JOINT COMMITTEE ON FINANCE, PUBLIC EXPENDITURE AND REFORM díospóireacht

The Economy and the Banking Sector: Discussion (Resumed).

Chairman

The joint committee will continue its overview of the issues facing the economy and the banks. I welcome the Minister for Public Expenditure and Reform, Deputy Howlin. The format of the meeting will be that the Minister will make some opening remarks, which will then be followed by a question and answer session. I will then call on the Opposition spokespersons, initially, followed by members of the Government parties. When members of the committee have all had an opportunity to question the Minister, I will then call upon Members who are not members of the joint committee who may wish to pose a question.

Although in this case the witness is a Minister, by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. If they are directed by the committee to cease giving evidence in respect of a particular matter and continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise nor make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing ruling of the Chair to the effect that members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.

I again remind colleagues of the requirement for them all to switch off and demobilise utterly and completely any mobile telephones they may have in their possession because we continue to have difficulty in this regard. It is a problem for the production of the sound recording and, ultimately, if we are fortunate enough, for the onward broadcasting of our proceedings. I ask members to please switch off mobile telephones completely if for no other reason than as a courtesy to the rest of the committee. I again thank the Minister for appearing before the joint committee and invite him to make some opening remarks.

Minister for Public Expenditure and Reform (Deputy Brendan Howlin)

I thank the Chair for his welcome and for his admonition on privilege. I believe that as a witness, I have the whole enchilada privilege.

Chairman

That occurred to me as I read the brief.

Deputy Brendan Howlin

I thank members for this invitation and look forward to what I hope will be an informative and productive dialogue on the areas within my purview. As such discussions continue, it will become clear which matters are proper to the Minister for Finance, Deputy Noonan, and which are proper to me. In my first speech to the present Dáil, I mentioned the issue of committees and identified them as one of the most important tools in an effective parliament. Having spent a long time in Opposition I firmly believe this, as well as the need to have them better resourced and better focused upon. I had a discussion to that effect with the Ceann Comhairle yesterday, who also has plans in that regard. It is important to ensure that committees work.

Since I appeared before this committee last July, the Ministers and Secretaries (Amendment) Act 2011 has been enacted. This provides for the formal establishment of the Department of Public Expenditure and Reform. The passage of the Act heralded much more than the simple reorganisation of Civil Service functions, however. It clearly places the twin issues of expenditure management and public service reform at the centre of the Government's agenda at a time when they have never been more important or more urgent. Moreover, for the first time a Minister of Cabinet rank has been given the responsibility for driving an agenda of reform. This underlines the Government's commitment to driving an ambitious reform agenda and to putting in place the structures to deliver on that commitment.

At the meeting on 12 July last, I stated I had three core priorities for the period ahead, namely, achieving the Government's fiscal targets, which is a highly ambitious and demanding job of work, reforming the public service and bringing about real and much needed political reform. I wish to bring members up to date on the continuing progress which is being made on each of these three core priorities and will turn first to the achievement of the Government's fiscal targets. Following three successive annual contractions, the Irish economy is expected to return to growth this year. The growth we are currently seeing is export-led and is supported by the significant improvements in price and cost competitiveness the Irish economy has experienced in recent years. Domestic demand, on the other hand, remains subdued as households and companies look to rebuild their balance sheets. Nevertheless, there is a broad expectation on the part of the Department of Finance, the IMF, the European Commission and the private sector that GDP will increase this year, that the growth rate will strengthen next year and expand by around 3% on average per annum in the medium term. There are risks, however, particularly in the current environment, in which uncertainty surrounding the global outlook is high, but the most recent forecasts from the IMF, for example, have taken account of the latest developments and still anticipate an expansion of Irish GDP this year.

On the public finances, the most recently published figures for the period to the end of August show continued stabilisation. Tax revenues in the first eight months of the year were 1% above projections for this point in the year, while on the other side of the account net Voted expenditure is under control and being managed within the limits set. Our target for the general Government deficit this year, 10.6% of GDP, will be more than met. For next year the agreed target is a deficit of 8.6% of GDP. The Government is committed to achieving the necessary level of consolidation to ensure this target is met. It is firmly committed to restoring order to the public finances as agreed with our IMF and EU funding partners. The allocations presented in the Revised Estimates for Public Services 2011play a key role meeting our targets for this year. The fiscal position set out is consistent with the agreed end-of-year expenditure target. As regards further consolidation in future years, my colleague, the Minister for Finance, has made it clear that our target for 2012 must be a general government deficit of no more than 8.6% of GDP. The comprehensive review of expenditure which has been under way for a number of months will play a key role in this regard and set the parameters for expenditure in 2012 and in a multi-annual context thereafter.

The Government is committed to maintaining public services to the fullest extent possible, but if we are to regain our economic sovereignty, there is no question but that difficult decisions will have to be made in this and future years. As regards public service pay and numbers, the Government has committed in the programme for Government to significant public service numbers reductions of 18,000 to 22,000 by 2014 and an additional 4,000 reduction in 2015. I am committed to sharpening the focus on the performance of Departments at an organisational level. The introduction of the new performance budgeting system will bring a clearer focus to actual outputs and outcomes delivered with scarce public resources on an ongoing basis. This approach, piloted in the 2011 Estimates which were before the committee earlier in the year, presents departmental Estimates on a strategic programme basis, consistent with the presentation of the respective statements of strategy. It is not simply a numbers exercise; numbers and targets are set and can be measured at the end of the year. The Estimates are supplemented by certain performance information on outputs and the impact of performance expenditure. All of this will allow for greater scrutiny by committees of the Houses of each Department's expenditure.

The focus on outputs and performance also underpins the comprehensive review of expenditure, CRE, process. It requires a root and branch reappraisal of all expenditure. Departments, offices and agencies have offered serious solutions. The Government accepts there are no easy solutions to reducing spending levels. Difficult policy options and choices will have to be confronted and decisions made. Difficult decisions, therefore, face the Government, but it is determined to make them. The results of this process will set the context for budget 2012 and expenditure for a number of years thereafter.

In parallel with the CRE, the Department of Public Expenditure and Reform is carrying out a major review of the public capital programme for the period 2012-16. The primary aim of the review is to identify what critical infrastructure best supports economic growth and recovery and what will have the greatest sustainable employment impact in the short to medium term and meet urgent and compelling social needs. The new capital investment budgetary framework for the period will be drawn up based on the results of the review.

The drive to achieve value for money and improved performance is the main motivation for the performance budgeting initiative. It will be an important theme of my time as Minister for Public Expenditure and Reform.

Pay restraint across all areas of the public service, together with the ongoing fall in numbers and measures to boost productivity and improve efficiency, will be the key challenge in the coming years. The imposition of pension related reductions on public servants, together with pay reductions provided for under the Financial Emergency Measures in the Public Interest Acts , numbers reductions and other measures, have reduced the Exchequer pay bill by 14.4% from a peak of €17.5 billion in 2009 to €14.9 billion, a figure net of the pension related reduction. Under the relevant legislation, I am required to carry out a review of their operation, effectiveness and impact, having regard to the overall economic conditions in the State and national competitiveness. The review was completed at the end of June and laid before the Houses of the Oireachtas. The report concluded that there was a need to continue to apply the reductions in remuneration of public servants and other measures controlling the cost of the public service pay bill provided for under the legislation .

As the committee will be aware, we recently agreed to the introduction of general pay ceilings for future appointments to higher positions across the public service. The Government also decided that, subject to the recently announced referendum being adopted by the electorate, the pay rates of incumbent judges should be reduced in line with the pay and pension reductions applied to other public servants. All new appointments to the public service are being made in line with the policy adopted by the Government on pay ceilings of €200,000 in the public service and no greater than €250,000 for chief executive officers of commercial State companies. New pay rates for Secretaries General of Departments have been introduced and effective from June this year with a maximum rate of €200,000. This represents a reduction of almost 30% in the Secretary General level 1 pay rate of September 2008 - €285,341. The new reduced pay rates will also significantly reduce Exchequer pension costs into the future for these appointments. In addition, 12 existing incumbents of posts at Secretary General levels 1 and 2 have effected waivers to bring their remuneration under the pay ceiling of €200,000. No Secretary General is now receiving a salary greater than this figure. There are three statutory postholders whose pay exceeded that level. The Ombudsman, the Comptroller and Auditor General and the Director of Public Prosecutions have also effected the necessary waivers to bring down their pay rates.

The Department is informally aware of individual cases in which CEOs in relevant non-commercial and commercial State companies are making arrangements to effect a voluntary waiver, increase the level of an existing voluntary waiver or maintain a pre-existing voluntary waiver. In this regard, I acknowledge the voluntary waivers of salary made in recent years by the President, many members of the Judiciary, Members of the Oireachtas, statutory officeholders, senior public servants and others.

In 2011 it is estimated that the cost to the Exchequer of public service pensions will be €2.9 billion. This is a very substantial bill for the Government and the people which requires structural change. The issue of public service pensions is being discussed in the public domain. I have been working since my appointment to produce a new pensions scheme for the public service as agreed under the memorandum of understanding. The introduction of the single scheme will provide a more straightforward and efficient structure for the management of public service pensions. In time, all civil and public servants will have the same basic pension scheme, with appropriate accommodation for whatever terms and conditions might be required in particular areas such as the Garda Síochána and the Defence Forces.

Under the new scheme, pensions will be based on career average earnings rather than final salaries. A specific pension accrual rate will be applied to pensionable pay in order that each year public servants will earn or accrue a certain pension amount which will be payable on retirement. This will be linked to the consumer price index as will increases in pensions for those who have retired. Up to now pension increases have been linked to the pay increases in the last job held by the pensioner before retirement.

The use of a career average rather than a final salary to calculate pensions means a fairer, more equitable system overall and will be progressive in character compared with current arrangements. For example, with a teacher or somebody whose career's average does not change substantially, there will not be any great change after this new system is introduced. However, for a Secretary General who enters the Civil Service as an executive officer, there obviously will be a very substantial change if we take a career average rather than a final salary pension entitlement. This means it will deliver lower pensions than are received at present by persons whose pay escalates to high levels in late career while comparatively impacting less severely on the pensions of those with flat pay profiles through their careers. The new scheme does not include so-called added years provisions.

There will also be a maximum retirement age of 70 and a new minimum public service pension age of 66 years which will be linked to the State pension age under the new Social Welfare and Pensions Act 2011 introduced by the Minister for Social Protection. With the introduction of the new scheme, there will be a major opportunity for improvements in the management of pensions, particularly in the development of shared services, which the Government is determined to pursue. Obviously with a common pension system it is not necessary to have a multiplicity of agencies supervising pension entitlement. I will introduce the legislation to bring about these reforms later this month.

Implementation of the Croke Park agreement is a key objective for my Department. I firmly believe that the agreement has considerable potential to support the wider efforts by Government to bring about economic recovery. While some good progress has been made to date on the implementation of the agreement, as reflected in the first annual progress report published by the implementation body in June, it is clear that there can be no let-up in the efforts of all sides to ensure that further change and reform is delivered quickly and effectively.

When the Taoiseach and I met the implementation body on 29 June last, we emphasised the need to accelerate the implementation of all priority issues under the agreement over the remainder of this year. It is vital that all sectors of the public service are seen to be contributing to this process in equal measure. We also made clear that while the Government wishes to honour the commitments made under the Croke Park agreement, this will only be possible if the agreement is implemented in full.

The implementation body has been meeting top management from each sector of the public service in recent weeks to discuss how the implementation process can be progressed with even more urgency. The body will be seeking further reports from the sectors - health, public service, local government and so on - in October outlining the progress achieved to date in 2011 and I look forward to seeing further tangible evidence of delivery when these reports become available.

The programme for Government envisages the most ambitious programme of public service reform since the foundation of the State. The role of my Department is to drive and support the change that is needed across the public service. There will be a particular focus on change in a number of key areas, including better leadership and performance, greater use of e-Government and shared services, improved service delivery and better procurement practice. A dedicated reform and delivery office is also being established within my Department to lead the reform programme, and a programme director will be appointed shortly to head this new office. That appointment should be made in the coming weeks.

The main resource of the public sector is its people. This resource, like any other, has to be managed effectively. There needs to be a renewed focus by all managers in the public service to ensure high standards of service delivery. To achieve this, existing systems of individual performance management need to be strengthened and where people are not performing to an appropriate level, managers need to address this quickly. There needs to be a strong focus on developing a top-class leadership cadre for the public service through the senior public service - an initiative we have taken since coming into office - and more generally by empowering people so that the public service has leaders at all levels and in every setting.

More recently, we have been faced with the additional challenge of seeking to maintain quality public services in an environment of severe budgetary constraints and an ongoing reduction in numbers. Significant redeployment of staff and reassignment of work has already taken place within Departments to meet operational priorities in response to the reduction in staff numbers. There will be even greater demands upon us between now and next February. Redeployment is ongoing within and between the Civil Service and other sectors.

Another important element of the reform agenda is the ongoing organisational review programme, which examines the ability of organisations to respond effectively to challenges and lead and deliver focused public services into the future. Eleven organisations have been reviewed to date and the review findings and resulting action plans have been submitted to Government. These reviews will be a significant driver of reform, enhanced capacity and improved performance.

We must acknowledge the traditional commitment of public servants to meeting the increasingly complex needs of the nation. However, we must do better because of the immense challenges we face. Reform today is about providing better services with fewer resources. To this end, I will be working to achieve a more integrated public service that has the capacity to respond to current and future challenges in an ever-changing environment; that does better for less and provides real value for money by maximising efficiency and eliminating waste as far as possible; and that is focused on improving organisational and individual performance, with a real commitment to excellence in administration and service delivery.

One achievement of which we can be proud is the considerable progress Ireland has made in recent times in e-Government. Ireland was rated first of 32 countries in the latest European Commission's e-Government benchmark. In this regard, I recently launched a revised www.gov.ie website which gives access to more than 300 informational and transactional online services. Obviously it is my ambition to expand that. I want Ireland to maintain its leading position. I want to set a roadmap for the future of e-Government in Ireland that ensures we embrace new technologies as appropriate and maximise the potential benefits of e-Government for all the citizens and businesses in this country. Therefore, I have instructed officials in the Centre for Management and Organisation Development to commence work on preparing the next phase of Ireland’s e-Government strategy. I hope to bring this new e-Government strategy to Government by the end of this year. I expect all public bodies to develop and revise their e-Government plans in accordance with the strategy. CMOD will continue to drive and monitor progress and provide Government with regular update reports.

In my comments at our meeting on 12 July I highlighted the ambitious programme of political reform to which the Government is committed under the programme for Government. Yesterday I published the Thirtieth Amendment of the Constitution (Houses of the Oireachtas Inquiries) Bill 2011, which marks an important step in delivering on the Government's commitment to changing the Constitution to allow for comprehensive inquiries by Oireachtas committees. If passed, the amendment will ensure committees of the Houses will have the possibility to secure effective and cost-efficient parliamentary scrutiny of issues of significant public importance. This will mark an important step in delivering on Government that is open and transparent as well as effective.

Following on from this I am committed to introducing proposals for a constitutional amendment to safeguard the rights of members of the public to communicate in confidence with their public representatives. Work is also continuing on a significant reform initiative relating to bolstering the legal protection afforded to whistleblowers. I have made clear my commitment to introduce an overarching cross-sectoral legal framework which will ensure the necessary protections are put in place in accordance with best practice internationally.

Other key elements of the reform agenda which I expect to progress in this context include the regulation of lobbying activity - requiring those who seek to have influence on policy to be registered, and the reform of ethics legislation and the Freedom of Information Act. I will also be amending the Ombudsman Act to ensure the remit of the Ombudsman, whom I met earlier today, is broadened.

I look forward to the opportunity to discuss these reforms in detail with the committee as specific legislative proposals emerge.

We have made a robust start to the process of addressing the central issues of achieving our fiscal targets, reforming our public service and bringing about political reform. This Dáil session will be a demanding and challenging one for all members. We have an ambitious programme of work on the public finances, legislative and reform agendas that must be completed. I look forward to working with the committee and with individual Oireachtas Members in the weeks and months ahead. Together we can bring about substantial change and make it clear the Oireachtas is working in the interests of the people.

Chairman

I thank the Minister for his presentation. I remind those present that there are 16 members present and would ask them to have regard to that when I try to facilitate as many of them as possible.

Deputy Sean Fleming

I welcome the Minister. Will he explain his role in the sale of State assets vis-à-vis the role of the Minister for Finance? Historically the Minister for Finance would have been the key player. Will the Minister deal with that issue? When we passed the legislation for the new Department, it contained schedules that included previous enactments that seemed to cover almost everything.

Deputy Brendan Howlin

It means more is done by statutory instrument subsequently.

Deputy Sean Fleming

It is therefore the Minister for Public Expenditure and Reform's area rather than the Minister for Finance.

The Minister met the implementation committee for the Croke Park agreement. The first annual report was welcome but it was vague and would be insufficient for any member of this committee. It gave a figure for savings in public sector pay but completely ignored the additional costs for pensions. That document was unacceptable in that regard; it only gave the gross costs of salaries saved as a result of the people who had retired but made no attempt to factor in the cost of the additional pensions for those who retired. That must be covered in future.

The Minister said he is working on the single pension scheme for the public service. Is that for those who will be recruited in future, meaning it will bear fruit in a generation, or will it include those currently in the public service? If the Minister moves on that, I suggest a single employment contract because if someone is working for the HSE, a local authority or a Department in one town or city, there should be free movement and that cannot happen as easily as it should because there are different contractual arrangements in each authority.

It is welcome that people have taken a pay reduction but would the Minister tell us how many people on the public payroll are in receipt of salaries of in excess of €200,000? The medical consultants were excluded from the exercise when that was happening. Most of them, when we add the top up payments for extra posts, would earn over that figure. Good work is being done by public servants for much less and with fewer staff but they are bearing the brunt. It is damaging to the public service and the country that there will be people able to retire with packages of €700,000. That is obscene in this day and age and is unfair to the 99% of public servants who get nothing like that but everyone in the public service is tarred with that brush. I give the example of Mr. Rody Molloy. We can now understand why his exit package was so generous - those who negotiated it were afraid that if they did not make a very attractive offer, it would set a precedent that would be used against them when their time comes. The senior civil servants have a vested interest in maintaining this area. It is not good for the public service and the taxpayer cannot afford it. If a new single pension scheme to apply to all the public service was introduced, there must be a mechanism in that scheme to deal with the exit packages of those retiring on very high salaries.

Deputy Brendan Howlin

It is important that I answer those questions in case of repetition.

On the sale of State assets, once the Government considered the McCarthy report in May, it was referred to me and I was asked to coordinate a response to it. I asked all affected Departments to examine the report and the programme for Government in the wider context. All Departments submitted thoughtful and detailed responses to my Department and we have worked on them. I have submitted a memorandum to Government on the matter. The memorandum has been considered by the economic management council and by the Cabinet. We did not reach any conclusions but the proposals will be determined because we must have clear views before the end of the year on which assets will be needed to meet the commitments we have made in the memorandum of understanding with the troika, whom we will meet in the first week of next month, and to fulfil our commitments in the programme for Government between the two parties. That will become clear once the Government has reached its decisions.

I understand Deputy Fleming's point on the net benefit of the Croke Park agreement, which presented the gross savings of €189 million on the payroll costs. That is a real figure from payroll costs. There is no difficulty providing the set of figures net of pension costs but those costs were there anyway, they are not an additional cost. No one gets an extra pension to which they are not already entitled. The pension costs would come, they are not additional. People did a simple sum and claimed it was not a real saving but if people are going to retire, we need to be clear that would accrue in any event. I take the point about the clarity of the report. It is the implementation body's report, not my report; it presents it to Government and it is then published. We will have that dialogue with the body.

The first report covered March 2010 to March 2011. The body did not set to work until after last summer but there will be a significant reduction in numbers between now and February 2012 if the indications coming to my Department are followed through in terms of people following through on their inquiries. The target exit number for down-sizing in the public service between now and 2014 is between 18,000 and 21,000, with a further 4,000 by 2015. We must do that in an orderly way and that is the strength of the Croke Park process. In Britain, when much less ambitious pension changes compared to those we plan were introduced, there was considerable industrial action, not to mention what happened in Greece or elsewhere. We have brought about a significant down-sizing, change and movement of personnel, with FÁS being restructured and people being moved into the Department of Social Protection without industrial difficulty because of the Croke Park architecture. We will need a robust architecture to do what is coming in the near future and we need a strategy to ensure that gaps that appear in the system will be managed. It will be an interesting area for consideration by this committee.

The single pension scheme will be a detailed and complicated document. It will be published before the end of the month and introduced, I hope, to the House before the end of the month if I can get parliamentary time for it. It will apply only to new entrants because one cannot retrospectively change people's legal entitlements. From now, it will mean a fundamentally changed pension system for all new public servants.

Also, and importantly, it strives to have an integrated system. I have been six months in the job and I am trying to get a handle on the public service. It is a patchwork quilt of individual structures with different pay rates, gradings, holiday arrangements and working hours. We saw some jarring examples, such as the leave entitlements of county managers, which seem to have grown up over time. We need to get a handle on all of those. One cannot change it all overnight, despite newspaper headlines and people's ire. These practices have been in place for decades. We need to work towards an integrated public service so that we can have movement between the various institutions and bodies within the public service to allow for the type of flexibility Deputy Fleming has instanced.

Deputy Fleming led on to the more focused and controversial issue of a very significant severance package being paid to a retiring senior civil servant in recent times and an indication in one of the national newspapers that it might apply to 55 others. I will deal with that head on. I found those figures jarring. The package was paid under the TLAC agreement. The top level appointments committee, TLAC, was established in 1987, which is not today or yesterday. The arrangements have, therefore, existed since 1987. TLAC was established to create a situation where one would have term limits and fixed contracts for Secretaries General. It was intended to attract younger people. I almost said brighter people. I should not say things like that disparagingly. All Secretaries General are, by definition the cream of the crop. To ensure that younger people would apply for a position with a seven year term, it was agreed at the time that at the end of the term a Secretary General would be entitled either to another appointment at the same rank and pay or a severance payment.

The case that has had some public focus has three component parts. There is the normal accrued pension and the lump sum, both of which will be dealt with by the new reductions that will apply to everyone retiring after February. Those retiring after February will have their lump sum payments and their pension entitlements determined by their new adjusted reduced salary. The third component was the TLAC severance payment. I have to tell the committee that in the case we are talking about the terms were agreed by the Government in December 2010. I say this by way of information to the committee. It was the previous Government. I find the notion of a severance payment unacceptable. I am working on proposals to have it terminated. It is a matter of seeing how I can do that. We will have a different situation from now on.

With regard to how many more cases might be coming downstream, I have made inquiries. I understand one more individual has the same contractual entitlement until February. My comments may lead to a stampede of Secretaries General out the door but I sincerely hope not. There will be a fundamental alteration of the situation after February. It is not true to say there are 55 others. That figure would include several people who do not come within the TLAC terms. I can identify only one individual who has indicated.

It was decided in the negotiation of the programme for Government and the Government agreed at its first meeting that there should be a ceiling of €200,000 on pay in the public service. We set the Taoiseach's salary at that amount. By and large, no public servant should be paid more than the Taoiseach and we have been working assiduously to achieve that. As far as I am aware, no civil servant now earns more than €200,000. We had discussion at Cabinet with regard to including - I suppose I am not supposed to tell the committee that. I shall say discussions were had with regard to including medical consultants in that ceiling of €200,000. All consultants appointed since 1 January are below that rate in any case, because of the 10% reduction in pay and the reductions introduced by the Financial Emergency Measures in the Public Interest Act, the FEMPI reductions. The Minister for Health is engaging with the unions representing consultants to have a more over-arching and far-reaching reform of their work practices than the simple pay issue. We have left the matter to be negotiated in that context. The general principle will apply that no public servant should earn more than that.

We looked at the semi-State bodies. In determining the pay rates for the chief executive officers of semi-State bodies we looked at the Hay process, which set a flat pay ceiling for all CEOs. As the Minister for Communications, Energy and Natural Resources said on radio, it meant the CEO of Bord na gCon would be paid the same as the CEO of CIE or the ESB. A relative scale was determined by Hay some years ago and we used that relativity to determine the pay to be paid. We then applied the FEMPI reductions and the further 10% to get the new pay rates we have agreed. We have asked incumbents who exceed those rates to take a reduction to that level of 15%. We are following that up and, as far as we are aware, most people, if not everyone, are on track to achieve that. I will report back to the committee when the final trawl has been completed.

I should deal with the reference to civil servants setting the pay rates of senior civil servants and vested interests. I do not think that is fair. Before the first FEMPI legislation Secretaries General were being paid €285,000 a year. An €85,000 drop in income is significant. The day the Government decided to set the ceiling of €200,000 every Secretary General, without exception, agreed to the reduction voluntarily. That should be mentioned. Public servants, certainly in my Department and the Department of Finance, understand the pressures the economy, the country and ordinary citizens are under. They have taken their own share of that burden. That must be acknowledged.

Deputy Stephen Donnelly

I welcome the Minister to the committee. I have a variety of questions and I will go through them very quickly. What is the role of the Minister and his Department in terms of performance? The role in terms of expenditure is very clear. However, let us take education, for example. We have seen a drop in university rankings and last year's PISA report showing a drop in literacy levels among 15 year olds. What role will the Minister have in looking at how we can achieve radical reform to turn around a distressed system? It would be useful to know that.

I welcome the focus on leadership. Does the Minister have plans to engage front-line workers in a new vision or culture of public service performance within the Civil Service and the various Departments? Is there any plan to drop the generalist model? My understanding is that civil servants are not necessarily appointed based on expertise, but on where posts arise. During decentralisation, there was a huge changeover and people were moving around Departments who did not necessarily have the expertise to be in them. Will the philosophy of the generalist model be dropped? Will the Minister open up and enforce public sector appointments? To date, it is basically a closed shop, other than for a small number who have come in from academia, the social sector and the private sector. Is there any plan to open it up substantively and make sure that this happens?

I welcome the lowering of the highest wages in the public sector. I believe the ESRI came up with estimates that the public sector pay premium is still 40% or 45%. What is the Minister's view on that? Is there any view on keeping or changing the public sector pay premium under a new benchmarking process?

Are the capital projects that are going ahead being fully recosted in the context of lower costs, international capital and so on? Will a framework be used to identify the highest priority capital projects and what gets the green light for spending? Will the relevant Department produce a technical appendix, so that these decisions and costs can be evaluated externally? Is a decision criteria being used to decide what should be cut and what should not be cut? Is there a set of decisions, or a decision tree, or a set of agreed criteria being used? If there is, will the Minister publish it?

Deputy Brendan Howlin

What is a decision tree?

Deputy Stephen Donnelly

That is from my old world. It is a set of tests.

Is the Minister's Department or the Department of Finance doing any analysis on the impact that the cuts will inevitably have on the domestic sector? The Minister spoke of the welcome growth in the export sector. My understanding is that most of that growth is driven by foreign owned companies, especially pharmaceutical companies. I believe it can actually be brought down to a small number of drugs and products. Unfortunately, the profits come into Ireland and get declared, but they then leave the country. Is there any analysis of the effect on the domestic sector, which we need to recover? Has the Department any contingency plans on expenditure for meeting the deficit targets if we experience a second global slowdown, which would depress the recent growth in exports?

When will the move from the final salary pay system to the average salary pay system come in? Who will it affect? That will constitute a major reduction in pension entitlements for a number of public servants. For those who are closer to pension age, this could be a very serious issue. Are provisions being made to help people who have to deal with a drastic reduction in their pension?

Deputy Brendan Howlin

I will answer the last question first. The new pensions Bill that I will introduce, in agreement with the troika, is for new entrants into the public service. It will only deal with people who are recruited from the time of the enactment. The pension impact will not be for 20, 30 or 40 years. This is all we can do because we cannot retrospectively change things. Some people may have stayed in the public service because of the pension, so we cannot change their terms of work arbitrarily at the end of a career. However, the Bill will have major significance in the future. The last finance Bill of the previous Government contained a cut to existing pensions on a sliding scale, and we have implemented that from 1 January. The cut is up to 10% for people on a high pension.

The Deputy's general question was about performance, and he instanced education. I have enough on the agenda that I outlined. I will not go in and ensure that every school is performing. That is not my job. That job is in a very safe set of hands with the Minister for Education and Skills. He will ensure that performance and focus happen. My departmental role is to ensure that it works efficiently, that public servants are cost effective, that we get proper value for all expenditure on the capital and the current sides. However, I will happily leave the minutiae of policy outcomes, be they in health, education or any other sector, to the line Minister.

Leadership is an extremely important issue and we will work on how to recognise leadership across the public service generally. In advance of the election, I did a great deal of work with a group that looked at the public service. It was drawn from very senior ex-public servants, from people who led the public service in other countries, and from people in academia who have done careful studies of the public service. We produced a document in advance of the election containing 140 specific proposals for change. One of the key things in the document was to establish this Department. The clear message for any reform programme done was that unless there was a Minister charged with reform and with the money to carry it out, it would never happen.

Our system mirrors the British system in respect of the Civil Service. Operating on the old Carltona principle, where everything is done in the name of the Minister and nobody is responsible for anything, then whenever anything happens, it is a systemic failure. We need to change that fundamentally. It means flattening the system, which will take some time. We have too many supervisory grades, according to the analysis. We have people monitoring people, who are monitoring expenditure, instead of giving the "doers" the authority to do and the responsibility of being accountable for the doing. That is a fundamental change over time, but it is something I would like to see done. It means acknowledging that people make mistakes. At the moment, nobody is entitled to make a mistake without being dumped upon. If people are given authority and responsibility, they will come and explain themselves. Nobody gets all the decisions right all the time. When functions are devolved like that, people can be entitled to voice an opinion on a policy that may not be the same as the Minister's, even though the Minister, the Government and the Parliament are ultimately responsible for making the decisions. It allows for a debate about those decisions.

As I mentioned in my speech, we have established the Senior Public Service. I hope that will migrate into a senior public service which will create leaders. The Tánaiste and Minister for Foreign Affairs and Trade recently brought all our ambassadors home to brief them on the message that was to go out about Ireland. One of the important roles of the economic management council was to have an integrated economic message and to send that message out. That has been one of the successes of the first six months of this Government. We have been speaking to our international partners with a coherent and consistent message. I used the opportunity of having those senior public servants here join all assistant secretaries and Secretaries General for the first meeting of the Senior Public Service. I am encouraging movement within the public service, so that people do not get trapped in the Department of Justice and Equality and the Department of Foreign Affairs and Trade, and that there is cross-fertilisation between Departments. I say that because people seem to get trapped in the Department and the Department of Foreign Affairs. There is migration and cross-fertilisation between Departments. We need to create a cadre of leaders who are trained in administration and understand a variety of jobs and tasks in the public service. That is what I will do. This senior public service is involved in training, coaching, mentoring, examining international best practice and other tasks. I am conscious that I am taking too much time and will proceed faster.

I accept Deputy Donnelly's point on recruitment and the generalist model. While we need a permanent Civil Service in which people migrate through the ranks, there will also be more and more recruitment of people with specialist skills into the public service. The problem is that specialist skills change over time and if one has people who are not flexible, one is stuck with them. Increasingly, therefore, such staff will be contracted into the public service for a fixed period. It is my intention that the person who will lead the office of reform in my Department will be on a fixed term contract. A number of external applicants have applied for the position and as the recruitment process is ongoing, I must not prejudice it. Members will see this approach used more widely in future.

We want to open up appointments. Unfortunately, we are not doing much recruiting at present as the public service is down-sizing. If we have a significant movement out of the public service, I hope we will have the flexibility in the later years of this Government to recruit again in the more discerning ways the Deputy has suggested. I would welcome his views on the issue.

Deputy Stephen Donnelly

To give a brief example, at a senior level in the civil services with which I have worked abroad one finds individuals with ten or 15 years' private sector experience. In a department of health, for example, one will find someone who has run two or three hospitals and has operational experience or senior academics with a career and experience in the relevant areas. My understanding is that Ireland does not use this model and instead recruitment typically takes place at a graduate or junior level.

Deputy Brendan Howlin

I had an example some years ago where a very young Irishman with great skills who was a commander in a complex police force wanted to return to Ireland but could only do so if he marched the beat in Templemore. We need to open up that type of thought process so that we can bring in people. We should have a much more open view of who can be recruited rather than having a vertical system in which one enters the public service at the base and eventually someone rises to the top. We should ensure people with expertise can enter the public service for a specific period. However, all sorts of difficulties arise with this approach, one of which I dealt with in recent days. Arising from our focus on taxing lump sums of pensions, people from the business community or academia who have a pension and enter the public service will build up a tax liability for the years they give to public service. This is not of any benefit to them and is an example of the practical issues we must overcome to achieve the outcome Deputy Donnelly seeks.

On our approach to capital projects, we have laid down criteria for those capital projects which are most focused on meeting the needs of job creation, economic recovery and social need. We are making objective decisions in this regard and each line Department is doing the type of analysis to which the Deputy referred. When the Government publishes what will be done the criteria I have outlined can be tested in terms of technical aspects.

Deputy Donnelly asked how the cuts will be determined and about their impact on growth. We must reach the fiscal target of reducing the deficit to 8.6% of GDP. We are doing this because our only source of funding next year will be the troika, with which we have a solemn agreement. The institutions in question will not provide more funding than is required based on Ireland meeting our target. We must, therefore, reach this target and will do so through a combination of expenditure reductions and taxes, some of which we have announced. We need to take stock of the quantum of adjustment we make. I am mindful of Deputy Fleming's comment that front-loading the adjustment would send out the right signal. We also need to ensure we do not stifle growth. This is a delicate balance and one of the most difficult issues on which to obtain an accurate view from experts. I have asked for a wide range of views on the impact of the quantum and these views will feed into the economic management council. Much will also depend on the external factors that are buffeting us. We will pay great attention to this issue.

Deputy Stephen Donnelly

My final question related to the public sector pay premium. I understand the ESRI recently calculated that it stood at between 40% and 45%. Does the Minister have a view on this matter? Does he have a target in mind?

Deputy Brendan Howlin

No. There is an arbitrariness involved here. I know a previous Government commissioned a benchmarking exercise when there was a perceived disparity between public and private sector pay. People are now arguing for reverse benchmarking. We have had significant reductions in public service pay. While everyone in the public service has taken a significant salary reduction, not everybody in the private sector has done so. We are examining sheltered sectors of the private economy which need to be addressed. A commitment has been given to the troika to address both the medical and, with due deference to the Chairman, legal areas in the foreseeable future. While this matter is up for discussion, is it now argued that we should establish an artificial bond under which we will be required to increase public sector pay rates if the economy improves again? While I am willing to listen to views on this matter, the private sector generally sets its own pay rates based on what the market will bear. Some sectors pay very generously and have been virtually untouched by the recession while others have taken a substantial hit. This issue depends on whether there is an economic argument for a correlation or whether there is a solidarity parity of pain argument. I would like to hear the arguments in favour.

Deputy Kieran O’Donnell

I welcome the Minister. Will he explain how the changes will be correlated with the comprehensive spending review? What is the timeframe and who will do the work? My question is linked to the public sector numbers. What controls does the Minister have in place to ensure that the reduction in public sector numbers comes from appropriate areas and does not impinge on front-line services? We need public sector reform, but I would like to know more about the practicality and the dynamics involved to ensure that expenditure cuts in the public sector are not made crudely. How will the Minister marry the public sector numbers with the comprehensive spending review?

The Minister mentioned the enquiries he is getting from people about taking voluntary redundancy by the end of February. My understanding is that people can apply up to 30 November. That is the date by which they have to indicate that they are considering availing of the scheme, but they can withdraw at any point up to the end of February. I want to be constructive, but I am interested in the practicality. The Minister mentioned teachers. If a teacher is teaching the leaving certificate or junior certificate class and intends to finish in February, how will that be managed? It is important that we examine public sector reform at a practical level and consider how it will impact on the ground. We have to find savings, but we should find them by thinking outside the box and creating flexibility for people to move within the sector.

The Minister mentioned the payments that can be made to people in the public sector, with ceilings of €200,000 for civil servants and €250,000 for CEOs of commercial companies. Is there a timeframe within which to expect those pay levels to come about? The general public, who are looking in, welcome the fact that the Government has stabilised things on the financial side, but there is an issue in relation to the level of pay for the ordinary person who is struggling to pay a mortgage, to put children through school, and generally just to live.

I welcome the fact that the Minister gave such a comprehensive overview, but I ask him to comment on the practicality in the areas I mentioned.

Deputy Brendan Howlin

With regard to the comprehensive expenditure review, to avoid crude cuts, I asked that we give every Department the criteria well in advance. The process has been months in gestation. Departments have looked at the root and branch, with the priorities being creation of efficiencies, avoidance of waste, cost effectiveness, amalgamation of shared services and better procurement. Those things are the first port of call. One report that I received from a Department was 300 pages long, so they have engaged with this. The reports will be available for the committee to read in due course, once the budgetary decisions have been made. I do not think there is a crudeness about the approach, but there is an imperative. There is no low-hanging fruit that is an easy option for savings. Departments have given it their best shot. We have had dialogue with them to ensure that everyone is shouldering the burden equally. We set priorities for areas that the Government wants to protect, and that is implicit in the programme for Government. That is the way in which the process has evolved. The initial reports that came into my Department were evaluated by a steering committee drawn up from my Department and the economic advisers to the Government. The steering committee has interacted with each Department and a final presentation of reports is with my Department this week.

No. It is not a new question, it is a comment. I welcome that the Minister has stated that it is important that we have a fine public service. Reform is needed and it is important that we retain that level.

Deputy Joe Higgins

When the other half of the coalition finance portfolio duopoly, the Minister for Finance, Deputy Noonan, was here last week he was singing from a hymn sheet somewhat similar to Deputy Howlin's.

Deputy Brendan Howlin

I am glad to hear it.

Deputy Joe Higgins

There is an air of harmony but unfortunately an equal air of unreality. The Minister has spoken approvingly of the fiscal targets they have achieved and stabilisation of the public finances. However, in the real world the Government's austerity policy is killing the real economy across the board and with a vengeance. The Minister quotes exports growth approvingly in a similar way to Deputy Noonan. Exports growth is important but it is not where the jobs are mainly or where the real increase in jobs could come from, which is in the domestic economy that the Government is hammering with its continued policy.

Does the Minister accept that increasingly austerity is being questioned and discredited even by capitalist commentators and serious commentators not just those on the left, including most recently at the United Nations conference on trade and development? The Minister claims he will deliver better public services with fewer resources. It sounds good but in most cases in the real world it is simply not possible. In the hospitals, which the Government has cut to the bone, the staff are at the end of their tether. Little more can be cut and people are being hurt. The idea that the Government's cuts will deliver services is from the fantasy land of tea party types, neoliberals and the like. The Government has taken special needs assistants from schools and has reduced the number of resource teachers. The idea that this will assist children or provide a better service to the children, their parents and schools generally is unreal. Schools are depending on these resources for the education of entire classes.

The Minister referred to the Croke Park agreement. The propaganda in the establishment press holds that the Croke Park agreement is some kind of happy hunting ground for public sector workers and that they are rolling in clover under it. This is part of the general denigration of the public sector by sections of the capitalist press. The reality is that the Government's Croke Park agreement is institutionalising the cuts in the public sector and it is a disaster for the quality of the public sector. If there were leadership of the public sector unions that was deserving of their membership and if they had any bottle they would not have accepted it. They would have brought that out quite clearly but they did not.

The Minister spoke of the reducing salaries and figures of €200,000. It is important to state for the record that the great majority of public sector workers are low-paid or middle-paid. The Minister mentioned a figure of €285,000 and he quotes approvingly a cut to it of €85,000. If one advertised a job for €285,000 this week and then informed the applicants or those who might wish to apply that they must take a cut of €85,000 next week leaving €200,000, the queue would be miles long. Naturally, there should be cuts to those obscene rates of wages but that is a different thing to savaging low-paid workers.

Against the background of the unemployment tragedy which unfortunately has been consolidated in the past week or so and is going up again, how can Deputy Howlin as a Labour Party Minister come in and not blush when he talks about a further massacre of 25,000 in the public sector? Similarly with regard to the pension age, the labour movement and working class people sacrificed so much to try to have a shorter working day and a shorter working life but the Minister has come to eulogise its increase and yet as a Labour Party person he does not blush.

The Croke Park agreement was not imposed by the leaders of the unions, it was voted on by the members of the unions. One cannot pick and choose one's democracy and take the view that when one agrees with it, then it is a grand little thing but when it does not agree with one's view, then it is not.

Deputy Higgins referred to pay rates. There has been a large focus on the best paid in the public service and they had got out of kilter. That is why we have worked hard in the first few months to push them down to the level that we indicated during the election. We have done that throughout the public service. Issues arise in terms of the CEOs of the commercial semi-State companies and there is a capacity issue to ensure we get the best people to do the job effectively. However, I do not believe we need to pay the rates we have paid in the past. That is why we fixed a new pay rate of €250,000 for those. For the Deputy's information, the average pensionable pay rate in the public service is now €54,000, which is significant enough. While I do not wish to reduce anyone's standard of living, this is the reality and is a fact to which Mr. Stark, with whom I disagreed yesterday, has alluded.

Senator Sean D. Barrett

I welcome the Minister. There is much in his contribution that is absolutely necessary for the country's future. The lobbying activity to which he referred has been a serious problem. I agree with the Minister that lobbying such as the activities of the bankers just three years ago this month in extracting from this country the biggest ever bailout relative to GDP must be controlled. This should be done through the Ceann Comhairle and through the Cathaoirleach as Parliament must know the deals that were done. While that one was an obvious disaster for the country, it was not a lone example. The construction industry had far too much influence in the past and Ireland ran public capital programmes that as a share of GDP were twice what they were in any other country. Perhaps they knew something we did not and as the Minister has observed, projects were not properly analysed. I also am worried about the activities of tax lawyers and accountants. Although the Minister's contribution did not refer to them, it should have. A paper at the Kenmare conference last year indicated that 131 of those tax expenditures cost €11.5 billion per year and seem to be based on the lobbying ability of whatever group was in and out of the Department of Finance. This amount would make a pretty good hole in the €18 billion the Minister sought.

On the issue of asset disposal, I do not know how many of my colleagues on this joint committee would agree but we really must include NAMA in this regard. It did not recapitalise the banks and it lost €1.1 billion last year. Moreover, it is employing developers at salaries of €200,000, which is at the top rate of public service pay, as well as the same auctioneers, solicitors, accountants and banks. It seems bizarre that we are losing €1 billion a year to keep up property prices when by having the so-called fire sale, which is the wrong term as nothing went on fire, the consequential lower property prices would help to stimulate the recovery. I do not know what NAMA is doing and while members have not discussed it in private business, it certainly was very strange to hear of some of the things the agency was doing, as well as rewarding all the people who got the country into so much trouble. This issue might be considered in the asset disposal side of the Minister's task.

At around this time of year, I note Departments used to be asked to spend the money allocated to them. They would be required to spend the money on anything at all because the Ministers Deputies Howlin and Noonan otherwise would take it from them at the end of the year. Such money should be retained for next year and I hope this custom has been allowed to die out. On the management issue, I agree with the Minister. An Bord Snip reported that between 1997 and 2009, middle and senior management in the Civil Service grew by 82% when the total numbers grew by 27%. That upward projection took place and the Minister now has a chance to change that system. Deputy Twomey suggested that we must consider having an economist grade as the era of the generalist is over. I gather this innovation has worked very well in the United Kingdom but as the Minister is aware, the Wright report found that only 7% of the staff in the Department of Finance had a qualification in economics. I acknowledge the Minister for Finance, Deputy Noonan, gave some evidence to the effect that this proportion increased somewhat subsequently but this proposal must be considered.

On the annual output statements, An Bord Snip suggested these should be independent and publicly available evaluations to facilitate Parliament in holding up Government expenditure to scrutiny. Agencies that are in receipt of public money must first account for it in the accountancy sense and, second, must indicate, if members had sought to look after the homeless or tackle poverty, whether anything happened on foot of those budgets that made the position better by the end of the year than had been the case at the outset. A certain feature of the Celtic tiger era involved not ascertaining whether cash allocated for a purpose actually performed that purpose.

Another issue I mentioned to the Minister for Finance, Deputy Noonan, is that travel and subsistence allocations in the 2011 Book of Estimates increased by incredible amounts such as 52%, 87%, 47% and 79%. Did people fatten up the travel and subsistence budgets this year in order that they can pretend to the Minister they made major cuts?

Deputy Brendan Howlin

From which Departments is the Senator quoting?

Senator Sean D. Barrett

I can forward the details to the Minister. I refer to the Revised Estimates for public services 2011. I apologise as I did not mean to confuse members. However, they contain huge increases in respect of travel and subsistence. Did some people fatten up the budgets to enable them to pretend next year to have effected a reduction? It goes right through from Vote 1 to Vote 43. For example, the allocation in Vote 43 is up by 46% while Vote 1 is up by 52% and there are plenty of large double-digit increases pertaining to travel costs. As hotel costs certainly are falling, travel costs also should be coming down.

On the deployment of staff, An Bord Snip suggested that if all the adults were deployed in the classroom, the average class size would be 12.1 pupils. There are many cases in the recent past in which people were deployed away from front-line services. In my sector, it almost is a badge of honour not to give lectures any more and the fancier the title, the less lecturing one does. However, there are signs of this throughout the system. For example, since the Minister served as Minister for Health, the number of health staff doubled from 55,000 to 110,000 but the service is worse. Consequently, there are many things a Department can do to assist in this important national task of getting in order these finances. Anything I say by way of suggestions or points I throw out is to commend the Minister because it is vital in the national interest that we accomplish this task.

Deputy Brendan Howlin

I thank Senator Barrett. On lobbying, we will produce a registered lobbyist Bill so there will be a formal register of people who seek to lobby for political or policy purposes. Obviously, much legitimate lobbying is done and groups such as the IFA and others regularly come in - as long as it is done in a transparent way. I am more concerned about someone in the past whispering in the ear or during a round of golf or about the type of accountants or lawyers who secure a specific small change that no one completely comprehends but which then has an extraordinary impact. The intention is to have this done in a transparent manner whereby anyone making a case should so do through a committee or through a public forum.

As for NAMA, the views of the parties that are in government at present on NAMA were expressed on the agency's establishment. One of the first actions of the Government was to stop NAMA II, which entailed the transfer of further assets to NAMA. I note my ministerial colleague, Deputy Noonan, is engaged in a fundamental look at its functioning because we need it to function in a way that assists our recovery. I do not wish to say more than that. On the issue of budgeting, there certainly no longer is such a thing as a Department that, noting it has a pot of money to spend before the end of the year, wonders on what it will spend it. My Department releases money for specific approved projects. It intends to get into multi-annual budgeting in order that people can have a horizon of expenditure, which is important. For this reason, there already can be an overhang of 10% on the capital side that has been in place since Deputy Fleming's time. As for the profile of the public service, I agree that more experts are needed to deal with specific issues and we have discussed this point previously. I am not familiar with the travel and subsistence issue raised by the Senator but will ask my officials to consider it and to ascertain what it is.

On the issue of health employee numbers, the Senator has made the point that they have grown from approximately 60,000 when I was Minister to approximately 110,000 or 100,000 at present. However, it has become a much more complex system since I held that office. One issue that was just emerging in my time was that of child abuse. In fairness to the previous Government, it put enormous new resources into the area of child protection with a new phalanx of social workers and support staff. Moreover, at that time, we had very undeveloped and patchy support for the elderly. One issue about which I was concerned during my time in that Department 14 years ago was that each health board basically was a law unto itself and consequently, one experienced highly disparate service levels. One of the compelling arguments for the HSE originally was to have a common standard of service. We needed to expand the core. I would not look at it purely in terms of the outcomes ten years ago compared with the numbers one had and what the outcomes are now. I have covered all the points.

Deputy Richard Boyd Barrett

I would like to put my questions and points in the order in which the Minister introduced his statement. For clarification on the role of the Minister, it was recently reported in newspapers that he had urged Ministers to do better in identifying €11 billion in cuts, not just the €3.6 billion that was initially indicated would be required in the budget for the programme for Government. This was possibly with a view to ramping up or front loading the austerity, fiscal rectitude and so on. There has been much speculation about this, as I am sure the Minister is aware.

Is that what we understand the job of the Minister to be? Is he the whip hand or the Minister for austerity for imposing the cuts? Is he the guy who goes to the Minister for Health if he is not cutting the health budget enough and tells him he has to cut more, as well as social welfare, and so on? I want to understand his role clearly. Could he comment on the suggestion that he wants front loading of austerity to ramp up from €3.6 billion to a higher amount for the current budget? Has consideration been given to increasing the amount of austerity to be imposed in this budget? Can he explain the logic behind considering that?

It would appear that the logic which is being proposed to justify that is that it will give confidence to the markets about our fiscal responsibility and so on, help us get back into the private bond markets and is why we might consider imposing even more austerity in the budget. Is that the logic which is operating or being considered by the Minister and Government? It is utterly misguided to consider having more austerity to assuage the feelings of the markets who caused this problem in the first place.

On the macroeconomic picture to which the Minister referred and his commitment to fiscal austerity, setting aside the slightly childish comments about Trotsky and so on-----

Deputy Brendan Howlin

Deputy Higgins is a proud Trotskyist.

Deputy Richard Boyd Barrett

Yes.

Deputy Joe Higgins

Yes, but the Minister should not-----

Deputy Richard Boyd Barrett

We could point out that the leader of the Minister's party swanned around with Stalinist dictators in eastern Europe and expounded them as a model we should follow in this country-----

A Deputy

He learned the error of his ways.

Deputy Richard Boyd Barrett

------but most of the time we do not. Whatever failings Deputy Higgins and I have, at least we were always opposed to those brutal dictatorships.

On a more serious note, could the Minister comment on the growing challenge being put to the austerity consensus from mainstream institutions and commentators across the globe as well as in this country? I ask him to comment in particular on the report of the UN Conference on Trade and Development which has lambasted the policy of austerity being imposed by this Government and other governments in developed countries. Has the Minister read the report or does he intend to? It would make for sobering reading and would be something this Government should at least consider because it is categoric and not ambiguous in what it says about the policies the Government, the EU and the IMF are pursuing. It says fiscal tightening is self-defeating, especially in the most developed economies which were severely hit by the financial crisis, and that fiscal imbalances were not a driving factor of the crisis but were rather a result of the crisis and, consequently, focusing on fiscal imbalances is getting things the wrong way round.

The report also says that public bailouts of financial institutions accounted for a large portion of the deficit, reflecting a conversion from private debt to public. In other words, the fiscal imbalances result from the bank bailout and it is those things that have to be addressed.

I ask the Minister to consider what the report says. It says that public opinion and policymakers should not trust again those institutions - it refers to the markets - including ratings agencies, to judge what constitutes sound macroeconomic policies and management of the public finances. It goes on to say we should have stimulus and growth focused policies, not austerity. Will the Minister read that report? Could we get some feedback over the coming days? There is no serious discussion of the alternative economic strategy for dealing with the current economic crisis. We seem to be blindly following an austerity consensus, like lemmings charging over a cliff. The public at least deserves a proper debate on it and serious comment on the alternative analysis that is now being put forward by the UN, among others.

To what extent is the Minister responsible for ensuring State assets are sold? Has the EU and IMF, at any stage in discussing the need for the sale of State assets in this country and elsewhere as part of imposing fiscal rectitude and so on, explained precisely the logic behind it? I and, I suspect, most of the public, would like to know what it is. Some of us might like or dislike it but I would like somebody to explain why it is a good idea. Naive and simplistic as I am, I do not understand how selling a successful company such as the ESB, the possibility of which is being discussed, can be a good thing in terms of gearing our economy up for possible future economic recovery. It is at least arguable that companies like the ESB and Bord na Móna might be things we should hold onto and invest in because they could be key drivers of economic growth rather than selling them off. How does this benefit us? Even the amount of money we would get from the sale of some or part of them is derisory in the context of the debt. What precisely is the purpose? Some of us suspect it is just asset stripping and using the current financial difficulties of the State to grab the most lucrative parts of natural resources and State assets. Could the Minister comment on that? It is a real concern.

I want clarity from the Minister on public service numbers. Until the beginning of the first quarter of this year, approximately the same time the Minister's party came into Government, 16,000 public sector workers had left, mostly through the public sector recruitment embargo. Can the Minister clarify whether the 25,000 figure he mentioned involves 9,000 or 25,000 more? Does the total of 25,000 include the 16,000 or will 41,000 public sector workers leave? There is a large difference between those figures. Can the Minister explain, if it is the latter, as I fear it is, how on earth he can talk about better public services for less if such high numbers are being taken out of our public services?

Focusing in particular on the health area, 6,000 public sector health workers have left. There is an obvious equation between this and the fact that the Irish Medical Organisation, the Irish Nurses and Midwives Organisation and senior consultants said this week that hospital and health services simply cannot take any more cuts and are crumbling as a result of the lack of staff and personnel. Apart from anywhere else, imposing further cuts in numbers in the health service is guaranteed to cause a catastrophe there.

I am on my last point. Is it not the responsibility of the Minister for Public Expenditure and Reform to assess whether this is good value for money because it seems to me to be clearly bad value for money?

Chairman

The question is very clear. I call the Minister.

Deputy Brendan Howlin

The Deputy talked about taking on the bank debt. The previous Government did that and it was a catastrophic decision in my judgment. The Labour Party argued that at the time and we were the only party that voted against it on the fateful night the decision was made. I do not need lectures on that but we are left now with the consequences of that decision. It was a sovereign decision by an elected Government and it was voted upon by the Dáil and we are left with the consequences of that sovereign decision to work our way out of as best we can. It is a process of working our way out of real, not fanciful, engagement, and we are going to do it.

Part of the memorandum of understanding is that there would be a sale of State assets. I am not one who would love the sale of State assets, and certainly not in the current climate. We must, however, fulfil our requirements to the memorandum of understanding and the programme for Government to which we signed up in a way that is logical and gives the best result for the Irish people and that will free up resources. We have initiated discussions in the first two formal engagements we have had with the troika to move from the position that existed before we came into Government, when anything realised from State asset sales had to be used to retire debt, to a new position where we can use it to leverage jobs. That is what we want to do, just as there was investment in the State sector in the 1930s and 1940s, when we could not get the private sector to establish an ESB or Bord na Móna. The State stepped in and did that. The next generation of funding of State jobs must be done as well and we must leverage the resources to do it. I hope that some of the resources, and this is a matter of negotiation with the troika, will be used to leverage some of that money into the programme for Government commitments on the NewERA project and the strategic investment bank put forward by the Labour Party.

These are important elements for our recovery strategy that we will put in place. It is a process over a period of time. That is the logic the Deputy asked for on the sale of State assets and one which we must convince our European and IMF partners to buy into.

The commitments in the programme for Government are commencing post-2010. We will downsize the public service between January 2011 and 2014 by between 18,000 and 21,000, with a further 4,000 the following year. There will be gaps because a significant number will leave the public service. Under the Croke Park agreement we have two commitments. There will be no further pay cuts and there will be no compulsory redundancies and we will try to manage it within that context. The quid pro quo is that we will have the flexibility to fill the gaps across the public service. That has worked to date. There will be many challenges when we are doing this. None of it is simple or easy and there will be gaps we might have to deal with creatively in the future.

Will services be impacted? We will do our best to mitigate any impact but it is probable there will be in some instances and we must plan for that. Everyone who has come into my office has heard me make it clear that it is not good enough for any organisation to say that if numbers are reduced, front-line services will be affected. This is a national endeavour to get ourselves out of this hole. There are no spectators in this; everyone has a stake in getting us to a better place. When teachers come into me to say a resource teacher is being lost, I ask that people work an extra hour per week for the next five years to fill that gap. We all have a common endeavour to work our way out of this hole in a creative and open way and this Government will be open to any ideas anyone might have.

I do not subscribe to the view that all work done by people in the public service is good and all work done in the private sector is bad, or vice versa. I respect workers in both the public and private sectors. I do not say that private sector workers have no regard for the work they do or will not do a good job in cleaning. That is not fair to workers in either sector. Contract cleaners are workers and if they do a job of work, they should be respected and not disparaged across the board the way the Deputy has done. We must do what is right. Sometimes things can be done better in the public sector and sometimes things are done better in the private sector. We do not need an ideological view of that. We must look at what is best.

My role is to get value for money, but as I said earlier on education policy, it is not my job to micromanage housing policy and I suggest the questions be put robustly to the Minister for the Environment, Community and Local Government.

Senator Katherine Zappone

I thank the Minister for staying until so late an hour.

Deputy Brendan Howlin

I am appearing before three committees this week.

Senator Katherine Zappone

It is helpful that the Minister outlined the criteria given for the review of the capital programme: growth, employment impact and meeting compelling social need. Were those criteria given equivalent weight? What does compelling social need mean and how is it determined? Would the criteria have played a part in the review of expenditure for Departments, particularly for programmes and policy initiatives?

Deputy Brendan Howlin

It is not a crude equivalence. Depending on the area and the Department, as a Government we must make decisions that I do not want to articulate now about areas that should not be touched. There might be areas that need supports to be supplemented. I cannot discuss it now because we have not discussed it at Cabinet, but if anyone wants to know the areas we prioritise, they should read the programme for Government and they will see what is important to the parties in Government.

When I met the chairs of all the non-commercial semi-State organisations, I told them most of them were doing a splendid job filling a need in the community but that does not mean we can afford them all in the medium term. Some of the things we are doing, even good things, will be put on hold until we get out of the mess we are in. People understand that and there has been a positive reaction to it. I hope people will look at themselves and see where they can make savings in amalgamated services, in organisations coming together and in some services being drawn back into line Departments. Every group that has come to me has been asked if it needs its overheads and there are cross-sectoral issues, such as procurement, where we can do better. I have mentioned pensions. That will not be for the short term but the longer term where we have a single system for administration.

We should look at everything on a cross-sectoral basis. We do not need a variety of systems for means testing, for instance. There should be a single, common means testing system. These are the issues my Department is working on separately. It is difficult to put a value on each of these until we finish the process, but I hope when we present the budget that each of those values will be self-evident in the decisions we have made.

Deputy Peter Mathews

I do. I have a couple of comments before I ask the question. They are technical. We talk about the memorandum of understanding of November 2010. It was actually a memorandum of misunderstanding. There was no clear understanding of the extent of the losses in our banking system. We could not have a memorandum of understanding when we did not know what we were signing up to. The main thrust of the agreement was that the ECB wanted to protect itself from the exposure of €135 billion to our banks. That is the truth and they know it, but we do not talk about it. There was not burden sharing, there was loss sharing. Burden is an emotional word. They were losses.

Bringing newcomers and infusions of fresh, professional, qualified and experienced people into the public service seems to present some taxation difficulty with regard to pension arrangements for people stepping from the private to the public sector. I do not see how that could arise. Pensions are portable within the private sector if one moves from job A to job B. That should be the same here. If it is not, a technical adjustment should be all that is required. We should not allow the recovery of our country to be impeded or obstructed by a little technical difficulty which could be solved.

I thank the Minister and his officials for coming. This is not an easy forum. I am learning the ropes.

Deputy Liam Twomey

It is difficult for the Minister to comment too much on some of the austerity views of some of the other members of the committee. If there are any policy changes towards quantitative easing, which is essentially the opposite of the austerity policy we are going through at the moment, it would have to be done in conjunction with our other colleagues in the eurozone and in the European Union. It certainly should be discussed by the committee, so that we can figure out the pros and cons of both policy decisions. That might be useful in the future.

We should also look at the pros and cons of public asset sales. The privatisation of Eircom was a disaster for this country in the long term, regardless of what was gained in the short term. If there were problems with public authority contracts, they should be highlighted and given to the Minister, so that these contracts can be analysed and value for money audits carried out by the Department of Finance.

For the Croke Park agreement to work, we have to accelerate the reforms the Minister is talking about. For example, we both know the health service reasonably well. The whole theory is that the majority of people on the front line must adopt a working week of five days out of seven, with an extended working day. I am sure the Minister has had discussions with the implementation group on this, but it needs to be moved forward for the Croke Park agreement itself to survive in the long term. I am glad he is looking at capital programmes to make them more labour than capital intensive for the next few years. That is a very important strategic decision and is absolutely necessary if we are to get people back to work.

There is a need to look at some of the practices within the health service and other public services. There are still some very restrictive practices. Deputy Boyd Barrett spoke about what consultants had to say about what is wrong with our health services, but there are many restrictive practices to consultants' work that have contributed to some degree to the fact that we have so many so-called non-nationals working in our health services. The career structure and training opportunities in our health services have not improved enough, and there is still a great number of problems to be resolved.

We need to get away from this idea of burning bondholders. If we burn bondholders, we will put ourselves in the same position as Argentina in 2001. The people who suffered the most then are the people who suffer the most now, which are the least well off and the poorest sections of Argentine society. We must accept that with these austerity measures, people are suffering. We have problems in our accident and emergency departments, overcrowding is getting worse, and I am well aware of what is happening in schools in my constituency in respect of SNAs. It is a serious issue, but unfortunately we have been left with a regrettable mess that we must tidy up, and I would like to wish the Minister the best in what he is trying to do.

Deputy Peter Mathews

I forgot to mention the excellent e-government initiative. E-invoicing will save the public service €4 million per year, and I have a few bits of paper here to give to the Minister about it.

Chairman

Thank you, Deputy.

Deputy Brendan Howlin

I thank all the Deputies. This sort of debate is good. I am happy to stay as long as people want. I am teasing out the job as well, and I certainly do not want to take an adversarial approach. I will give as good as I get if people come in to score political points.

Deputy Peter Mathews

I was trying to get co-operative conversation. It is not adversarial.

Deputy Brendan Howlin

It is absolutely not adversarial, but not everybody will approach this in exactly the same frame of mind. We need dialogue and openness. I hope the committees in this Dáil and Seanad will be of a different character to those that went before and that there will be a great deal of dialogue of this kind. Perhaps people are taking me at my word; I am appearing before three committees this week, so I might get my fill of that.

Deputy Matthews spoke about people coming from the private sector. I made the point that the pension pot is taxable if one has a pension pot annualised over €1.3 million. There will be people who have had a fine career in the private sector who will have reached that, and if they come into the public sector-----

Deputy Peter Mathews

God bless them.

Deputy Brendan Howlin

God bless them, but there are plenty of people who have done that. They have been very successful and they might actually like to give a few years of public service, but they would be working to build up a tax liability at the end of their time. These are technical things that we can deal with.

We have done well in e-government in terms of benchmarking, but I do not want to lose the run of myself on that. The benchmarking done by the commission is a crude enough exercise. I was very happy to launch the new website. There are 300 services that can be accessed now. Most of us who do our car tax and so on will automatically go on-line rather than go down to the local county council offices. We need to centralise that a bit more, because it is an efficient and cheaper way of doing things. To pick up on Deputy Boyd Barrett's point, one can reduce numbers without impacting on services in some areas.

Deputy Twomey made several points. The general point was about austerity versus quantitative easing. We have no choice in these matters. We do not control our own currency, so we cannot print our own money. We are in a good position in respect of where we were six months ago. I described the negotiations on the programme for Government as cathartic for those involved, because of the dreadful place to which this country had been brought. Strategically, we have made the right decisions so far. We have had a little bit of luck, but we have made the right strategic decisions to map a path to persuade people to build confidence with partners across Europe and within the IMF. We have done that rather well.

We have certainly learned from the Eircom debacle and we will not make those mistakes in any future asset sales. We said in the programme for Government that we would protect strategic assets. We do not have choices in these areas. We have a commitment in the programme for Government and the MOU to sell State assets to the value of €2 billion. It is no secret that the troika used different language in the last agreement, but we finally agreed on a "significant" or "substantial" sale of State assets. We did not want the troika to quantify it, and they accepted that. As long as we can do that in a way that gets reasonable value, we can put the money to constructive use.

The reason the Taoiseach joined me in meeting the Croke Park agreement implementation body during the summer was to reinforce the determination that sectoral changes had to come about in health and places that have been resistant to change. I need not enumerate them here. We need to embrace the change and get on with it now, whether it is new rostering in the Garda Síochána or anything else. That is happening, but we met to drive home that point. When we receive the next report, we will know how far that report has progressed.

Deputy Twomey also commented on how the capital programme should be work focused. Senator Zappone also broached this in one of her questions. We have set out the criteria for the capital programme, which must be focused on contributing to economic recovery, which means creating jobs in the short and medium term as well. That would be my focus too. This also includes the social dimension, because we have to protect social need, dealing with the demographic in education and so on. All these complicated, conflicting issues must be addressed, as we make decisions. We will present the conclusions on the asset sales, the conclusions on the comprehensive review of expenditure, and the conclusions on fiscal strategy in the budget. The forthcoming term of the Dáil will be extremely important for addressing these issues and I look forward to vigorous engagement on all of them.

Chairman

I thank the Minister for the briefing he has provided and the lively discussion to which he was willing to be party. The meeting has assisted us in our quest to identify the issues and areas on which the joint committee can contribute. While we will not be able to do everything, the committee has an important role to play. This afternoon's discussion and previous discussions have assisted members. As there is no other business before us, the meeting will adjourn.

The joint committee adjourned at 6.45 p.m. until 2 p.m. on Wednesday, 14 September 2011.

JOINT COMMITTEE ON FINANCE, PUBLIC EXPENDITURE AND REFORM díospóireacht - Tuesday, 13 Sep 2011

The Economy and the Banking Sector: Discussion (Resumed).

A Deputy

JOINT COMMITTEE ON FINANCE, PUBLIC EXPENDITURE AND REFORM díospóireacht -
Tuesday, 13 Sep 2011