Financial Emergency Measures in the Public Interest (Amendment) Bill 2011: From the Seanad

The Dáil went into Committee to consider an amendment from the Seanad.
Seanad amendment No. 1:
New Section: In page 8, before section 9, but in Part 2, to insert the following new section:
"9. — Subsection (1) of section 2 of the Financial Emergency Measures in the Public Interest Act 2010 is amended, with effect on and from 1 January 2012, by the substitution of the following Table for the Table in that subsection:
"TABLE

Annualised amount of public service pension

Reduction

Up to €12,000

Exempt

Any amount over €12,000 but not over €24,000

6 per cent

Any amount over €24,000 but not over €60,000

9 per cent

Any amount over €60,000 but not over €100,000

12 per cent

Any amount over €100,000

20 per cent

.".".

Members will be aware that this legislation amends 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". I told the Dáil on Committee Stage that I would introduce an amendment in the Seanad to impose a higher reduction rate of 20% on public service pension amounts above €100,000. Pension amounts in excess of €60,000 are currently being reduced by 12%. An additional 8% reduction is being imposed on pensions above €100,000. It is estimated that the proposed higher reduction rate of 20% on public service pensions above €100,000 will affect pensioners who previously held office, including former Presidents, taoisigh, senior members of the Judiciary including chief justices and members of the High Court and 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.

I told the House previously that the Department of Public Expenditure and Reform initially estimated that this change would lead to a relatively modest saving of €400,000 in a full year. I can give some examples of how it might affect particular individuals. A person on an annual pension of €125,000 will see a total reduction in his or her pension, attributable to the public service pension reduction, of €13,760 or 11%. Someone on a very high pension of €150,000 will see a corresponding fall of approximately €18,760 or 12.5%. Of course that is on top of all the usual array of charges. My estimate is that for pensioners now earning more than €100,000 total deductions are in the order of 68%, the marginal rate.

My Department provided 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. Under the amendment, the net income of a single pensioner over the age of 70 would be reduced to a net take-home amount of €71,000. I do not suggest this amount is not a substantial income, particularly when one considers that such individuals are unlikely to be obliged to shoulder the same costs as younger counterparts. However, the reduction in pension attributable to this amendment is significant.

Deputy McDonald has an amendment.

I move amendment No. 1 to amendment No. 1:

In the sixth row of column two of the table to delete "20 per cent" and substitute "100 per cent"

We have debated this matter before. There is an air of unreality in the way the Minister is dealing with the whole issue. The average public sector pension is in the region of €20,000 to €30,000 per annum. We must get back to first principles. Nobody should be on a pension of €125,000, much less €150,000. In previous discussions the Minister offered a rationale in terms of property rights and earnings and stated it was for that reason he could not introduce retrospection aimed at stopping such payment.

In my amendment to the Minister's amendment, I suggest the Minister simply claws back the excess, levying any amount greater than €100,000 at 100%, claiming it back for the public purse.

The Minister has made much of his willingness and urgency to deal with all matters relating to the public service. He has taken on a new Department and a new role. I take him on his word that he is anxious to get on with this. However, if it is to be successful it will mean breaking some delph, if I may use that term. I do not fancy the Minister's chances of delivery if he is going to be so timid in dealing with what are clearly insane and indefensible pensions. I see the matter as that simple. If I were sitting in the Minister's seat I would be looking at these issues in a much more radical way than I suggest in my amendment. It is entirely reasonable, however, in a time of crisis, where the State is insolvent and these emergency measures are in the public interest, for the Minister to claw back the excess of €100,000 in total. If the Minister was really serious about getting the job done that is what he would set out to do. He has not dealt in any way that is convincing, not only to the likes of me in this Chamber, but publicly, to citizens who listened to him read out his cuts of billions of euro in his budget speech, when he stated we are all in this together. He has not shown in any measurable sense fairness at play. No public sector or Civil Service person should be on a pension of €125,000, full stop. Even €100,000 is an excessively generous level but we are where we are, as that awful saying goes.

I appeal to the Minister to adopt the measure proposed in my amendment and claw back for the Exchequer and the State any amount in excess of €100,000. In so proposing, I accept the savings from this measure would be modest in relative terms. That is a fact and the Minister has correctly stated so. However, it sends out a very important message to the general public and, dare I say it, to the high-rollers in the Civil Service and the public service, that they are not exempt from the emergency or the very harsh measures that the fairness agenda of which the Minister speaks demands. Therefore, I recommend the amendment to him.

The Minister might clarify matters in regard to this amendment. He referred to it on the last occasion, before the Bill went to and returned from the Seanad. I apologise if he already gave this information in the Chamber before I arrived.

If we take the example of people who earn more than €100,000, what total deductions will be made in respect of that portion of their pension over that sum?

Sixty-eight per cent.

There is 42% going for PAYE and 20% is added by this levy. That is 62%. What about the other 8%? Is the universal charge included?

The universal social charge is included.

How much is that? That is a high percentage on that level.

That makes 69%. Am I right?

Yes, 69%. The levels are 42%, 62% and 69%.

The Minister has gone a long way towards making a deduction of 100%.

I do not oppose his amendment. In our pre-budget submission the Fianna Fáil Party proposed deductions to kick in at a lower level for those earning €75,000. However, we will deal with the budget the Minister presented rather than what we suggested three weeks ago. From that point of view I will not oppose the measure.

The essence of the Minister's proposal is that if a person has a pension of more than €100,000, 70% of that excess will be clawed back directly to the Exchequer, leaving 30% for the person. That was what I wished to check.

I acknowledge the Minister's intent in this proposal. In many ways what is before us is welcome, as is the fact the Minister has taken a decision to tackle the obscene pensions that exist, and that a message is being sent out. However, the message is too late and too little.

In her amendment, Deputy McDonald proposes a greater message to be sent out to the public. Earlier the Minister attended a committee where part of the discussion concerned how to regain some of the crust on top of society. Given what has happened in the Chamber in the past two weeks in regard to the budget, the public has looked for leadership and for decisions to be taken that would tackle the level of obscene pensions that we see in this State, those for people at the highest level in the public service and the Civil Service.

I reiterate my acknowledgment that the Minister is moving in the right direction but I do not believe he has gone far enough. A levy of 100% on those with pensions of more than €100,000 would be fair given the financial constraints we, as a society, face. If the pre-budget submissions my party made concerning wage scales of public servants or of those paid from the public purse were followed, society would begin to regain trust in the public service and in politicians in general. The message would go out that those who are richer and richest in society would take some of the burden. We do not claim these people are not entitled to a pension but a pension of €100,000 is a substantial amount. Being taxed on that level would still place them well above the great majority of Irish citizens who are on an average industrial wage of €30,000 to €35,000. A considerable number of people are not even on a wage and survive on social welfare payments.

I urge the Minister, even at this late stage, to reconsider this. Savings can be made even if, as Deputy McDonald noted, these are modest. There are other steps, however, that could be taken. For instance, we suggested hospital consultants' pay should be examined. It can be claimed it has been addressed but only in a small way. A reduction of up to €150,000 would save the State €100 million. A further reduction of €100,000 would make an even greater saving. These are the type of measures we as a society need to take when addressing public and civil servants' pay at the highest level. It would send out the message that those on this type of salary would be hit with greater amounts than those dependent on social welfare or on low pay.

I thank Deputies for their support for the measure.

The 100% levy rate for every euro over €100,000 in a public service pension, as proposed by Deputy McDonald, is tantamount to confiscation. There may be a rationale to that as we are in a desperate state and it should be debated as to whether it is an appropriate step. The advice from the Office of the Attorney General is extremely important. It states preserved pensions are vested property rights which have been earned and are constitutionally protected.

In the context of such advice, a levy of 100% on every euro over €100,000 would be clearly excessive. It puts at risk the entire FEMPI, financial emergency measures in the public interest, architecture. Introducing such a rate would give a clear path for someone to attack the FEMPI legislation on the basis that it is disproportionate and confiscatory of a property right people had earned and expected.

Deputy Ó Snodaigh spoke about regaining trust which is important. There is also a balance to be struck. Take, for example, a retired senior consultant who decided 40 years ago to practice exclusively in the public system at the cutting edge of medicine. Should we attack his pension instead of the consultant who decided to work exclusively in the private system and who may have a significant pension pot which was allowed 100% tax breaks for up to €5 million a time? Many public servants stayed in the public service when they could have earned more outside but the attraction was they got a decent pension at the end.

The quantum of pension at the top, in my judgment, is too great. That is why the Government has addressed this from the start. I have changed the TLAC, top level appointments committee, terms. It must be remembered this did not grow up in the past couple of years. The TLAC terms which apply to Secretaries General were in place from 1987. Many long-serving Members were unaware of the value of these terms to retiring senior public servants. I have changed them for all new incumbents.

We have gone as far as we can go without putting at risk the fundamental FEMPI architecture which is essential for our national survival. FEMPI is a critical part of the architecture of getting resources to the State to maintain essential public services. I am not minded to put any of that at risk.

Deputy McDonald said I am timid. I have been accused of many things but never timidity. I will be prudent with this legislation's provisions, not foolhardy. Neither, as I have said before, will I grandstand. If I have been given clear advices that to introduce this 100% rate would be unconstitutional and risk pulling down not only this but the broader FEMPI provisions, I will not introduce it.

The end result of imposing such a levy would not be enormous. The justification for the financial emergency measures in the public interest legislation is the reality of the emergency that exists with public spending. The burden to be levied has to be proportionate and cannot be sector specific. That is why we were very careful in the way we constructed the amendment on judges' pay, for example. Any imposition on them had to be proportionate and in line with what is happening to analogous groups in the public service. This is a careful and balanced set of measures to bring about fairness as best we can without putting greater elements at risk. I do not want to make the legislation vulnerable to attack.

Deputy Sean Fleming made the point that the level of marginal tax on amounts above €100,000 is of the order of 69%. Once upon a time, such a rate would be described as a 1960s-type extortionate tax. It is fair and needed for that contribution to be made in the interest of our national recovery.

I just do not buy the Minister's line of argument. He claims a levy has to be proportionate. Accordingly, he considers a 20% levy on pensions over €100,000 proportionate, fair and defensible.

It is proportionate to all the other measures. Deputy McDonald must understand the point I am making.

I fully understand it. By the way, for the record, I am not grandstanding on this issue.

I have pursued this matter with the Minister for months on end.

When I suggested to him in respect of the big pension pay-outs that he claw them back or even not pay them, the Minister told me initially the Attorney General's advice was it could not be done. However, he clearly can impose levies because he has set out such a scheme of levies in this legislation. Again, however, the Attorney General claims a 100% levy on every euro over €100,000 cannot be done either. These big pension pots cannot be really touched, bar in a light-handed way. I find that utterly unacceptable.

I am mindful that it is only a small number of people with these types of pensions. Earlier this morning, I had an exchange with the Tánaiste and Minister for Foreign Affairs and Trade — the Minister's party leader — on Leaders' Questions on the fair and balanced appropriation of teachers to disadvantaged schools. What the Government is proposing for DEIS schools is confiscatory and deeply damaging to a set of people's rights. It can be done, however. We are told it has to be done because we are in a state of emergency.

In asking the Minister to accept my amendment, I am doing nothing other than asking him to live up to his word. If one proposes to take a radical action, one will always find the advice that it cannot be done because people will beat a path to the High Court. If this is how the Minister is going to base his decisions on how to deal with runaway pay in the public and Civil Service, he will never deal with it.

The reason we are discussing the public sector is the Bill specifically refers to this sector. At no stage have I said that those on massive wages or who have massive wealth in the private sector should be let off the hook either in this time of crisis when we need measures in the public interest. It seems that, politically, the Minister understands that something needs to be done about these pensions because I am sure, no more than anybody else, he has gauged public opinion on this matter. The woman or man on the street does not think that a public or civil servant, however brilliant or accomplished, should be on a pension of €125,000 per annum. The Minister knows he needs to do something and he is doing the minimum. His action is timid.

My amendment stands. If fairness meant something and a fair distribution of the burden of the crisis meant something, I would not have had to table the amendment because it would have been tabled by the Minister. However, there is one rule for the very well off and an entirely different rule book applies to the average woman, man or child in this State.

The Minister mentioned that he was not aware of the TLAC arrangement. A number of Ministers, including him, were in government between 1992 and 1997 and several Secretaries General were appointed during that time. The Taoiseach, the Minister, who served in both the Departments of Health and Environment, and the Ministers for Finance and Education and Skills were in that Cabinet. I am surprised——

The Deputy is right. It is surprising.

It was one of these well kept secrets in the bowels of the Civil Service, which never worked its way up to the Minister. I am surprised it flew so well under the radar and it never came across the desk of those Ministers during that period.

During the passage of the legislation, various amendments to cut the pay of senior officials in the public service and semi-State companies were voted down by the Government. We wanted to set an upper limit of €200,000 for public servants. The Minister gave us various explanations as to why he could not do this. He said it could be subject to legal challenge and he could not isolate a small group of people, yet he is doing just that in this legislation, although he is not going as far as Deputy McDonald wishes. He is well able to isolate a few people in this amendment.

With regard to fairness, which was a theme of Deputy McDonald's contribution, why can the Minister not pass a law to rule out high salaries for the handful of chief executive officers in semi-State companies and to limit the highest salary in the public service at €200,000? This would affect a few hundred public servants, of whom 99 work in the education sector alone. The Minister would do a tremendous service to the people and the political system if he could explain why he will not do that.

We are dealing with a particular amendment. That is an entirely different matter.

As the Ceann Comhairle rightly said, the Deputy is straying back to the debate we had on the substance of the Bill. However, I grapple every day with people who have contractual rights that I am trying to undo and they are making it perfectly clear to me that they will go to the High Court. The advice I am getting is that I cannot undo them.

We are only nine or ten months in office and we have fundamentally altered the pay rates for everybody in the public service. No civil servant earns more than €200,000, which is the rate we established for the Taoiseach on the day we came into office. That is a great deal of money but every other salary is below that now. The pay rate for a Secretary General was €285,000 and €85,000 is a big drop in income. New pay rates have been set for the future.

With regard to the commercial semi-States, by and large, the pay ceiling should be €250,000 per annum. We looked at modifying the Hay rate by applying all the deductions in the FEMPI legislation and implementing a further 10% reduction, which we are applying to all new appointments, to get a new Hay rate. The only person earning an amount in excess of €250,000 annually is the chief executive officer of the ESB and that salary is less than half what it was 12 months ago, which means a greater than 50% reduction. We are putting extraordinary changes to top level pay in place. These are fluid positions and we are making new appointments and so on.

The concern I have is whether we will get people of the calibre we need to apply for some of the positions in future. The more I read in the newspapers about this, there seems to be a growing view that we want a dumbed down Civil Service and public service; we can buy in expertise from the private sector and pay those individuals private sector rates; we should squeeze downwards all salaries in the public service; and, we do not want a public service of expertise. That runs counter to all the analysis done by Nyberg and others regarding the fundamental failures of oversight in this economy and in this State over the past number of years but that is a debate for another day.

Deputy McDonald readily ascribes glibly based motives to me. She said I am doing this because I am somehow attuned to a public view that something must be done and I have done the minimum, as if I could go further. I tell the truth to this House. My advice is that if I was to accept her amendment, it would be put at risk the fundamental architecture of FEMPI.

Can the Minister publish the advice? Can he share it with us?

The Deputy has already asked. I suggest she asks any lawyer for advice and she will get something similar.

She used the word "proportionate". The action relating to the public service in terms of the volume of levy has to be proportionate to that across society in general. We cannot have a confiscatory amount for one narrow group and that is the advice. The Deputy's characterisation of an effective rate of taxation of 70% as meaning these people cannot be touched is grandstanding and is trying to pander to populism. A rate of 70% touches salaries significantly. I acknowledge that often gross figures are given out but the net impact is what is important and I ask Members to remember that in their commentary. I am minded for the reasons outlined not to accept the amendment.

Question put: "That amendment No. 1 to Seanad amendment No. 1 be agreed to."
The Dáil divided: Tá, 18; Níl, 108.

  • Boyd Barrett, Richard.
  • Colreavy, Michael.
  • Ferris, Martin.
  • Fleming, Tom.
  • Healy, Seamus.
  • Mac Lochlainn, Pádraig.
  • McDonald, Mary Lou.
  • McGrath, Finian.
  • McGrath, Mattie.
  • McLellan, Sandra.
  • Murphy, Catherine.
  • Ó Caoláin, Caoimhghín.
  • Ó Snodaigh, Aengus.
  • O’Brien, Jonathan.
  • Pringle, Thomas.
  • Ross, Shane.
  • Stanley, Brian.
  • Wallace, Mick.

Níl

  • Bannon, James.
  • Breen, Pat.
  • Broughan, Thomas P.
  • Browne, John.
  • Bruton, Richard.
  • Butler, Ray.
  • Buttimer, Jerry.
  • Byrne, Catherine.
  • Byrne, Eric.
  • Calleary, Dara.
  • Cannon, Ciarán.
  • Carey, Joe.
  • Coffey, Paudie.
  • Collins, Áine.
  • Collins, Niall.
  • Conlan, Seán.
  • Connaughton, Paul J.
  • Conway, Ciara.
  • Coonan, Noel.
  • Corcoran Kennedy, Marcella.
  • Cowen, Barry.
  • Creed, Michael.
  • Creighton, Lucinda.
  • Daly, Jim.
  • Deasy, John.
  • Deering, Pat.
  • Doherty, Regina.
  • Donnelly, Stephen S.
  • Donohoe, Paschal.
  • Dooley, Timmy.
  • Doyle, Andrew.
  • Durkan, Bernard J.
  • English, Damien.
  • Farrell, Alan.
  • Feighan, Frank.
  • Fitzgerald, Frances.
  • Flanagan, Charles.
  • Flanagan, Terence.
  • Fleming, Sean.
  • Gilmore, Eamon.
  • Grealish, Noel.
  • Griffin, Brendan.
  • Hannigan, Dominic.
  • Harrington, Noel.
  • Hayes, Tom.
  • Heydon, Martin.
  • Howlin, Brendan.
  • Humphreys, Heather.
  • Humphreys, Kevin.
  • Keating, Derek.
  • Keaveney, Colm.
  • Kehoe, Paul.
  • Kelleher, Billy.
  • Kelly, Alan.
  • Kirk, Seamus.
  • Kitt, Michael P.
  • Kyne, Seán.
  • Lawlor, Anthony.
  • Lynch, Ciarán.
  • Lynch, Kathleen.
  • Lyons, John.
  • McCarthy, Michael.
  • McFadden, Nicky.
  • McGinley, Dinny.
  • McGrath, Michael.
  • McHugh, Joe.
  • McLoughlin, Tony.
  • Maloney, Eamonn.
  • Martin, Micheál.
  • Mathews, Peter.
  • Mitchell, Olivia.
  • Mitchell O’Connor, Mary.
  • Mulherin, Michelle.
  • Murphy, Dara.
  • Murphy, Eoghan.
  • Nash, Gerald.
  • Neville, Dan.
  • Nolan, Derek.
  • Noonan, Michael.
  • Nulty, Patrick.
  • Ó Cuív, Éamon.
  • Ó Fearghaíl, Seán.
  • Ó Ríordáin, Aodhán.
  • O’Dea, Willie.
  • O’Donnell, Kieran.
  • O’Donovan, Patrick.
  • O’Dowd, Fergus.
  • O’Mahony, John.
  • O’Reilly, Joe.
  • O’Sullivan, Jan.
  • Phelan, Ann.
  • Phelan, John Paul.
  • Quinn, Ruairí.
  • Rabbitte, Pat.
  • Reilly, James.
  • Ring, Michael.
  • Ryan, Brendan.
  • Shatter, Alan.
  • Shortall, Róisín.
  • Smith, Brendan.
  • Spring, Arthur.
  • Stanton, David.
  • Timmins, Billy.
  • Tuffy, Joanna.
  • Twomey, Liam.
  • Wall, Jack.
  • Walsh, Brian.
  • White, Alex.
Tellers: Tá, Deputies Aengus Ó Snodaigh and Catherine Murphy; Níl, Deputies John Lyons and Paul Kehoe.
Question declared lost.
Seanad amendment No. 1 put and declared carried.

Agreement to Seanad amendments is reported to the House. A message will be sent to Seanad Éireann acquainting it accordingly.

Seanad amendment reported.