Kieran O'Donnell (Limerick East, Fine Gael)
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Question 79: To ask the Tánaiste and Minister for Finance if he has assessed the emerging strains in public pay policy; and if he will make a statement on the matter. [2571/08]

Brian Cowen (Laois-Offaly, Fianna Fail)
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Public service pay must develop in a manner consistent with competitiveness, price stability and budgetary policy. Government policy on public service pay is that the public service should be in a position to attract and retain its fair share of good quality staff at all levels. It should neither lead the market nor trail it.

The current public service pay agreement under Towards 2016 expires in September 2008 and talks on a new agreement are due to commence soon. Towards 2016 provides that implementation of the public service benchmarking report will be discussed by the parties in the context of discussions on whatever arrangements on pay and conditions are to be put in place on the expiry of the current public service pay agreement.

Benchmarking has been accepted by employers and unions as a significant improvement on the old pay determination system. That was based on relativities whereby if one grade or group of public sector workers received an increase, it led to leap-frogging and catch-up claims across the public service. Experience, particularly during the 1990s, showed the demands for pay increases by reference to relativities were not sustainable.

The benchmarking body produced a report in accordance with its terms of reference. It is agreed between the Government and the trade unions that the best approach to ensuring that individual public service grades are paid appropriately is to compare all aspects of public sector jobs with their private sector equivalents.

While the current benchmarking exercise may yield little for most public servants, they have benefited significantly in recent years from the first benchmarking exercise and the general round increases under successive national agreements. The framework in place of assurances of regular benchmarking reviews of public service pay against the market, conditionality of pay increases on the basis of co-operation with change and industrial relations stability and verification mechanisms is a balanced and sensible approach to the management of public service pay.

In more difficult international economic conditions, maintaining and enhancing the competitiveness of our economy is critical, particularly for a small open economy.

The level of annual pay increases has increased from approximately 3% under the earlier national partnership deals to just over 6% in the Programme for Prosperity and Fairness and still over 4% under Sustaining Progress and Towards 2016. This is well ahead of pay developments in our main trading partners. This is not sustainable in the long term and particularly not in more adverse economic conditions.

Pay settlements must reflect the economic fundamentals. With strong economic growth and productivity increasing strongly, as we experienced over the past decade, there was scope for greater flexibility in the level of pay increases. Pay developments in the period immediately ahead must reflect the more challenging economic and competitiveness scenario that we now face and be more directly linked to changes in productivity. In recent years, Ireland's competitiveness has disimproved. We need to halt and reverse this trend. Containing costs and improving productivity is critical for the private sector, particularly in more difficult economic circumstances. The same is true of the public service. Public service pay levels can only increase at a rate that is consistent with budgetary discipline and national competitiveness. In addition, the productivity and efficiency of the public service needs to be improved on an ongoing basis.

Kieran O'Donnell (Limerick East, Fine Gael)
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The Tánaiste and Minister for Finance said: "Pay settlements must reflect the economic fundamentals". However, under the report of the Review Body on Higher Remuneration in the Public Sector, the Tánaiste is getting an increase of €36,500, which is higher than the average industrial wage. The Taoiseach, who now gets €310,000, has the highest salary of any leader in the democratic world. He got an increase in excess of €38,000, making his salary almost ten times the average industrial wage. Does the Tánaiste believe it is correct for him and the Taoiseach to tell workers to accept pay restraints while they take exorbitant increases that are not performance related?

The terms of reference of the Review Body on Higher Remuneration in the Public Sector state that it should take account of the state of the public finances. It also refers to performance-related increases. The Government discounted the performance-related increases but took them. The increases were merely recommended and the Government did not need to take them on board. Governments are elected by the people to represent the people. In a recent opinion poll, 81% of people stated Ministers were wrong to accept pay increases. Does the Tánaiste believe it was correct to take the increases when the Government is asking others to exercise pay restraint?

Brian Cowen (Laois-Offaly, Fianna Fail)
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The pay of public servants is set by reference to rates in the private sector. The review body, like the benchmarking body, the Labour Court and the arbitration boards, is part of the established pay determination machinery. Both the review body and the benchmarking body compared public sector jobs to jobs of equal value in the private sector. The review body found that the salaries of many senior public service posts were below private sector levels even when allowance was made for the value of pensions.

The benchmarking body found the majority of public service grades had not fallen behind private sector rates at equivalent levels. The benchmarking body's comparisons were with the weighted average of private sector rates. The review body comparisons were made with the lower quartile of the private sector rates. Furthermore, they did not attach significant weight to published information on the remuneration packages of the chief executives of the top Irish plcs. As the review pointed out, the overall effect of the review is that the salaries recommended are below the average levels of salaries of comparable posts in the private sector. Pay determination mechanisms are in place. They represent the established procedures by which these matters are addressed. What has not been suggested to me in terms of an alternative is what anomalies are created by not accepting recommendations coming from such bodies. Doing so would create more anomalies than those we seek to eliminate.

Kieran O'Donnell (Limerick East, Fine Gael)
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The Government has been selective in accepting recommendations. It accepted a recommendation on the pay but did not accept the recommendation for increases to be performance related. The Tánaiste did not answer my question. The ordinary benchmarking report gave few increases to workers on relatively low to middle salaries. However, Ministers are taking increases of well above the average industrial wage. At a time when it is seeking pay restraint in future negotiations with little given to the ordinary workers under benchmarking, does the Tánaiste believe it is correct to accept such exorbitant increases, which are more than the average industrial wage?

Brian Cowen (Laois-Offaly, Fianna Fail)
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What is correct is that we have pay determination systems in order to have an orderly——

Kieran O'Donnell (Limerick East, Fine Gael)
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Does the Tánaiste believe it is correct?

Brian Cowen (Laois-Offaly, Fianna Fail)
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Let me explain to the Deputy why it is correct.

Kieran O'Donnell (Limerick East, Fine Gael)
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The Tánaiste accepts it is correct then.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am anxious to answer the Deputy's question but I cannot answer it while he is talking. He is not helping me and is creating confusion.

Brendan Howlin (Wexford, Labour)
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Allow the Tánaiste to reply.

Brian Cowen (Laois-Offaly, Fianna Fail)
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With regard to the pay-related matters it is true we did not accept that recommendation because this would have provided for higher remuneration again. It is true we accepted the recommendation on basic rates which allowed for a 7.3% increase on average for those recommended by the review body. The benchmarking exercise which seeks to relate public service provision for pay and remuneration with equivalent jobs in the private sector took the lower quartile of the private sector equivalents——

Kieran O'Donnell (Limerick East, Fine Gael)
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The Tánaiste is not answering my question.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am answering the Deputy's question.

Brendan Howlin (Wexford, Labour)
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Allow the Tánaiste without interruption.

Brian Cowen (Laois-Offaly, Fianna Fail)
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That is the pay determination system which is in place and it works well. It makes for an orderly public service pay round. Now that the Towards 2016 pay provisions will end in September we must see whether we can negotiate a further pay round.