I move: "That the Bill be now read a Second Time."
The Bill is one of a series of measures the Government is required to take in the public interest. The context is the continued priority given to the stabilisation of the public finances and to meeting the State's obligations with regard to the reduction of its deficit.
At this point, consolidation measures amounting to around €28 billion, or over 17% of Ireland's estimated GDP in 2013, have been implemented since the crisis began. This represents about 85% of the total consolidation required to get our finances back from the morass they were put into, in large part through the decisions made by the last Government.
As I have said elsewhere, the remaining effort may well feel like the hardest part - the last hundred yards are always the most difficult - but the scale of the challenge still faced by this Government and by the people of this country is large. A continuing programme of fiscal consolidation, accompanied by structural reforms, must continue. The fiscal parameters, while improving, do not provide any significant latitude to the current programme necessary to meet the general Government deficit target of less than 3% by 2015. The Government's policy of restraint and prudent budgeting will have to continue if we are to get our finances into fit shape for future generations.
To meet Ireland's commitment on the deficit, the medium-term fiscal statement published in November last year indicated that, in addition to the overall consolidation of €3.5 billion required for 2013, an additional €3.1 billion in savings and revenue raising measures must be identified for 2014, and a further €2 billion in 2015.
The public service pay and pensions bill at 36% of spending must, in the Government's view, make a proportionate contribution to the additional expenditure reduction identified as necessary over the three-year period.
We have identified that proportionate contribution as a further reduction of some €1 billion, or 7%, in the cost of the pay and pensions bill. Otherwise the existing significant burden of adjustment falling on services and social transfers rather than pay would be untenable. In short, if we seek to exclude public service pay and pensions from further consolidation efforts, the burden must be borne elsewhere in public services. I do not believe that is a sustainable proposition.
This Government has always sought to ensure that the measures it takes are proportionate and fair, and that their impact on the most vulnerable in our society is mitigated as far as possible. The measures set out in this legislation, and indeed the terms negotiated with the public service unions and associations and set out in the Haddington Road agreement, are in line with this model. In that way, they are in sharp contrast to the measures taken by the previous Government.
This is the fifth financial emergency measures legislative proposal that has come before the Oireachtas for consideration; three were introduced by the previous Government in 2009 and 2010. Those Acts were introduced unilaterally and made provision for a reduction in the annual remuneration of public servants through a pension related reduction of €1.35 billion and a reduction in remuneration of €1 billion, and in 2010 a reduction to public service pensions in payment above €12,000. The previous measures introduced were of universal application to all public servants. They were brought in unilaterally, in a vain attempt to halt the descent into insolvency of the country created by the disastrous fiscal and economic policies of the last Government.
The approach of the Government today to secure further savings from the public service pay and pensions bill is markedly different from the approach employed by that Government in 2009. First, this Government has ensured that, in the interests of equity, no public servant can stand aside from the necessary contribution. A change to the Constitution was put to the people by way of referendum to permit the pay of the Judiciary to be reduced in line with the reductions applied to all other public servants. The previous pay reductions were applied to the Judiciary in the Financial Emergency Measures in Public Interest Act 2011, FEMPI 4, and this legislation will also apply to the Judiciary, once enacted. In addition, the Government is extending the measures to bodies that the last Government surprisingly decided should not be included in the pay reductions, namely the National Treasury Management Agency, NTMA, and the Railway Procurement Agency, RPA.
Second, and more radically, this Government has freely engaged with its employees and their representatives on the policy challenge facing us. The Government has set out the financial parameters which gave rise to the necessity to secure savings in its pay and pensions bill. Like any company, we opened the books to our employees. The proposals put forward by the Government protected the basic salary rates of low and middle income earners in the public service, while applying progressive reductions to the remuneration of higher paid public servants, unlike the 2009 pay cuts which were applied to all. The Government allowed an extended, some would say protracted, period to its negotiators and to the unions to try to secure an equitable and agreed approach on achieving the savings we set out.
There are those who hold the view that this approach was neither necessary nor appropriate and that the Government should impose a further simple, unilateral reduction to the basic salaries of all public servants, without consultation, discussion or negotiation with those affected. Neither I nor this Government share that view, despite its being put forward over a protracted period over the last two years. I do not believe any responsible employer in any sector of the economy would approach a problem in their company's finances in that fashion. If such an approach was adopted by any employer, Members of this House would be the first to criticise that approach.
Equally, the right to represent employees carries responsibilities, both to their members and their employers. Unions traditionally and correctly fight hard to maintain the terms and conditions of their members, but sensible union leaders also recognise that short-term sacrifice on a negotiated and agreed basis can often play a part in the long-term financial health of their employer. If it retains higher levels of employment and if it keeps the employer in business, it ultimately serves the longer-term interests of their members. There can be no greater goal for public servants than that their employer, the State, returns to its previous level of economic independence and is not beholden to external borrowers. Without it, they will find they are trying to negotiate on their future pay and conditions not with the person in the room, but with people sitting in judgment on Ireland's economic performance from abroad. Those would be very one-sided negotiations.
The approach adopted by the Government is not without difficulty or challenge. It has required an enormous effort on the part of public service employers, unions, representative associations and the industrial relations machinery of the State through the Labour Relations Commission, to reach the point we are at now, with an agreed solution. I hope all public servants will be consulted on the outcome to allow everybody's views to be known. If these proposals are accepted, it will be possible, in the Government's view, to achieve the required savings and secure the necessary reduction in the public service pay and pension bill without having to make additional and deeper basic pay cuts. That can be done in part through major increases in public service productivity. Our approach to this whole challenge was, as far as possible, to get better productivity and minimise the take from people's pockets. We need widespread work practice reform, in co-operation with all public sector staff. The essential elements and protections of the Croke Park agreement will also remain in place. Industrial peace in the public service can be secured at a critical time in our path to economic recovery.
The Bill before us today is an integral part of the architecture of such an agreement. The primary purpose of the Bill is to implement the proposed pay reduction for public servants earning annual salaries in excess of €65,000, and the parallel but lesser reduction in public service pensions over €32,500. Contingency measures that may be deployed to secure reductions in the public service pay and pensions bill are also included, including provision for a universal freeze on pay increments. The legislation also provides a facility for unions and representative associations to conclude collective agreements with their public service employers which will avoid the need for those contingency measures to be applied.
For the benefit of Members I will now briefly outline the provisions of the Bill. Section 2 provides for a graduated reduction in the remuneration of public servants earning €65,000 or more. Any amount earned by those higher paid staff up to €80,000 will be subject to a reduction of 5.5%, any amount over €80,000 will be subject to a reduction of 8%, any amount over €150,000 will be reduced by 9% and any amount over €185,000 will be reduced by 10%. All public servants including the Government, the Oireachtas - other than the President whose pay is protected under the Constitution - and the Judiciary will be affected. Those affected by the measure represent some 13% of the public service workforce, those who are paid the most in core salaries and allowances, so 87% of the public service will be unaffected by the core pay cut.
This section also includes a provision to enable a public employer or a Minister of the Government to exercise an existing power to fix terms and conditions so as to result in less favourable remuneration, other than core salary, or in increased hours for the public servants concerned. That existing power may be exercised notwithstanding any terms of any enactment, contract or otherwise. In essence this provision aims to permit public service employers, including Ministers, to make necessary savings if they cannot be achieved by way of collective agreement.
This section does not grant any additional rights to employers to adjust terms and conditions. Basic salaries are excluded. I am of the view that reductions in basic salaries should be done only in the context of primary legislation, and with the consent of the Oireachtas. That is what I am doing in this legislation.
Furthermore, any group that has its terms of employment set by the Oireachtas cannot have them changed by any public sector employer, or by a Minister. That includes officeholders, in particular the Judiciary, whose pay terms are determined, not by a Minister, but by the Oireachtas.
Section 3 sets out technical amendments which provide for the application of all existing ancillary powers of the Financial Emergency Measures in the Public Interest (No. 2) Act 2009 to the new pay reductions, including the prohibition on pay increases and the ability of the Minister to modify the pay reduction as it applies to certain persons, or groups on limited grounds, to the pay reduction provided for in this Bill.
Section 5 provides for amendments to be made to the Financial Emergency Measures in the Public Interest Act 2010 to increase and extend the impact of the public service pension reduction, PSPR, on persons who have retired from the public service and currently attract pensions of €32,500 per annum, or more. Persons in receipt of annual pensions of less than €32,500 will be unaffected by these measures. To reflect the fact that public servants who retired before 29 February 2012 would have had their pension entitlements based on pay rates greater than those who retired after that date, different levels of reduction apply, as detailed in the tables. These reductions will apply from 1 July 2013.
Section 4 is a consequential amendment, to the definition of pensioner. Section 6 consists of technical amendments to ensure that relevant elements of the Financial Emergency Measures in the Public Interest Act 2010, including in respect of aggregation of pensions and calculation of pension, are adjusted for the purposes of the Bill. Sections 7 and 8 provide for a freeze of progression along incremental scales by public servants for a period of three years, commencing on 1 July 2013. Public servants may have the effects of this provision modified on the basis that a collective agreement, which has been registered with the Labour Relations Commission, has been reached. As is standard in these Financial Emergency Measures in the Public Interest Acts, the Minister is, under section 8, granted a power to exempt public servants from the application of the measure on limited and exceptional grounds. This issue was raised during a Topical Issues debate.
Section 9 provides that persons retiring before 31 August 2014, or on a later date that may be ordered by the Minister, will be entitled to have their pensions calculated as if the pay reduction and any increment pause or freeze had not applied to them. This provision is similar to the grace period provision provided for under the Financial Emergency Measures in the Public Interest (No. 2) Act 2009. It is intended to prevent an unmanageable and unaffordable short-term outflow of staff affected by the pay reduction to the detriment of the delivery of public services. There will be a further grace period until August 2014, or before the adjusted pay impacts on pensions.
Section 10 amends the Financial Emergency Measures in the Public Interest (No. 2) Act 2009 to provide that the employees of the Railway Procurement Agency, RPA, and the National Treasury Management Agency will be subject to the measures proposed in this Bill. They were not included in the pay reduction imposed under the Financial Emergency Measures in the Public Interest (No. 2) Act of 2009. However, this Government does not consider that the basis for their exclusion at that time continues to be valid. It should be noted that the RPA is due for merger with the National Roads Authority under the Government's rationalisation programme.
Section 11 amends the Financial Emergency Measures in the Public Interest Act 2009 to provide for a modification of the pension-related deduction that applies to serving public servants. That modification will reduce the pension deduction on all public servants by €125 a year, to commence from 1 January 2014. That €125 is a small payback to everybody who is enduring the pension deduction now. It is important to signal it to Deputies who dealt last year with the overarching Pensions Bill and the new pensions framework because at the time there was an argument that the pension levy should be calculated as part of a person's pension contribution. I am of the view that it is an emergency additional imposition that will be removed when the emergency ceases. I wish to signal that we want to begin that process in this legislation, albeit on a very modest basis.
Section 12 provides for annual review and report to the Oireachtas of the necessity of the measures set out in the Bill. As an administrative efficiency measure, one single review will now encompass the reviews currently necessary under the earlier FEMPI Acts. One reporting will determine whether the financial emergency continues to exist and if there is a case to continue the existing FEMPI legislation. Section 13 states the Short Title of the Act.
The Financial Emergency Measures in the Public Interest Bill 2013 is a relatively short Bill but its impact is considerable. I believe it represents one of the major final steps to the restoration of our economic sovereignty. An essential condition for balanced economic growth is sustainable public finances, something all of us have stated repeatedly. As such, the Government is committed to cutting the deficit and putting the debt ratio on a downward path. We estimate the debt will peak this year at 123% of GDP, which is an extraordinarily high debt by any international comparison. We are making considerable progress, however, and this progress is lowering the cost of borrowing, helping to put the public debt on a declining path and contributing to increased investor confidence in this country.
Every person in this House is aware there remains a considerable gap between what we get in revenue and what we spend. This situation is not sustainable over the longer term. In addition to the requirement to bring our deficit to below 3% of GDP by 2015, in line with the excessive deficit procedure, it makes sense that we bring balance back to the public finances, and stabilise and reduce our debt burden. This is how we will ultimately create growth and jobs on a sustainable basis in the Irish economy.
I am conscious of the argument that the measures we are taking on public expenditure can have a negative short-run impact on economic output. That impact, however, is reckoned to be small and in the short term. Over the medium term there will be a positive impact as the deficit is reduced and debt is put on a declining path. The Government's policy fiscal consolidation, which is as growth-friendly and equitable as we can make it, has shown results in recent years. Having returned to growth in 2011, Ireland achieved a second successive year of economic growth in 2012. Preliminary figures show real GDP increased 0.9% last year. Allied to that, inward investment remains strong, exports from Ireland are now considerably above their pre-crisis level, and bond yields on Government debt have fallen sharply and remain stable at that lower level.
As well as being a key building block to the final restoration of our economic sovereignty, this Bill achieves another key goal. It provides a platform for the well-established industrial relations process in the public service. It will underpin the negotiation of collective agreements, a measure to which I was wedded, through which public servants can secure the benefits they have under the proposals brokered by the Labour Relations Commission, between now and 2016. Those agreements will be critical to our recovery, by providing a degree of certainty for all in regard to the cost and provision of our public services over the next three years, without the disruption that would be caused by industrial action. As I have stated on several occasions, this will be the last ask of public servants.
I wish to pay tribute to all involved in these negotiations, most especially the Labour Relations Commission and the work undertaken by Kieran Mulvey and his team. I also thank my own negotiators - some of whom are in the Chamber - led by Mr. Paul Reid, who did a remarkable, patient and difficult job for the country. In part, what they were negotiating was a reduction in their own wages.
This is a difficult measure and I acknowledge that. However, it is an essential one and therefore I commend the Bill to the House.