I move: "That the Bill be now read a Second Time."
The primary purpose of the Bill is to apply the Financial Emergency Measures in the Public Interest Acts of 2009 to serving members of the Judiciary in line with the decision of the people in the referendum on the Twenty-ninth Amendment of the Constitution. The latter amended Article 35.5 of the Constitution in respect of judicial remuneration. The proposed amendment to the Constitution was approved by both Houses. The referendum on judicial pay, as proposed and put before the people, was passed by a significant majority — some 79% — on 27 October last. The terms of the amendment were very carefully crafted from a legal and constitutional perspective in order to ensure that the ongoing independence of the Judiciary in carrying out its functions on a daily basis is maintained. This is as it should be. It would be a blow to our status as a constitutional democracy if there was even the perception, no matter how remote the possibility might be, of Government influence over decisions by judges on cases. In approaching this issue, that constitutional imperative was an absolute priority for the Government.
In my view, the role and standing of the Judiciary in our democracy is actually enhanced by these measures. The measures proposed within the Bill uphold the obligation on all citizens to share their part of the burden of addressing the current severe fiscal crisis which the State faces. The Bill provides for the application, equally and proportionately, to the Judiciary of the public service pension-related deduction and the same salary reductions as those applied to other public servants in 2009 by the previous Government. Our late colleague, Brian Lenihan, stated in 2009 at that time that the decision to apply these measures was not taken lightly. Their application in respect of public servants in 2009 and 2010 represented the first statutory reductions in public servants' pay since 1933. That is an extraordinary fact and it highlights not only the exceptional nature of the measures but, equally, the depth of the crisis faced by the State.
The essence of this crisis is summarised in the preamble to the Financial Emergency Measures in the Public Interest (No. 2) Act 2009. I wish to repeat what is set out in that preamble in order to set the backdrop to the measures being put forward in the Bill I am putting forward for Members' consideration. The preamble refers to "a serious disturbance in the economy and a decline in the economic circumstances of the State", "serious deterioration in the revenues of the State", the need "to take urgent measures to reduce the significant shortfall between expenditure and revenue" and the need "to reduce State expenditure to maintain international confidence". Most importantly, the preamble refers to the requirement "for the State to achieve significant savings in its expenditure, both directly and indirectly, on remuneration".
Despite the difficult steps the country has already taken, it still faces an extraordinarily difficult fiscal challenge. We are currently borrowing over €1.25 billion every month in order to pay our ongoing expenses. This excludes any banking-related expenditure. We are borrowing from the European Union and the International Monetary Fund in order to continue funding our public services, pay costs, pensions and social welfare benefits.
The Government is committed to sustainable, ongoing reductions in the overall cost of the public service pay bill. This will be achieved through measures such as those included in the Bill, as well as through planned reductions in the numbers of public servants as set out in the programme for Government and through greater efficiencies in the way in which public services are delivered. The Government has already introduced significant reforms and I announced further substantial proposed reforms when the Government's statement on the public service reform plan was published on 17 November last. I will not discuss the details in this regard now. The Members opposite will be at the meetings of the Committee of Public Accounts and the Select Committee on Finance, Public Expenditure and Reform at which I will provide detailed presentations in respect of these matters where I hope we will be able to engage in some good interaction on them.
In the context of pay, since taking office in March the Government has demonstrated a policy of salary reduction and restraint for higher earners in the public service. On coming to office, all members of the Government accepted further reductions in their pay. In June, the Government approved my proposals to introduce a general pay ceiling of €200,000 in respect of future appointments to higher positions across the public service, a general pay ceiling of €250,000 for future appointments to CEO positions within commercial semi-State bodies and a voluntary waiver of up to 15% for current post holders who have salaries in excess of the relevant pay ceilings. Existing incumbents of posts in the public service that attract salaries in excess of the general pay ceilings adopted by Government have responded positively to my request for a voluntary waiver. All new appointees to the public service are being made in line with the policy adopted by Government on pay ceilings. New pay rates for Secretaries General of Departments were introduced in June, with a maximum rate set at €200,000. This represents a reduction of almost 30% on the rate of Secretary General level 1 pay that obtained in September 2008 and it means that no civil servant can earn more than €200,000. These new pay rates will also reduce Exchequer pension costs into the future in respect of all new appointees. The savings that will arise under the terms of the Bill are relatively small, amounting to some €5.5 million.
I wish to inform the House of my intention to bring forward an amendment to the Financial Emergency Measures in the Public Interest Act 2010, which reduced public service pensions in payment and for those who retire before the end of the so-called "grace period" when the Bill goes before Seanad Éireann. My amendment, which will be introduced in the Seanad and then brought to this House, will impose a higher reduction rate of 20% on public service pensions above €100,000. Pensions in excess of €60,000 are currently being adjusted downwards by12%. It is estimated that a reduction in public service pensions above €100,000 such as that proposed would potentially affect pensioners who previously held office, such as former Presidents, taoisigh, senior members of the Judiciary, including Chief Justices, or members of the High Court and the Supreme Court, heads of universities, Civil Service Secretaries General, chief executives of non-commercial State bodies, some hospital consultants, Garda Commissioners and Chiefs of Staff of the Defence Forces. My Department's initial estimate indicates that this would lead to a modest saving of €400,000 in a full year.
I wish to provide some examples of how what I have outlined might affect particular individuals. A person on an annual pension of €125,000 will see a cumulative reduction in his or her pension of €13,760, or 11%. Someone on a very high pension of €150,000 will see a corresponding fall of in the region of €18,760, or 12.5%. It should be noted that these pension holders are also subject to the usual array of taxes, including PRSI, the universal social charge and the upper rate of income tax. They are already being taxed or charged at well in excess of 50% and this rate will be additional to that. I asked my Department to provide an estimate of the net income of a public service pensioner whose gross pension before tax or the public service pension reduction is €125,000. The net income of a single pensioner over the age of 70 would be reduced to a net take-home amount of €71,716. This is a substantial income, particularly when one considers that such an individual is unlikely to be obliged to shoulder the same costs as his or her younger counterparts. However, the reduction is significant. While the level of savings would again be modest, I am of the view that this measure should be implemented in the broad public interest.
The Attorney General has advised that pension entitlements are vested property rights which have already been earned. As we know, however, the existing legislation already affects vested pension rights in the public interest. I consider that this progressive amendment is also in the broad public interest and that is just and equitable in the circumstances. There are those who believe that people had an expectation that certain levels of pension would apply and that they had made contributions in respect of their pensions over significant periods. However, there is also an understanding that in the circumstances in which we now find ourselves, those with the broadest shoulders must bear the greatest burden. It is for this reason that I sought to introduce this particular measure, to which the Government has readily agreed.
Safeguards are contained in all the Financial Emergency Measures in the Public Interest Acts. Measures must be publicly reviewed annually and I, as Minister, may consider and may grant claims for exemption or modification if it is considered just and equitable to do so. No one will seek to make the case that the savings I have outlined will make significant inroads in the context of the financial crisis which the State faces. They will not resolve the extraordinary problems of borrowing and indebtedness by which our nation is currently affected. However, that is not the rationale behind the Bill or my proposed amendment to it. The terms of the Bill reinforce the principles of fairness, ability to pay and burden sharing among all of us. It ensures that those in eminent office demonstrate their leadership and, most importantly, their solidarity in a real and concrete way with the people most affected by the economic crisis.
This is the fourth item of financial emergency legislation to be put before the House since the spring of 2009. It might serve some purpose to remind Members of the contents of the three Acts previously passed by the House. The first Financial Emergency Measures in the Public Interest Act of 2009 provided for a progressive pension-related deduction to apply to public servants with access to a public service pension. The Act was introduced in the context of the priority to be given to the stabilisation of the public finances. As well as the pension-related deduction, it contained a number of measures designed to produce savings, which would be remitted to the benefit of the Exchequer. The pension-related deduction, which came into effect on 1 March 2009, currently applies to earnings in excess of €15,000 per annum and is calculated progressively at rates ranging between 5% and 10.5%.
The deduction is not a pension contribution and was introduced in the context of the recitals to that Act, which, as I mentioned already, set out the serious and ongoing disturbance in the economy and threat to the finances of the State. The deduction also reflected the general comparative value of public service pensionsvis-à-vis private sector pension provision.
The Financial Measures in the Public Interest (No. 2) Act 2009 provided for the reduction in the remuneration of all public servants with effect from 1 January 2010. The Act provided for reductions of an average of some 7% where the salary of the public servant was less than €125,000. Fixed reduction rates of 8%, 12% and 15% applied to salaries of more than that amount. The public servants affected included officeholders such as members of the Oireachtas and the Government and employees of public service bodies — more than 300,000 people all told. Of course, the House will understand that since then, and since the election of this Government, there is a ceiling now on all civil servants' earnings and no civil servant in the State is earning currently more than €200,000 because they all have taken a waiver to below that level.
Prior to the recent referendum on judicial pay, members of the Judiciary together with the President were not subject to the provisions of either Act. The Bill we are discussing today removes the exemption for the Judiciary and, if passed, they will be subject to the measures in both 2009 Acts from 1 January of next year.
The Financial Emergency Measures in the Public Interest Act 2010 introduced an income graduated reduction applied to each gross annual public service pension in excess of €12,000. That deduction already applies to retired members of the Judiciary and will apply to the pension of any public servant who retires before the expiry of the grace period after which pensions will be reduced in line with the pay reductions set out in the second Act. The Bill today includes provision to extend the application of the pension reduction to Central Bank pensioners with the consent of the Governor of that Bank, as was intended by the legislation. It was not possible to do that heretofore. This provision is necessary owing to the legal position of the Central Bank as part of the euro system. I already mentioned the amendment that I propose to introduce for those on very large public service pensions and we will have a chance to debate that when it comes back, hopefully, from being passed in the other House.
In addition to the three Acts, a 10% reduction in pay from 1 January 2011 was introduced for new entrants into entry grades in the public service. The Bill today makes provision to apply a similar 10% reduction to new judicial appointments from enactment of the Bill.
This short Bill, in addition to the provisions relating to the Judiciary, also includes the legislative provisions to underpin the significant decision taken already by Government on the remuneration of officeholders. It also includes a number of technical or ancillary amendments. As I mentioned, it is intended that the Bill, if passed by both Houses, will be brought into effect from 1 January 2012.
I will go through the provisions of the Bill in detail. As stated already, the main purpose of the Bill is to give effect to the outcome of the referendum to amend the Constitution to allow the pay of judges to be reduced in certain very exceptional circumstances. This Bill provides for the application of the two Financial Emergency Measures in the Public Interest Acts of 2009 to both serving and new members of the Judiciary and military judges on the same basis as other public servants.
I am aware that there has been some controversy about the non-application of the pension-related deduction to the Judiciary in particular. However, the clear legal advice was that the constitutional bar on reducing the remuneration of serving judges prevented the application of that measure to judges. That was the advice given to the previous Government and accepted by it. It was advice reiterated to this Government and that is why we had to proceed down the line of a referendum. Deputies will be aware that a separate provision was put in place under the taxation code to permit judges to make an equivalent waiver on a voluntary basis and that the majority of judges did so.
Following the amendment to Article 35.5 of the Constitution on judicial remuneration, sections 3 and 4 of this Bill will apply the reductions in salary applied to other public servants through the application of the pension related deduction to serving judges, and sections 5 and 6 will apply the reduction in salary effected through the provisions of the Financial Measures in the Public Interest (No. 2) Act. The net effect of the provisions of the Bill will result in reductions for serving judges ranging from 16% in the case of a District Court judge to 23% in the case of the Chief Justice.