Thomas Byrne (Meath East, Fianna Fail)

We are debating this legislation on Second Stage but only 20 minutes ago in this Chamber, Deputy Joan Burton made statements about the alleged involvement of Fianna Fáil in Anglo Irish Bank. She started saying this only last week, when the Opposition was smearing us. It is a lie that Fianna Fáil was intimately involved with Anglo Irish Bank over the last few years. Most of us had never come across that bank, unlike other Members of the House on the Opposition benches who were substantially involved with it for a number of years in terms of share holdings. That lie is incorrect and is unfair on Fianna Fáil Members who have not come across that bank and were delighted to see the gardaí investigating it today. It is important that Fianna Fáil fights back and rejects these accusations being made conveniently by the Labour Party when it should be offering economic solutions to the problems we face.

This Bill is such a solution. It is a difficult Bill and will have consequences for the many public servants affected by it. Any of the public servants I deal with are hard working and committed to doing a good job, including people who work for Meath County Council and the Health Service Executive.

When we debate this legislation, however, it is important to read the preamble to the Bill, which sets out in stark terms the difficulties the country faces. It notes that a serious disturbance in the economy and a decline in the economic circumstances of the State have occurred which threaten the well-being of the community. Legislation does not include a preamble of that nature without good cause. That is the nature of the situation we face and if we do not face up to it there will more serious trouble in the economy as a whole.

The next paragraph of the preamble states that as a consequence, a serious deterioration in the revenues of the State has occurred and there are significant and increasing commitments in respect of public service pensions. It is therefore necessary to cut current Exchequer spending substantially to demonstrate to the international financial markets that public expenditure is being significantly controlled to ensure continued access to international funding, to protect the State's credit rating and reverse the erosion of the State's international competitiveness.

These are serious matters the legislation seeks to address. As a result of our deficit, we are dependent on our access to international funding and the maintenance of our credit rating. That view does not seem to be shared by the Opposition. However, if we cannot do those things, we cannot borrow the money and employ public servants because we are borrowing almost the entire amount of public service pay.

No one wants to place this imposition on anyone. However, the imposition on those in the private sector who have lost their jobs, although some in the public sector have lost their jobs, is far more serious than for anyone who has to take a pay cut. That is not to underestimate the serious and substantial difficulties people face when they take a pay cut, particularly those on lower incomes. We have quite a progressive taxation system in this country. According to the Department of Finance, a single person on €25,338 per annum will pay, including this pension levy, 13% of his or her gross income in total deductions to the Revenue. That is a person on the modified PRSI rate. A person earning €66,179 in the public service, which is not three times the previous figure, will pay 33% of his or her gross income in total deductions to the Revenue Commissioners. In money terms, however, the difference is that the person on €25,000 will pay €3,193 — that is total deductions, including tax, PRSI, the pension levy and the 1% levy. However, the person on €66,000 will pay €21,897. There is more than a seven times difference in the cash payment, whereas the salary is not three times different.

We have a significantly progressive system and it is not true to say we do not have a progressive taxation structure. We have a very progressive one, although it certainly could be improved. I would have no objection to people earning six-figure salaries receiving tax increases in this year's budget. The reality is, however, that the money that will come in from people earning more than €200,000 will not be as significant as a broad-ranging tax increase, which may have to happen later in the year. Those figures and others, which are available on the Department of Finance website, indicate the progressive nature of our taxation system.

We have a low level of taxation and there are few economies where one's taxation contribution could be as low as 13%. Let us call a spade a spade because PRSI and the two levies are all tax paid to the Government out of one's wages for services provided and benefits received.

A single person earning €66,179 will be on 33% of his or her gross income, which is much less than many other countries charge. A married one-earner couple — there may be more of them with rising unemployment — on €66,179 pays only 27% of gross income in taxation. That compares very well to other countries. We must nail this myth that somehow we are a high tax country, because we are a low income tax country compared to other jurisdictions. That is not to say, however, that the income tax burden does not impose difficulties on people.

Deputy Burton was also guilty of confusing the pension levy with bank recapitalisation, in saying that somehow one's pension levy will go to the banks to pay for the recapitalisation. That is a myth that has been put about by many Opposition spokespersons and others around the country. They say that somehow this levy is directly connected to the bank recapitalisation, but I suggest it is the other way around.

The pounding the world financial system, including our own banks, is receiving has resulted in a huge decline in revenues for us and is causing major difficulties in the economy. The bottom line is that if we do not recapitalise, the banks will not be able to lend. Now that we are doing so, the banks have given a commitment that they will lend money.

People do not seem to realise that the recapitalisation moneys, apart from the various conditions the Minister for Finance has attached to them, are basically a loan. The Minister expects something in the order of €560 million in interest payments in the first year. One of the banks said it would aim to pay back sooner because of that. That can create difficulties for the banks, but that is the condition we have put on it. It is not that the pension levy is going straight into the recapitalisation figure, however, so that myth must be nailed. The pension levy is really there to shore up the public finances and it must be done. If we do not do that we might as well all go home because we will not have funding to do anything.

A lot of hardship will be endured because of the pension levy. The various rates come from the table in section 2 of the Bill, whereby any remuneration up to €15,000 is deducted at 3%. Any excess between €15,000 but under €20,000 is deducted at 6%, and any amount over €20,000 is deducted at 10%. That is not to say that all one's income over €20,000 will be deducted at 10%, although unfortunately some people think it will be. That position has been represented to me by concerned constituents. I was contacted by a number of constituents in the HSE who got information that the rate for incomes over €20,000 was 10%. While they are not happy with the situation, they were relieved to discover that the rate was not 10% unless they are earning at the higher rates where it goes up to about 9.9%. That would apply to Ministers and TDs who will be on about 9% of their overall income.

Some people do not realise the tax situation involved which has the same effect as a pay cut, in that the deduction will be on gross pay and not on the net amount. The deduction on the net amount will be significantly less. It is nonetheless a serious imposition, but a necessary one for the Government to get the public finances back in order and to provide State services. The Minister could easily have cut back on services, including schools and hospitals, by abolishing the capital programme. We would have no deficit problem then, but the consequences for the economy would be so serious that we would have even more unemployment. In addition, we would have even less infrastructure being prepared for when the international economy turns. With bad news every day, one wonders if it will ever turn around, but it is assumed it will. The international economy had better turn for our sake because we are totally dependent on international finance and our reputation abroad. We must demonstrate that we have the financial wherewithal to weather this storm, keep things under control and ensure our national debt, which comes from a low base, does not increase any more than is projected by the Government.

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