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

Minister Brendan Howlin

Second Stage Speech

 

A Ceann Comhairle, Members of the House

 

Purpose of Bill

The primary purpose of the Bill is to apply the Financial Emergency Measures in the Public Interest Acts of 2009 to serving members of the judiciary in line with the decision of the people in the referendum on the Twenty Ninth Amendment of the Constitution. This amendment amended Article 35.5 of the Constitution in relation to judicial remuneration. The proposed amendment to the Constitution was approved by both Houses. The referendum on judicial pay as proposed and put before the people was passed by a significant majority (79%) on 27 October last.  

 

The terms of the Amendment were very carefully crafted from a legal and constitutional perspective, to ensure that the ongoing independence of the judiciary in carrying out their functions on a daily basis is maintained. This is as it should be. It would be a blow to our status as a constitutional democracy if there was even the perception of Government influence over decisions by judges on cases no matter how remote the possibility might be. In approaching this issue, that Constitutional imperative was an absolute priority for the Government.

 

In my view, the role and standing of the judiciary in our democracy is actually enhanced by these measures. The measures proposed within the Bill uphold the obligation on all citizens to share their part of burden of addressing the current severe fiscal crisis faced by the State. The Bill provides for the application, equally and proportionately to the judiciary, of the public service pension related deduction and the same salary reductions as were  applied to other public servants in 2009 under the last Government.

 

Ongoing need for measures

Our late colleague, Brian Lenihan, stated at the time that the decision to apply these measures was not taken lightly. The application of these measures to public servants in 2009 and 2010 represented the first statutory reductions in public servants’ pay since 1933. This highlights not only the exceptional nature of the measures, but equally the crisis faced by the State, the essence of which is summarised in the Preambles to the Financial Emergency Measures in the Public Interest (No 2) Act 2009.  I want to repeat them to you now as they set the backdrop to the measures being put forward in this Bill for your consideration. 

 

The Preambles speak of “…a serious disturbance in the economy and a decline in the economic circumstances of the State…,….a serious deterioration in the revenues of the State…”, the need “to take urgent measures to reduce the significant shortfall  between expenditure and revenue….”the need “to reduce State expenditure to maintain international confidence” and, most importantly, the preambles refer to the requirement “for the State to achieve significant savings in its expenditure, both directly and indirectly, on remuneration -..”

 

Despite the difficult steps the country has already taken, that fiscal challenge still faces us. We are currently borrowing over €1¼ billion every month to pay our ongoing expenses. This excludes any banking related expenditure. We are borrowing from the European Union (EU)/ International Monetary Fund (IMF) to continue funding our public services, our pay costs, pensions and social welfare benefits. 

 

Measures taken by this Government

This Government is committed to sustainable ongoing reductions in the overall cost of the public service pay bill. This will be achieved through measures such as those included in the Bill today as well as through planned reductions in the numbers of public servants as set out in the Programme for Government and through greater efficiencies in the way in which public services are delivered.  This Government has already introduced significant reforms and I announced further substantial proposed reforms on publication of the Government Statement on the Public Service Reform Plan on 17 November.

 

I won’t go into all of these again now.  However, in terms of pay, since taking office in March 2011, this Government has demonstrated a policy of salary reduction and restraint for higher earners in the public service.  On taking office, all members of the Government accepted further reductions in their pay.  

 

More recently in June 2011, the Government approved my proposals to introduce a general pay ceiling of €200,000 for future appointments to higher positions across the public service, a general pay ceiling of €250,000 for future appointments to CEO positions within Commercial State Companies and a voluntary waiver of up to 15% for current post holders who have salaries in excess of the relevant pay ceiling. 

 

Existing incumbents of posts in the public service that attract salaries in excess of the general pay ceilings adopted by Government have responded positively to my request for a voluntary waiver. 

 

All new appointments to the Public Service are being made in line with the policy adopted by Government on pay ceilings. New pay rates for Secretary Generals of Government Departments have been introduced from June 2011 with a maximum rate of €200,000. This represents a reduction of almost 30% on Secretary General Level 1 pay at September 2008 and means that no civil servant will earn in excess of €200,000.  These new reduced pay rates will also reduce Exchequer pension costs into the future for those appointees.  The savings that will arise under the terms of this Bill are relatively small, some €5.5 million.

 

I would like to inform the House of my intention to bring forward an amendment to the Financial Emergency in the Public Interest Act 2010 which reduced public service pensions in payment and for those who retire before the end of the “grace period” when this Bill comes before Seanad Éireann.  My amendment will introduce a higher reduction rate of 20% on public service pensions above €100,000.  Pensions in excess of €60,000 are currently being adjusted by 12%. 

 

It is estimated that a reduction in public service pensions above €100,000 such as that proposed would potentially affect pensioners who were formerly Office-holders such as the President, Taoisigh, senior members of the judiciary such as Chief Justices or members of the  High and Supreme Courts, Heads of Universities, Civil Service Secretaries General, Chief Executives of non-commercial state bodies, some Hospital Consultant Doctors, Garda Commissioners and Chiefs of Staff of the Defence Forces.

 

My Department’s initial estimate of possible savings is that this would save some €400,000 in a full year.  Just to give some examples of how this might affect an individual on an annual pension of say €125,000, he or she will see a cumulative reduction in their pension of €13,760 or 11%. Someone on a very high pension rate of €150,000 will see a corresponding fall of €18,760 and so on or 12.5%.  It should be noted too that these pension holders are also subject to USC and of course, the upper rate of income tax.

 

While the savings are again modest, I believe the measure should be implemented in the broad public interest.  The Attorney has advised that pension entitlements are vested property rights that have already been earned but, as we know, the existing legislation already affects vested pension rights in the public interest.  I consider this progressive amendment is also in the broad public interest and is just and equitable in all the circumstances.  There are safeguards in all the Financial Emergency Measures in the Public Interest Acts; measures must be publicly reviewed annually and I, as Minister, may consider and may grant claims for exemption or modification if it is considered just and equitable to do so.

 

Nobody here will seek to make the case that those savings will make significant inroads on the fiscal crisis facing the State. However, this is not the rationale behind the Bill or my proposed amendment.  The terms of the Bill reinforce the principles of fairness, ability to pay and burden sharing among all of us. It ensures those in eminent office demonstrate their leadership and, most importantly, their solidarity in a real and concrete way with the burdens faced by those most affected by the economic crisis.

 

Existing Financial Emergency Measures in the Public Interest Measures

This is the fourth financial emergency bill to be put before this House since the Spring of 2009. It may be as well just to remind members of the House of the content of those Acts.

 

The first Financial Emergency Measures in the Public Interest Act of 2009 provided for a progressive pension-related reduction to apply to public servants with access to a public service pension.  The Act was introduced in the context of the priority to be given to the stabilisation of the public finances. As well as the pension-related deduction, it contained a number of measures designed to produce savings, which would be remitted to the benefit of the Exchequer.  The pension-related deduction, which came into effect on 1 March 2009, currently applies to earnings in excess of €15,000 per annum and is calculated progressively at rates ranging between 5% and 10.5%. 

 

 The deduction is not a pension contribution and was introduced in the context of the recitals to that Act which, as I mentioned already, set out the serious and ongoing disturbance in the economy and threat to the finances of the State.  The deduction also reflected the general comparative value of public service pensions compared to private sector pension provision.

 

The Financial Measures in the Public Interest (No 2) Act 2009 provided for the reduction in the remuneration of all public servants with effect from 1 January 2010.  The Act  provided for reductions of an average of some 7% where the salary of the public servant was less than €125,000.  Fixed reduction rates of 8%, 12% and 15% applied to salaries of more than that. The public servants affected included office holders such as members of the Oireachtas and the Government and employees of public service bodies – more than 300,000 people all told.

 

Prior to the recent referendum on judicial pay, members of the judiciary together with the President were not subject to the provisions of either Act.  The Bill we are discussing today removes the exemption for the judiciary so, if passed, they will be subject to the measures in both 2009 Acts from 1 January 2012.

 

The Financial Emergency Measures in the Public Interest Act 2010 introduced an income graduated reduction applied to each gross annual public service pension in excess of €12,000. That deduction already applies to retired members of the judiciary and will apply to the pension of any public servant who retires before the expiry of the ‘grace period’ after which pensions will be reduced in line with the pay reductions set out in the second Act.  The Bill today includes provision to extend the application of the pension reduction to Central Bank pensioners with the consent of the Governor of that Bank, as was intended by the legislation.  This is necessary owing to the legal position of the Central Bank as part of the Eurosystem.  I have already mentioned the amendment that I propose to introduce for those on very large public service pensions.

 

In addition to the three Acts, a 10% reduction in pay from 1 January 2011 was introduced for new recruits to the entry grades to the Public Service. The Bill today makes provision to apply a similar 10% reduction to new judicial appointments from enactment of the Bill.

 

This short Bill, in addition to the provisions relating to the judiciary, also includes the legislative provisions to underpin the significant decision already taken by Government in relation to the remuneration of Office holders. It also includes a number of technical or  ancillary amendments. As I have mentioned, it is intended that the Bill if passed by both Houses will be brought into effect from 1 January 2012.

 

Provisions of the Bill

I now propose to go through the provisions of the Bill in some detail.

 

Judiciary

As already stated, the main purpose of the Bill is to give effect to the outcome of the referendum to amend the Constitution to allow the pay of judges to be reduced in certain very exceptional circumstances.  This Bill here today provides for the application of the two Financial Emergency Measures in the Public Interest Acts of 2009 to both serving and new members of the Judiciary and military judges on the same basis as other public servants.

 

I am aware that there was some controversy about the non application of the pension-related deduction to the judiciary in particular. However, that was the clear legal advice, that the constitutional bar on reducing the remuneration of a serving judge prevented the application of that measure to the judges. Deputies will be aware that a separate provision was put in place under the taxation code to permit judges to make an equivalent waiver on a voluntary basis and that the majority did so.

 

Following the amendment to Article 35.5 of the Constitution in relation to judicial remuneration, sections 3 and 4 of this Bill will apply the reductions in salary applied to other public servants through the application of the pension related deduction to serving judges, sections 5 and 6 will apply the reduction in salary effected through the provisions of the Financial Measures in the Public Interest (No 2) Act.  The net effect of the provisions of the Bill will result in reductions for serving judges ranging from 16% in the case of District judges to 23% in the case of a Chief Justice.

 

Military judges were also exempted from the provisions of the Act. The same sections of the Bill also make provision to remove the exemptions applying to a military judge from the application of the pension related deduction and pay under sections 3, 4 and 5. There is currently no serving military judge. In the context of developing the conditions of appointment of the next military judge, the pay adjustments had already been made. As a consequence, it is not necessary to apply the pay reductions again under section 6

 

I should also make it clear that all the relevant provisions of the two Acts will also apply to the judiciary, as they do to all public servants. The most important of these at the present time is section 3 of the (No 2) Act which sets out the ‘grace period’ provision which I have already mentioned. That provides that public servants who retire before 29 February will do so on their previous, uncut, rate of pay. This provision will also apply to serving judges in line with the commitment to treat serving judges in line with other public servants.

 

In the case of newly appointed judges, section 9 of the Bill amends section 46 of the Courts (Supplemental Provisions) Act 1961 to provide for revised salary rates for future judges, which will apply a further 10% reduction, on top of the pay reductions and pension related deduction applied to other public servants under the 2009 Acts.  This reflects the further 10% reduction applied to pay rates at the beginning of 2011 to new public servants appointed to the public service direct entry grades that I have already mentioned. The provisions in the Bill will, if enacted, effect reductions in remuneration for new appointees to the judiciary ranging from 25% to a District Justice appointed after 1 January to 31% for a Chief Justice appointed to the judiciary after the commencement of the Bill.  

 

The Bill also provides saver provisions for serving judges who are appointed to any judicial position after the Bill is enacted. In effect this means that a serving Judge appointed to a new senior role will retain his existing remuneration rate on a ‘red-circled’ basis if it is higher than the proposed new rate for the higher Office to which he or she will be appointed.  That is a common practice in similar circumstances across the public service.

 

The existing power of the Government to increase the pay of serving judges by order, if necessary with retrospective effect, is retained for new entrant judges under section 9.

 

I also want to specifically mention another measure in the Bill in relation to the judiciary. Section 2 proposes to repeal the provision allowing for the automatic entitlement of newly appointed judges to an usher or crier, or as the relevant legislation describes them, a “servant”.  Instead, following consultation with the judiciary and the Courts Service, and in addition to the general supports already in place, alternative support staff, most likely in the form of additional judicial researchers, on a contractual basis will be provided.  Serving judges will retain their current entitlement but this measure will facilitate an updated support structure for new judges, reduce costs as well as providing valuable experience for newly qualified legal people. 

 

An Taoiseach, the Tánaiste, Ministers and related Oireachtas Office Holders

The Government has led not only with words but also actions. On its first day in office it led by example and reduced the Taoiseach’s pay to €200,000 and applied pro rata the pay of Ministers and Ministers of State, and brought related office holders in line with the appropriate payrate. These reductions have been applied on an administrative basis since 10 March 2010 pending the passage of this Bill giving statutory effect to the reductions under section 6

 

President

Since 1973, the personal remuneration of the President has been set in the Presidential Establishment (Amendment) Act, 1973, at the rate paid to the Chief Justice plus 10%. Consistent with this legislation and in line with the intention to provide for 10% reduced salary scales for new members of the judiciary, this Bill provides under section 11 for a revised rate of Presidential pay equal to 10% more than the rate applicable to a new entrant Chief Justice. This will amount to €249,014 and represents a reduction of 23.5% on the existing rate. The proposal maintains the existing legislative link with the salary of the Chief Justice while clarifying that it is to the rate applicable to a Chief Justice who is appointed to the judiciary after this Bill is enacted, that is the 10% reduced rate.

 

The remuneration of the current President is protected under the Constitution by virtue of Article 12(11)(3) which provides that the emoluments and allowances of the President shall not be reduced while in Office. Notwithstanding the Constitutional protection afforded to the emoluments of the President while in Office, the current President has voluntarily waived sums due in respect of his entitlements under the legislation and indeed in relation to his other pension entitlements. I have no doubt all members of this House will share in my respect and acknowledgement of his generous and voluntary actions in this regard.

 

Statutory Office Holders (Ombudsman and Chairperson of An Bord Pleanála)

Earlier this year, I undertook a review inter alia of the remuneration rates of senior public servants. As part of this review, the Government accepted proposals submitted by me to the effect that the formal salary link between that of Ombudsman with a High Court Judge was no longer appropriate and would change in respect of the next appointment to the office of Ombudsman. Similar proposals in respect of the Chairperson of An Bord Pleanála who also has a formal link to the salary rate of a High Court Judge were also accepted by Government.

 

The proposal within this Bill under section 12 to amend section 3 of the Ombudsman Act 1980 provides that the salary and allowances for expenses of the next person appointed as Ombudsman will be determined by the Minister for Public Expenditure and Reform rather than being linked with that of a High Court judge as is currently the case.  The salary of the current Ombudsman is not affected by the change.

 

Equally, this Bill proposes under section 13 that the terms and conditions, including salary and allowances for expenses of the Chairperson of An Bord Pleanála will be determined by the Minister for the Environment, Community and Local Government, with the consent of the Minister for Public Expenditure and Reform, rather than be linked to that of a High Court judge as is currently the case.  This is consistent with the normal practice when setting the pay and conditions of a public servant.

 

Technical and Ancillary amendments

There are two ancillary amendments to the Acts included in the Bill. The first under section 7 clarifies for the avoidance of doubt that the pay reduction will apply to preserved pensions that come into payment after the expiry of the “grace period”. The provision confirms that such persons will receive a pension calculated by reference to the pay reduction made with effect from 1 January 2010.

 

The second measure under section 8 provides that the public service pension reduction, introduced under the Financial Emergency Provisions in the Public Interest Act 2010, will apply to pensioners of the Central Bank. The delay in applying the pension reduction to this particular cohort of pensioners was due to legal issues. 

 

Amendments to be made to the Public Service Pensions (Single Scheme) and Remuneration Bill 2011

Deputies should be aware that many of the remuneration provisions in the Bill for consideration today were included in the Public Service Pensions (Single Scheme) and Remuneration Bill 2011 which was published in September. I consider that it is more appropriate and expedient from a legislative and administrative viewpoint that all remuneration provisions be dealt with in a single dedicated enactment. Through this means, I hope to facilitate the enactment of the Bill in time to apply the pay reductions from 1 January 2012.  Accordingly, the necessary changes to reflect this transfer from the Public Service Pensions (Single Scheme) and Remuneration Bill 2011 will be made at Committee Stage of that Bill.

 

Conclusion

This Government is committed to continued stabilisation in the overall cost of the public service pay bill. The provisions set out in this Bill before the House today is in keeping with that objective and will provide greater equity in the application of the public sector pay policy. I look forward to hearing the views of the House on the Bill and to considering amendments and suggestions put forward by Deputies.

 

I commend this Bill to the House.