Brian Lenihan Jnr (Dublin West, Fianna Fail)

First, I would like to say how deeply disappointed I and the other members of the Government are that the public service unions have decided to take this action today. I believe this action is causing serious disruption and inconvenience to the public, such as the users of our hospitals, those receiving social welfare benefits, schoolchildren and their parents as well as wider economic loss across the State at this critical time in our country's history.

The action is taking place at a time when the best of the public service has been on display - in Cork, in Galway and every other place where its help has been so badly needed. We have seen nurses, doctors and support staff respond instantly to move patients out of harm's way in hospitals. We have seen the Coast Guard rescue those in peril from their homes. We have seen staff in local authorities deliver essential supplies of drinking water. We have seen members of the Defence Forces perform many varied tasks and confirm the affection in which they are held in our national life. We have seen members of the Garda Síochána go beyond the call of their duty.

Members of the public service unions in those areas that have been most hard hit have responded to this crisis by putting aside their day of action and ensuring that they will be at work today, which I welcome. I do not believe today's action in any way advances the possibility of finding a basis of agreement about managing the public service pay cost in this unprecedented economic crisis. The Irish Congress of Trade Unions has stated that the Government has forced it to take this action. I regret that is incorrect. The Government entered talks with the public service unions some weeks ago to see if we could reach agreement on the composition of the necessary reduction in the payroll costs. We have been completely up-front about the challenges faced in the public finances and the need for a substantial cut in the pay bill in 2010.

We believe that an agreed approach is the best way. The Government wants to avoid escalating industrial action which could damage us at home and abroad, but the public service unions have to understand that the Government needs to take this action now.

It is worthwhile repeating why we need to reduce the pay bill. This year, the State will borrow an estimated €22 billion to fill the gap between revenues and spending on services. That is €420 million each week. More than one of every four euro of current day-to-day spending is borrowed money. This is not reasonable, it is not sensible and it is not sustainable.

Tax revenues in the region of €32 billion are anticipated this year, which is back to 2003 levels, while current spending is at around €56 billion in 2009. The total pay bill has tracked the increase in spending, going from just under €13 billion in 2003 to almost €20 billion this year.

All sides of this House accept the need for a €4 billion adjustment in our public finances. One third of day-to-day voted expenditure is spent on public sector pay and 38% is spent on social welfare. Anyone who thinks we can make this level of adjustment without looking at these two areas of expenditure is frankly deluded.

Measures have been taken in the past year in a effort to reduce public service payroll costs. The general round pay increases under the terms of the review and transitional agreement due in 2009 were not paid. A general moratorium on recruitment and promotion in the public service has been applied. Incentivised early retirement and career break schemes were introduced for most of the public service. Most significantly, a pension related deduction of an average of 7% was applied to all the earnings of all public servants.

I recognise that through these measures public servants have already made a significant contribution and that the take home pay of public servants has been reduced by the pension levy and by the tax measures which applied across the economy. I can indeed understand that these measures have caused unhappiness among public servants. However, it is important to remind ourselves that public servants enjoy job security and a guaranteed pension that is unique in the workforce at present. In that regard, their experience during this recession has been far more benign than that of many in the private sector. Over a quarter of a million people are unemployed in this economy. Tens of thousands of those who have managed to keep their jobs have been forced to accept a shorter working week. The value of private pensions has plummeted.

I do not seek to set the plight of the private sector against that of the public sector. The fact is both sectors are interdependent and the burden of adjustment must be shared between them. The measures already taken and further reductions now required in the public service pay bill do not arise from any lack of respect or appreciation by the Government of the quality and commitment of public servants. They are a matter of budgetary necessity in the unprecedented difficulties which we face.

The Government indicated to the public service unions that around €1.3 billion of the €4 billion adjustment should come from the public service pay bill in 2010. That is a 6.6% decrease in the total public service pay and pensions bill, the same percentage by which prices have fallen in the past year in Ireland. In addition, the Government has invited the unions to consider agreeing with them a new and challenging programme for transforming the public service. There is nothing new to the public service in change but there is now a new and most pressing imperative. We can no longer afford the existing cost of our public service. The public service pay bill must be reduced not just in the interests of our public finances, but also as a means of restoring our competitiveness. The cost of providing public services is a key determinant of our competitiveness. Like most other costs in our economy, the cost of public services grew to unsustainable levels during the boom years. If we want to restore economic growth and create jobs, we must reduce these costs.

For the first time since the Second World War, average consumer prices are falling in this country. Consumer prices in October were down 6.6% from the same month last year. Food prices are down 6%, clothing is 13% cheaper, while rents are down as much as 16%. Analysis by my Department suggests that the cost of living has fallen over the past 12 months by around 7.5% for working households, a category which includes all public sector workers. As prices fall, the real spending power of income earners rises. In the past 20 years, salaries in the public service have increased substantially ahead of inflation. Given the perilous state of the public finances and the fact that falling prices have boosted workers' real spending power, it is not unreasonable to seek a reduction in salaries.

Above and beyond the need to cut the cost of public service pay, we need now urgently to reform the way in which we deliver services to our citizens so that we can get better value from scarcer resources. The Government's vision for the public service is of an increasingly integrated service - more focused on the needs of the citizen, more responsive and more cost effective. We all want a high performance, high productivity service where the performance of organisations and individuals is better managed and where there is greater accountability. We want a service that works more closely across sectoral, organisational and professional boundaries when designing and delivering services.

We want a single flexible labour market and talent pool with a facility to redeploy staff across sectoral boundaries. We need this level of flexibility for the future regardless of our economic circumstances. However, the need for greater mobility and flexibility has become all the more pressing because of the urgency of achieving economies and reductions in overall public service numbers. We simply must be able to move staff from activities which are of lesser priority or which have been restructured to areas of greater need. We must achieve a permanent reduction in the size of our public service to obtain a permanent reduction in its cost.

The Government wants to change the way in which the public service does its business. We want "back of house" operations delivered efficiently. There is no reason every single public body must have its own unit issuing pay cheques or tenders. Shared services can ensure that economies of scale are captured and best and innovative practice deployed across large numbers of organisations. Where it makes economic sense and the same or better quality standards can be achieved, they should be delivered by the private sector.

We want to change the way in which the public service interacts with its customers, with greater delivery of services on-line and local offices restructured or reconfigured. In other cases national services will be realigned to county boundaries. In addition to the rationalisation of State agencies the Government announced last year, the Government is taking decisions on the recommendations of the special group on public service numbers and expenditure programmes to drive a further rationalisation of State bodies. Whatever number of State agencies we end up retaining, there is a need for improved governance arrangements.

The Government knows that this transformation to the smaller, leaner, integrated and technologically aware public service can be best achieved against a background of co-operation and industrial peace. Ultimately, the only way to achieve real change is through engagement on the issues. That is why this day of action and the further days of industrial action threatened by the public service unions do not help us to achieve a successful outcome to the discussions on the reduction to the pay bill. I call on the public service unions to return to the talks tomorrow with a commitment and readiness to reach an agreement in the country's best interest.

No one in the public service wants to lose the best of public service ethos and practice, the ethical conduct, the fairness and equality of application and readiness to respond to whatever challenges they are faced with. That has been shown in abundance in the past few days all over the country. As the Government finalises the budget and examines reductions in all areas of expenditure, including social welfare, I am disappointed that a protected group in our economy should withdraw their labour for a day as the country battles to regain economic stability. The burden of adjustment must be shared by all of those who can afford it. All of us in positions of leadership, including trade union leaders, have a duty to lay aside the rituals of our roles and think and act in the best interests of our citizens.

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