Brian Lenihan Jnr (Dublin West, Fianna Fail)

Full details in this regard will be set out in the finance Bill. I am also introducing a package of measures to improve the effectiveness of the Revenue Commissioners in tackling the shadow economy, addressing smuggling and excise frauds and dealing with tax avoidance schemes.

Carbon Tax

The economic and social implications of climate change are immense. It is the responsibility of every Government to change behaviour to reduce greenhouse gas emissions. The most effective way to proceed in this regard is to put a price on carbon. This will encourage innovation by incentivising companies to bring low carbon products and services to the market. Changing behaviour takes time but a start must be made. I am introducing a carbon tax equivalent to €15 per tonne. The detail is set out in the summary of budget measures. The tax will apply to petrol and diesel from tonight. Increases in home heating oils and gas will apply from next May.

The application of the tax to coal and commercial peat will be subject to a commencement order to allow a robust mechanism to be put in place to counter the sourcing of coal and peat from Northern Ireland where lower environmental standards apply. A vouched fuel allowance scheme will be developed to offset the increases for low-income families dependant on such fuels. The yield from the carbon tax will be used to boost energy efficiency, support rural transport and alleviate fuel poverty. The tax will also allow us to maintain or reduce payroll taxes.

Carbon taxes will be a feature of economies across the world in the coming years. Today's announcement sends a positive signal to those gathered in Copenhagen - working for an ambitious agreement on global climate change - with regard to Ireland's capacity to show leadership in this area. The tax changes I am introducing reflect my belief that tax can make some contribution to the reduction of the deficit and will make a larger contribution in later years. As we know from our recent history, we cannot rely solely on taxing our way out of our difficulties.

STABILISING THE DEFICIT IN A FAIR WAY

If we cannot tax our way out of our difficulties, and we all agree in this House that we cannot borrow our way to recovery, then the only remaining option is to reduce our spending. No one wants to cut spending but the cost of providing public services has to be reduced to bring it in line with sustainable revenue levels and to help restore our international competitiveness. Since 1997 we have made great strides in expanding the level of public service provision. We did so out of the best of motives and in response to public demand. Indeed many in this House criticised us for not doing more. The current cost of providing public services is not sustainable. Without any correction, day-to-day spending would be approximately €58 billion in 2010, an increase of approximately €2 billion over 2009.

Given that public service pay and social welfare each account for about one third of all day-to-day spending, reductions in these two areas are unavoidable. The measures I am announcing amount to savings of over €1 billion on the pay bill, about €760 million on social welfare, some €980 million on day-to-day spending programmes and about €960 million in savings on investment projects. Combined with other adjustments, this amounts to more than €4 billion expenditure savings compared to pre-budget estimates.

ADJUSTMENTS TO PUBLIC SERVICE PAY AND PENSIONS

In my supplementary budget, I announced my decision to have top level pay rates examined by the review body on higher remuneration in the public sector and benchmarked against those of other EU countries of comparable scale. The Government has considered the recommendations of the review body and intends to apply reductions to all public servants in the higher pay bands including hospital consultants. Based on the recommendations of the review body I propose to apply a reduction in pay of 8% for those with salaries from €125,000 to €165,000, 12% for those earning between €165,000 to €200,000 and 15% for those earning more than €200,000. These are permanent reductions that, in time, will be reflected in pension entitlements. The salary of the Taoiseach will be reduced by 20%. This reduction, together with the pension levy means the Taoiseach's salary will be cut by close to 30% in total.

Ministers and Secretaries General of Departments will take a pay cut of 15% or an overall cut of close to 25% when the pension levy is taken into account. The review body concluded that the Constitution precluded it from recommending a reduction in judicial pay. Had it not been so precluded, the review body would have considered a downward adjustment. For the same reason the pension levy was not applied to the Judiciary although many judges have contributed an amount on a voluntary basis. The Chief Justice and the presidents of the courts have urged all judges to make the appropriate pension contribution. I will make provision in the finance Bill to facilitate these payments. Since the review body would have considered a reduction of judicial salaries, I have decided that there will be no increase in judges' pay during the lifetime of this Government. Future Governments may choose, as in the past, to continue this course of action.

Those at the top will lead by example in this national downward readjustment of pay. Legislation to give effect to these substantial reductions in senior level pay will be published shortly. I thank the review body for its work. The report will be published later this week.

It must be acknowledged that public servants have already made a very substantial contribution to the necessary reduction in public expenditure.

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