the level of assistant secretary, how does he propose to end this bonus culture which has caused outrage and separation within public sector ranks? Have the proposals in the Minister's 2008 circular been implemented? What does the Taoiseach propose to do about the information given to Deputy O'Dowd on bonuses in certain areas?

It is important to make a distinction in these cases. It is not correct to conflate the banking sector bonus system, in which a large, additional to basic pay, discretionary bonus based on meeting certain objectives was in place, with payments to middle-ranking public servants at principal officer and assistant principal level.

In 1994, the programme for competitiveness and work provided for a 1% pay increase for people at that level. In some Departments it was incorporated into the full pay pot for those grades while in others it was used to recognise work of exceptional merit. This is against the background where those grades have seen a reduction in their pay of 17% through Government decisions. It is important not to conflate those two issues as being the same, as they are not.

The special service payment in the Department of Finance was based on criteria concerning special demands of the job or whatever occurred in a previous year. The average payments were between €2,000 and €2,500 per year. That should not be conflated with bank bonuses.

These payments are bonuses.

No, they are not. They are part of the overall pay bill.

They are called bonuses.

Will the Taoiseach explain why they are called bonuses then?

One has to apply for them.

Will the Deputies please allow me to explain?

Deputies, please allow the Taoiseach to continue without interruption.

This applies to middle-ranking public servants. Under a previous pay agreement there is a certain pay bill aggregate for those grades. As part of that pay award at the time, back in 1994, in some instances it was incorporated into the full pay bill. In other words, part of the full pay bill of that grade was incorporated as part of their pay rate. In other instances in the Department of Finance, 1% of total pay in that grade was used as a means of doing so.

What bonus did the carers get?

Last year, for example, some people obtained a special payment on that basis. That is the position regarding that matter. The total special service payments and seniority payments together amount to 1% of that Department's payroll, which is against the background of a 17% pay cut for those grades. To conflate that with what has been happening in the banking sector is not to compare like with like because it is not a discretionary payment.

They are still bonuses.

At higher grades — Secretary General and assistant secretary general level — those were discontinued because 10% of the total pay bill was involved in that situation.

With regard to non-commercial semi-State bodies, the decision on such payments is a matter for the boards themselves and are often built into the contracts of the individuals concerned. As regards those schemes, the Department of Finance wrote to Departments about performance-related payments for chief executives or other senior staff of non-commercial bodies and agencies, indicating it would be appropriate that consideration of bonus payments should be suspended. That remains our position and it will be followed up.

Has it happened?

It has happened in the vast majority of cases.

I have no problem with public servants being fairly and equitably paid. Those salaries should be accounted for as well as being in line with best practice. Within the ranks of the public service itself, however, there is outrage at the apparent — and, in some cases, proven — level of performance-related pay or bonuses allocated to particular sectors and particular individuals in some sectors. That is what is causing real anger because people were told by the Minister for Finance that the budget was fair, equitable and just. They do not see that, however, because carers and others looking after those with mental health problems at the lower levels are being asked to pay increased taxes, levies and charges of one sort or another. They also see evidence of serious money being paid, either as performance-related increases or bonuses, to particular individuals. That is what is causing the problem.

The Minister for Finance sent out a circular about this. I am glad the Taoiseach has confirmed that the practice has been discontinued at assistant secretary, deputy secretary and Secretary General levels. In respect of the Department of Finance, are these discretionary bonuses that are paid by the Minister for Finance? I understood that any individual from the rank of principal officer upwards in the Department of Finance is graded higher than an equivalent category in any other Department. Are these discretionary bonuses that are paid by the Minister for Finance?

Can the Taoiseach confirm that, in accordance with the circular issued by the Minister for Finance, there is an end to the bonus culture in the semi-State agency sector? It appears as if that is not the case. Some of the payments that have been made are extraordinary. I do not know whether the payment made in the Dublin Airport Authority, the harbour authorities or CIE were discretionary ones.

The Deputy is taking an inordinate amount of time on this subject.

Can the Taoiseach confirm that the payments were discretionary on the instruction of the Minister or by the agency involved? There is complete confusion about these payment levels.

As I have advised the House previously, there is limited time for Leaders' Questions.

It would be worth the Government's while to have a complete review of higher public servants' pay in respect of it being equitable, accounted for and transparent. The current situation is not transparent and causes more hurt and anger among ordinary public servants who do their jobs diligently every day, yet find themselves facing more levies, charges and increased taxes. Meanwhile, they can see and read about exceptional bonuses being paid to some individuals far up the line.

I have explained the situation regarding the Department itself but it is not correct to conflate that with what we have been discussing in recent days. It is part of the existing pay pot of those departmental grades. As was the case in many public service pay review recommendations, it concerns how one can incentivise and recognise exceptional merit, far more modestly than what is suggested was happening in the banks. It is part of the existing pay pool. Other Departments incorporated it across the board into those departmental pay grades. The average was about €2,000 to €2,500, which is totally different than what we were talking about yesterday.

The boards of non-commercial semi-State bodies have a responsibility to ensure that is being done. The Minister issued a circular to that effect. I am checking it out to ensure that it is being dealt with properly across all those agencies.

The commercial semi-State sector has a commercialised agenda. It has commercial contracts to their boards, which have to be dealt with in that way. It is important, however, not to conflate what was happening with middle-ranking public servants with what was discussed yesterday.

The Taoiseach should talk to NAMA and see what it is paying.

A Deputy

The Taoiseach should haul them in.

Later this morning, we will be debating the EU-IMF deal. I wish to ask the Taoiseach about one aspect of that deal, which relates to an issue that was the subject of an RTE news report. It concerns the rate of interest which is being charged on one of the components of the deal. As we know, the deal is in three parts: the IMF, the European Financial Stability Mechanism, and the Luxembourg-based facility. The RTE report confirmed this morning that the European Union will be borrowing money using its triple-A rating and would then make that money available to Ireland, but at a much higher interest rate — that is, 3% higher than the rate at which it is borrowing. In other words, it will be making a profit of 3% on the money it is lending to Ireland.

They were not saying that this morning.

If the entire amount of €22.5 billion is drawn down from that fund, the cost to Ireland of the additional interest which the European Union will be charging us will be close to €5 billion over the lifetime of the loan. When RTE questioned the European Court of Auditors about this, it confirmed that there is no precedent for the European Union charging a margin of that kind on moneys being made available to other countries. For example, when Latvia, Hungary and Romania got money through the European Union previously, a margin of that kind was not applied to the interest they were charged. Before we begin the debate on the EU-IMF motion, will the Taoiseach tell us why Ireland is being charged a very high 3% interest penalty on this money which is coming through the European Union? Why is it that there is no precedent for this level of interest penalty being charged to a country that is borrowing money through the European Union, and why did the Government agree to it?

The reason there is no precedent is that we are the first country to utilise funds under this new finance mechanism. That is the first point. It is easy to know why there is not a precedent; this is the first time this money has been provided for this purpose.

Second, in the cases of the other aid that was provided to the countries the Deputy mentioned, whether humanitarian or other restructuring aid, the EU was not acting as a lender of last resort. This is the first time this has happened. Similarly, the Greek situation, which predated the decision of the ECOFIN Council in May on the terms upon which this aid would be disbursed, was a bilateral loan arrangement between countries and was at rates similar to this loan. Indeed, the Greeks are looking for the terms we have obtained. They would like a longer timespan for the availability of funds than was granted to them under the bilateral aid package.

Third, the general provision based on lending in a last resort situation will apply to this loan and to any future loan, should that arise for any other country. This is the first time a loan has been given in a last resort situation and the terms are based on the ECOFIN decision of last May. The rate has been calculated at a level to ensure it acts as an assistance to us but, given that the IMF is recognised as the cheapest international provider of credit, the European Financial Stability Mechanism, EFSM, money is at the same rate — 5.7% — as the IMF money.

This is the first time the EFSM is being used, but it is not the first time money has been made available to members of the European Union through various EU mechanisms. The EFSM operates under Article 122 of the European Union treaties, which provides that the EU can assist a country "in a spirit of solidarity" where that country is facing exceptional financial difficulties. When money was loaned to other countries under that provision of the EU treaties — and I have referred to the situations in Latvia, Hungary and Romania — the additional margin was not applied. Those countries were not charged an additional 3% on the money lent. Ireland is the first country being charged a penalty rate of interest.

Why are we being charged this additional rate of interest? Yes, we are in a position of going to the lenders of last resort in order to get money to finance the State. We understand that. We also understand the context in which that deal was struck. There is not just an Irish problem. There is also a European and a euro problem. When the Government sat down to negotiate the deal with the European Union institutions, the arrangement it made was to provide financial assistance to Ireland, but it was also designed to support the euro and provide financial stability within the European system. Why did the Government agree to being charged a penalty rate of interest that will cost the Irish taxpayers almost €5,000 million over the period of repayment when such a penalty has never been applied to a European country borrowing through the mechanisms provided for by Article 122 of the EU treaties?

The simple reason is that this is the first time the mechanism has been used as a lender of last resort working with other international organisations that are providing the cheapest form of international credit available to the IMF. If Deputy Gilmore wants to equate humanitarian or other aid to Latvia and Hungary with the situation we are in today, he is not acknowledging the context in which the European Union — and ECOFIN in May — decided, in taking up this posture, to make available funds at a similar rate as is available from other international institutions that provide money for this purpose. Money is provided by the European Union for other purposes, for which a margin is not charged.

If the money were not available from the European Union and we did not take up the EFSM money we would, presumably, have to get it from the European Financial Stability Facility, EFSF, which would be at a slightly higher rate, or from the IMF, which is at the same rate as the money Deputy Gilmore is talking about. There is no alternative, bar the market, to the EU, the EFSF and the ESFM. That is the situation.

The Government has allowed the country to be ripped off.

That is not correct.

It is correct. No one else was charged the penal rate.

The Government had more leverage.

The Government got a bad deal.

That is not correct. The Deputy is suggesting that the EU will make the money available at a lesser rate than the IMF, which itself is the cheapest international provider of credit. That is something ECOFIN is not prepared to do. ECOFIN was prepared to make sure it would provide additional credit to this country at rates similar to what was available from the IMF, which is the established international organisation to provide international credit to sovereign countries for this purpose. That is the situation.

If we were to go to the international market for that money we would be paying a far higher rate than is available from the EFSM and the IMF. Those are the facts. Deputy Gilmore's suggestion that a lower rate was available, despite the fact that ECOFIN made this decision, is not only unrealistic but also unachievable.

It is a strange version of solidarity.

The legal basis for the money is clear.

Today is the day when the Taoiseach and the Government want the Dáil to vote approval of a deal that will sell the Irish people into economic bondage. The vote that will take place later today would never have taken place but for the fact that Sinn Féin threatened legal action if the Government failed to act in the spirit of Article 29 of the Constitution. The Taoiseach would have bulldozed on regardless.

We have now learned that the EU Commission, with the approval of the eurozone Finance Ministers, has insisted on placing a further 3% profit margin on top of the interest applied to an element of the loan provided via the EFSM.

It is punitive.

This is an outrageous situation. Over the term of the loan, and if it is drawn down in full, a further burden of €5 billion will be placed on the Irish people. This money will go directly back to the EU member states, principally Germany and France.

We are told this additional 3% has the approval of the eurozone Finance Ministers. When did such a meeting take place? Was the Minister for Finance in attendance? Did he accede to this further 3% penalty being applied to the overall loan from that particular mechanism within the deal? What steps were taken to oppose this, if any?

This mark up is unique to Ireland. The Taoiseach cannot get away from the fact that none of this applied to EU supports for other countries, such as Latvia, Romania and Hungary. He says it will apply in every other case from here on. What has he done to resist it applying in Ireland's case? We are not a unique or special case. The difficulties presented here are particular to us, but difficulties have presented in other economies too. We want to know why the Taoiseach has signed off on such a damn bad deal for the Irish people.

If the Dáil approves this deal, the Irish people will be burdened with a massive debt to bail out banks and bond holders.

The Deputy should conclude.

I will conclude on this point.

The Deputy should please do so.

It is suggested that the average interest rate applying will be something of the order of 5.8%. Make no mistake, however, there are clear indications that the estimated real interest rate will be closer to 7% across the board. The Government has already admitted this in a number of statements it issued.

The Deputy should allow the Taoiseach to deal with the questions he has posed.

What is the real rate that will apply? Will the Taoiseach reveal to the Irish people the full facts and the real truth regarding this very sullied deal the Government is proposing to impose following today's forced vote in the Chamber? If the Taoiseach has confidence in the deal to which I refer, he should ensure there is a free vote on it for all Members.

On the issue I raised with Deputy Gilmore regarding the question of a general provision based on lending in a situation of last resort, the European financial stabilisation mechanism, EFSM, will have a margin and the decision in that regard was made by ECOFIN in May. This is an ECOFIN-based source of funding from the 27 member states. As the Deputy is aware, there is also another facility which is specific to the eurozone. The decision on the margin was made in May and the specific terms and conditions were signed off when the Minister for Finance, Deputy Brian Lenihan — with a mandate from the Government — attended meetings of both eurozone and ECOFIN Ministers.

The basic point is that this is the first occasion on which the money or mechanism in question has been used for the purpose to which we are referring, namely, to provide funding for the State in the absence of the sovereign debt that is available on the markets at a far higher rate of interest.

All the more reason to obtain a good deal.

A precedent has been set.

The rate that is being provided compares favourably to the cheapest international credit available, namely, that on offer from the IMF, for this purpose. Ireland is the first country to use the mechanism to which I refer for this purpose. Countries that avail of it in the future will be obliged to deal with similar situations. In the context of humanitarian or other aid offered to countries that were in difficulties, it was not the case, as is the position with regard to Ireland, that a lender-of-last-resort scenario obtained.

The legal basis for the application of a margin was laid down by ECOFIN in May. The specific terms and conditions were signed off by ECOFIN in recent weeks following the completion of the negotiations which took place here. The rate that is applicable in respect of the mechanism is the same as that which applies in the case of funding from the IMF, which — as already stated — is the cheapest source of international credit. It is a facility from which the Government can draw down funding during the next three years at the rates to which I refer over an average period of seven and a half years. It is a matter for the Government to decide what to draw down and when to draw it down. If money becomes available on the markets at a cheaper rate in the intervening period, it will be open to the Government to seek to access such money. The reality is that we either seek these funds at the rate on offer or that we return to the secondary markets, where the cost of borrowing is more than 8%, in search of money to fund the State beyond July next. We already have in place pre-funding arrangements to that date.

I will take a brief final supplementary from Deputy Ó Caoláin.

From what the Taoiseach said, there is no sense of the so-called spirit of solidarity cited in Article 122 of the Lisbon treaty. There is no spirit of solidarity when the European Union and those involved in the eurozone grouping decide that they can make profit on the backs of Irish people, who are facing hardship. How will the Taoiseach explain what is happening, in the context of a spirit of solidarity, to those who are on social welfare payments or low or middle incomes and who are being obliged to shoulder the burden of the repayments to be made? The suffering and hardship that are affecting our society and that will continue to hold sway in the coming years have come about as a result of the decision to bail out banks and bondholders.

Will the Deputy please conclude by asking a question?

Those bondholders are primarily based in the very countries — France, Germany and Britain — that will benefit from the 3% profit margin that will apply over and above the interest that must be repaid. There is no acceptance of this whatsoever.

Before the Ceann Comhairle rings his bell, I wish to avail of a final opportunity to make an appeal to the Taoiseach to withdraw and pull back from the brink. If he has confidence in his position and in the deal that has been negotiated — it is shameful that the Minister for Finance signed off on the latter — then the matter should be put before the people in a general election.

(Interruptions).

Deputy Ó Caoláin is going beyond the bounds.

Will the Taoiseach call a general election?

It is ironic for the Deputy to refer to treaties of the European Union and the spirit of solidarity when he never voted in favour of one such treaty in his life.

However, the Taoiseach has done so. On two occasions Governments of which he was a member held second referenda in respect of treaties that were rejected by the people in the first instance.

The Taoiseach, without interruption.

The Deputy used the minute available to him and more in order to make his points. He should allow me to reply.

I wish to make a serious point. It is unrealistic to suggest that the European Union has not shown a preparedness to assist Ireland in this situation. Two thirds of the facility available to us will come from European Union sources and the remaining third will be provided by the IMF. It is also unrealistic to suggest that there are rates of credit available within the European mechanism which would be cheaper than those relating to the IMF mechanism. As already stated, we are discussing lender-of-last-resort status. In that context, we must ensure we can return to the markets when conditions normalise. Prior to the serious turbulence which arose on markets during the year, Ireland was obtaining money at average rates of 4.5% to 5%.

Making a return to funding our operations through the international bond markets, in more normal conditions and as quickly as possible, is the reason we have been provided with a facility from which we can drawn down moneys as required. It is hoped that while we pursue the programme of adjustment in which we are already engaged, the bond markets should normalise and we will then be able to return to them and obtain money at rates which would be lower than those which apply in respect of the funding we are obtaining from the sources to which I refer. That is the purpose of what is being done.

The facility is for three years and it seeks to ensure we can return to the bond markets on the basis of the adjustments we will make in the interim. As already stated, it is a misnomer to continually refer to a penalty when what is on offer is comparable to what is available from the cheapest source of international credit, namely, the IMF. It is important to recognise that the lender-of-last-resort facility is available to Ireland for the first time since the mechanism was established. The mechanism in question was set up by the ECOFIN Council, which involves all 27 member states, and is distinct from the stabilisation facility which was established by the eurozone countries. It is vital to point out that the financial assistance to which I refer is on offer at a far lower cost than the only alternative available, namely, funding from the secondary markets where rates of well over 8% currently apply.

That concludes Leaders' Questions.

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