Brian Lenihan Jnr (Dublin West, Fianna Fail)

All systems for the extraction of income from a taxpayer or levies paid on a pension involve graduation and progression. Inevitably, cases can be highlighted that distort the overall picture, which is that we need to make savings in the public service pay bill. The bands my Department circulated to the social partners represent a reasonable attempt to reconcile the need to achieve the necessary savings while seeking to ameliorate somewhat the impact on lower paid staff. The banding was the result of significant deliberation on the part of my officials.

Deputy O'Donnell will appreciate that given the scale of the savings required any banding arrangement must result in the great bulk of public servants paying the marginal rate on at least some of their earnings. I would not rule out consideration of other banding options that may be introduced once the savings are equivalent but the savings must be equivalent. That is fundamental to the operation of the levy. The new pension-related deduction will operate under what is known as a net pay arrangement, whereby pension contributions for PAYE employees, including those in the public sector, are deducted from gross pay before applying income tax, PRSI and the health levy.

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