Michael Noonan (Limerick City, Fine Gael)

As the Deputy is no doubt aware, in government it comes down to a very simple decision and in this case it is a question of whether one does something or nothing. Everybody in the House agrees the jobs crisis is getting worse and that it needs specific and focused action. The previous Government decided to do nothing, we have decided to do something, which is the basis for this initiative. It must be seen as a first step. We are not bringing it forward as a full solution in any way whatsoever.

Once one decides to do something, what one does has to be paid for and the Deputy will know that it specifically has to be paid for under the rules that the previous Government, of which his party was a member, negotiated, namely, that initiatives must be fiscally neutral. When we were examining how to fund the jobs initiative, we wanted to collect money on a basis that would not damage other jobs. If one increased income tax, that is directly related to work, it would result in a loss of jobs. If one were to consider any of the alternatives across the spectrum, they had the potential to result in a loss of jobs.

We picked the pension levy because when I was spokesman for finance in opposition, the first proposal on a pension levy came to me from the pensions industry. They were trying to trade a levy as a quid pro quo for continuing to apply tax relief on pension contributions at the marginal rate of tax. The quid pro quo has been rather overtaken by events but we are doing a full expenditure review and in that context we will look at its proposal. The very fact that the pensions industry would propose this as a quid pro quo for something that it wanted to maintain shows it has no objection in principle to the levy. It does not believe it will damage pension funds at the level we have brought it in and a good deal of what it is saying now is a very strong attempt by a very well organised and well funded lobby to overturn a Government decision. I gave my views on this on the night following the announcement of the initiative.

The specific reason the Government chose this route is because only 6% to 7% of pension fund resources are invested in the Irish economy. The rest of Irish pension funds are invested abroad. We could access money, therefore, without damaging the domestic economy. The pension funds are right to spread their risks; I am not criticising them on this. However, 93% to 94% of their investments are outside of the country.

The imposition is quite small and will be temporary. In the finance Bill to be published next Thursday, it will specifically state it is a levy for four years and will end after that. In the discussions I had with the industry when I was Opposition finance spokesman, it made the point, based on actuarial advice, that a temporary levy would have no damage on funds but a permanent one had the potential to do so. I agreed that any measure would be temporary.

Regarding the Deputy's specific question concerning this morning's newspaper reports, approved retirement funds are not covered by the levy because they are not pension funds. Approved retirement funds are not tax free, however. They are close to annuities and on exit they are subject to income tax at the marginal rate. As well as that, there is an imputed drawdown of 5% ascribed to the fund and a tax on the imputed drawdown. In the Finance Bill 2011, the previous Government increased the annual notional distribution from 3% to 5% and applied the tax to that 5%. It is not that the approved retirement funds are exempt. It is that the previous Government got there first under a different tax heading. Our predecessors imposed the additional tax in January 2011.

I am open to discuss these matters with the pension funds representatives. However, I would prefer if they debated the issue in a more rational way, especially when they proposed it in the first instance.

See this speech in context