Since taking office, the Government has made tremendous progress in stabilising the public finances, bringing the national debt down towards the European average and reducing unemployment. It must be acknowledged that public servants and public service pensioners have played a significant part in taking this country off its knees. Five separate pieces of financial emergency measures in the public interest, FEMPI, legislation have contributed €2.2 billion annually to stabilising the public finances. Now, through the Government's prudent management of the economy, we are in a position to commence the unwinding of the financial emergency legislation.
This Bill, which is designed to give legislative effect to the negotiated provisions of the Lansdowne Road agreement, illustrates that the Government is committed to the orderly unwinding of the existing legislation. The terms of the Lansdowne Road agreement were approved by the Government on 3 June this year and accepted by the public services committee of the Irish Congress of Trade Unions, ICTU, on 16 September following full consultation with its members. The agreement provides for partial pay restoration to public and civil servants. It also provides for a reduction in the level of pension-related deductions paid by public and civil servants. The restorations are significantly weighted in favour of the lower paid. These changes to the FEMPI measures require the Government to bring forward primary legislation to amend the existing Acts.
The Lansdowne Road agreement is not just about take-home pay. In addition, it secures and enhances the considerable reforms the Government has delivered since 2011. When we came into office, reform of the public service was a key component of our strategy to meet the enormous challenges we faced. Collective agreements implemented by the Government provide for 15 million additional working hours by public and civil servants, helping the Government to provide additional services to citizens with fewer staff. Under those agreements, we have seen overtime and other payments substantially reduced while other conditions relating to pensions, sick leave and holidays have all been amended.
The Lansdowne Road agreement builds on this progress and ensures public service and Civil Service reform will continue to play a key role in Ireland's recovery. The agreement strikes the right balance between the legitimate aspirations of public servants for pay recovery and the objective of sustaining or improving public finances. I have consistently acknowledged that during the crisis, the sacrifices of public servants and public service pensioners assisted in putting this country on the road to recovery while sustaining our public services. Therefore, as economic growth returns and private sector wages increase, it is only right that all public servants and public service pensioners start to see their take-home pay improve.
Others take the view that the emergency is over and that the emergency legislation should be dismantled in its entirety immediately. This would be wholly irresponsible. While significant progress has been made, with employment on the increase, national debt in decline and public finances under control, we must be restrained. We must manage the process in a responsible, sustainable way, with the long-term interests of the country at the centre of policy-making. Therefore, this Bill is not about giving away in a reckless, unplanned manner but rather about giving back, in a measured and prudent way, to those who were committed to maintaining services in the face of the fiscal discipline that was required.
The estimated additional cost of the measures agreed in the Lansdowne Road agreement is €267 million next year, an extra €290 million in 2017 and a further €287 million in 2018. In addition, the reduction of the public service pension reduction carries a cost of €30 million for each of the years 2016 to 2018, inclusive. The Bill is concerned with the amendment of prior legislation, predominantly the FEMPI Acts, so as to give effect to what has been agreed by the employer, that is, the Government, and the public service unions in the Lansdowne Road agreement. As I have said, it is the first step in the carefully managed unwinding of the FEMPI legislation necessary for the pay and pensions of public servants to be restored. As the House will see, the measures it introduces are proportionate and fair, with something given back to all, since all contributed, but with the lower paid standing to receive most, relative to where they were.
For the benefit of Senators, I will briefly outline the main provisions of the Bill. Section 3 concerns pay restoration for public servants. It amends the FEMPI (No. 2) Act of 2009 to allow the reductions effected under that Act to be lessened. It is important to stress that the nature of this is progressive and measured, with lower paid public servants standing to gain most proportionately. It is also equitable, with the rationale being that since all public servants suffered pay reductions under the previous FEMPI Acts, all should receive relief of some kind. The restoration will take place in the following way. From 1 January next, public servants earning annual salaries up to €24,000 will have their salary increased by 2.5%, while those earning between €24,000 and €31,000 will receive a 1% increase. On 1 September 2017, the salary of all public servants earning less than €65,000 will be increased by €1,000. As well as these measures, this section also reverses the additional pay cuts for the higher paid from 2013, as follows. Where their annual salary is between €65,000 and €110,000, the amount by which it was reduced will be restored in two halves - first on 1 April 2017 and then on 1 January 2018. This restoration was an agreed part of the Haddington Road negotiations and the Government is happy to follow through on the firm commitment we made with the unions. For public servants with an annual salary of over €110,000, the amount by which it was reduced will be restored in three equal parts - on 1 April 2017, 2018 and 2019, respectively. This slower restoration of the cuts for this group is, I believe, proportionate and fair.
Section 4 amends the FEMPI Act 2013 to extend by a further two years the suspension of the operation of incremental pay scales with respect to any public servants who are not encompassed by a registered collective agreement, as outlined in section 7 of that Act, that is, by the Haddington Road or Lansdowne Road agreements. This provision follows the existing structure of the 2013 Act and is now extended to accommodate the newly negotiated Lansdowne Road agreement.
Section 5 deals with the pension-related deduction payable by all public servants and introduces measures to reduce it, putting money back into the pockets of those who have had to pay this additional levy on their wages for six years. To this end, it amends the first FEMPI Act of 2009 so that this year's exemption threshold increases from €15,000 up to €17,500. This provision provides for outstanding moneys due in respect of the small change effected in pension-related deduction rates under the Haddington Road agreement in January 2014, rather than in July 2013, when all other measures took effect.
The cost of this is €20 million. From 1 January next year, the exemption threshold rises to €26,083, so no income below that figure will be reduced. This figure is a blended sum which equates with the provisions agreed in the Lansdowne Road agreement whereby the threshold is increased to €24,750 from 1 January 2016 and to €28,750 per annum from 1 September 2016. There were to have been two implementation dates next year. For administrative purposes, the two figures have been amalgamated into one which will operate from the beginning of the year in order to achieve the agreed reductions over the course of the year. The full year effect of the new rate is then set for 2017.
Sections 6 and 7 confer the public service pension reduction, PSPR, payable by retired public servants on their pensions. Both sections amend the Financial Emergency Measures in the Public Interest, FEMPI, Act 2010. There are three groups affected by the public sector pension reduction. They will all have the amount payable reduced over the next three years, through incremental increases in the threshold of exemptions. The three categories of retired public servants who pay PSPR and will have their pensions partially and proportionately restored by the measures in the Bill include: those with pensions of over €12,000 who had the levy imposed by the FEMPI Act 2010; those with pensions worth €32,500 who are also affected by a further levy in the FEMPI Act 2013; and those who retired after 29 February 2012 and receive pensions over €32,500 and thus were affected by the FEMPI Act 2013 only. At the end of the implementation of this Act in respect of pensioners, any pensioner who has a pension less than €35,000, and that is almost 80% of all public sector pensions, will have his or her pension fully restored once this Act is fully implemented.
Sections 8 and 9 are straightforward amendments to the FEMPI Act 2009. The changes being made reflect the very different economic context in which we are now operating six years after the original Act and the need to adjust upwards in some cases rather than solely downwards, which was unfortunately the trend of late. The original FEMPI Act gave the Minister for Health with the consent of the Minister for Public Expenditure and Reform the power to reduce the fees paid to health professionals for services provided to the State. This amendment allows the Minister for Health to increase those payments and stipulates certain considerations to be borne in mind when doing so. Similarly, section 9 will allow other Ministers, with the consent of the Minister for Public Expenditure and Reform, to increase the fees paid by the State for certain services should he or she wish to do so. This is to ensure that people who are paid by way of fees rather than by way of salary also benefit from the pay restoration.
Section 10 is necessary to allow an exemption to be made to the provisions of the FEMPI (No. 2) Act 2009 which prevents any increase in pay for public servants. The 2009 Act, introduced by the last Administration, makes it unlawful to increase the pay of public servants, the exemption being allowed for here is where an increase is provided for in a registered collective agreement, such as Haddington Road agreement or Lansdowne Road agreement. For example, in the Haddington Road agreement, it was agreed that teachers would cease to receive allowances for supervision and substitution but that from next year, 2016, their wages would be adjusted to reflect this. The agreement was that teachers would agree to lose the allowance for substitution and supervision but from next year, that fee would be incorporated into their salaries and the provision in section 10 is to allow that to be done legally. This will happen only to public servants who adhere to the agreements we negotiated with them.
Unlike the rest of the Bill, the last two sections deal with other Acts besides the FEMPI legislation. Section 11 comprises amendments to the Courts (Supplemental Provisions) Act 1961 in respect of the pay of the Judiciary. These are in two parts, the first of which is to provide that the pay of the Judiciary will continue to be set by Government order but that such orders will no longer need to amend primary legislation. This is done on the advice of the Attorney General’s office and while not a significant change in itself, it ensures best legal practice is adhered to.
The second is more substantial. It replaces the measures in the FEMPI (Amendment) Act 2011 which extended the 10% pay reduction for new entrants into the public service to the Judiciary. Under the new measures, new appointees to the Bench will be put on a three-point pay scale so that within two years they will achieve parity with their peers. This is to reflect what is happening in other employment as well so that there would be a catch-up mechanism for those who suffered the 10% pay reduction on entering the public service. This is in keeping with the general measures put in place for new appointees and recent entrants to the public service and, as such, addresses an inequity in terms of remuneration of judges which would exist without this provision.
Section 12 amends the Ministers and Secretaries (Amendment) Act 2011 to give the Minister permanent powers to deal with situations where public servants become in receipt of salaries at rates higher than those approved by the Minister, or in receipt of allowances which have not been approved. The Bill ensures that any such excessive remuneration shall not have contractual effect and that any unsanctioned overpayment in this regard is recoverable from the public servant. As Members will be aware this issue was highlighted by the Comptroller and Auditor General at the Committee of Public Accounts. For clarification purposes, when I said that pensions below €35,000 would be restored; to be absolutely precise the figure is €34,152. Anything up to that amount will be restored.
The Financial Emergency Measures in the Public Interest Bill 2015 is relatively short but it represents an important turning point for the Government, for all public servants and for the country as a whole. It is the first time in six years that we are in a position where, due to good economic management, a FEMPI Bill is being presented to both Houses which will give something back to public servants rather than ask them to make further sacrifices. I am aware that in negotiating the most recent agreement with the public sector unions, the Lansdowne Road agreement, I promised we would have a structured pay recovery. In fact in the original Haddington Road agreement which I negotiated I promised that would be the last ask.
I firmly believe that the Government has sought to strike the right balance between the legitimate expectation of public servants for some clear path to full pay recovery, and the broad economic considerations of which the Government must be mindful, namely, to ensure that the remarkable progress we have made is not put at risk.
Public servants have contributed very substantially to the recovery and we are now experiencing the fruits of that. It is therefore just and equitable that public servants be rewarded for the contribution they have made in this progressive pay restoration. It must be remembered that FEMPI legislation is predicated on there being an emergency. As we move out of an emergency into recovery incrementally it is necessary that it be unwound in a structured way but it cannot be done all at once because the full cost of collapsing FEMPI would be €2.2 billion which would have a profound impact on the public finances. Hence the Government has provided in this Bill a measured and carefully calibrated response that recognises but does not compromise the improvements and recovery, and which provides a fair and reasonable return to nurses, doctors, gardaí and civil servants, all of whom were required to make considerable sacrifices during the emergency that this nation has endured.
I look forward to hearing the views of the House.