Kieran O'Donnell (Limerick East, Fine Gael)
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Question 40: To ask the Minister for Finance if he will make changes to the public service pension levy to correct unfair elements in its structure. [6590/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I do not accept that there are unfair elements in the structure of the public service pension-related deduction. The approach to this deduction is that it applies generally given the fact that all public servants enjoy the benefits of a public service pension, which provides for greater security and more favourable terms than the generality of private sector pensions. The graduated approach to the payment is to ameliorate somewhat the impact on lower paid public servants.

Owing to the availability of tax relief at the marginal rate for pension contributions, in certain circumstances an individual on a higher gross income may incur a lower net loss than an individual on a lower income as a result of the new pension-related deduction.

However, it is important to note that the income tax, PRSI and health levy system is highly progressive. Those on higher incomes pay higher rates of tax. Across the entire public service, on all grades and on all pay scales, the total deductions, which include income tax, PRSI, health levy and the new pension levy, will be higher as a percentage of gross pay as pay levels increase.

Kieran O'Donnell (Limerick East, Fine Gael)
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The Minister said there are no unfair elements to the pension levy but there are two. The first relates to the lower paid. Does the Minister consider it fair that a single person working in the public service earning €25,000 will only qualify for the contributory old age pension and will get no benefit from 5% of the contribution he or she is making to the public sector?

Does the Minister consider it fair that a married person who is the sole earner on approximately €45,000 a year who will qualify for the contributory old age pension will get no benefit from the 7.2% gross he or she is paying?

A single person earning €40,000 a year will make a net payment of 3.7% even though he or she pays 7% gross. Is it fair that a married person who is the sole earner will pay the same gross but he or she will pay 5.2%, which is a higher net payment?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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All systems for the extraction of income from a taxpayer or levies paid on a pension involve graduation and progression. Inevitably, cases can be highlighted that distort the overall picture, which is that we need to make savings in the public service pay bill. The bands my Department circulated to the social partners represent a reasonable attempt to reconcile the need to achieve the necessary savings while seeking to ameliorate somewhat the impact on lower paid staff. The banding was the result of significant deliberation on the part of my officials.

Deputy O'Donnell will appreciate that given the scale of the savings required any banding arrangement must result in the great bulk of public servants paying the marginal rate on at least some of their earnings. I would not rule out consideration of other banding options that may be introduced once the savings are equivalent but the savings must be equivalent. That is fundamental to the operation of the levy. The new pension-related deduction will operate under what is known as a net pay arrangement, whereby pension contributions for PAYE employees, including those in the public sector, are deducted from gross pay before applying income tax, PRSI and the health levy.

Kieran O'Donnell (Limerick East, Fine Gael)
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This is about real people's lives and this is not a global equation. The State will only recoup €800 million rather than the €1.4 billion the Taoiseach stated when the measure was announced. It, therefore, will not work. The word "emergency" is used in the Title to the Bill. The term "emergency" normally indicates something short-term. Is this a long-term pension levy? The Minister needs to let public servants know. Section 8 gives the Minister powers to exempt people. Will he exempt low paid public servants who will only qualify for the contributory old age pension when they retire from the levy?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Deputy will have to draw such a class of persons to my attention who have in excess of two years service before I am satisfied of their existence.

Kieran O'Donnell (Limerick East, Fine Gael)
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That is in the future

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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However, section 8 was inserted on the basis of legal advice to ensure the circumstances outlined by the Deputy will not apply to any public servant. In other words, if there is an issue about non-eligibility for a pension, the Minister can, by the appropriate order, deal with it.

Kieran O'Donnell (Limerick East, Fine Gael)
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Is the Minister giving a commitment?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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It is not anticipated that will have significant financial implications for the savings to be effected by the legislation.

Kieran O'Donnell (Limerick East, Fine Gael)
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It will over time.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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With regard to the Deputy's categorisation of the amount of the savings, he will be familiar, as is every accountant, with the system of public accounting in the State whereby the savings are on the expenditure side of the account and relate to the current day-to-day expenditure of the Government. The figures given by the Government are correct and accurate in that regard.

Kieran O'Donnell (Limerick East, Fine Gael)
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They are gross figures.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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With regard to the description of the legislation as a financial emergency measure, the Deputy will appreciate the levy is not the only measure encompassed by the legislation but also the power the State is taking on itself to break existing contractual arrangements relating to the payment of professional fees to doctors and legal professionals.

Kieran O'Donnell (Limerick East, Fine Gael)
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Will the pension levy be a long-term measure?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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To break such arrangements in those circumstances would require the existence of difficult economic circumstances, which are recited in the legislation.

Kieran O'Donnell (Limerick East, Fine Gael)
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Will the pension levy be a long-term measure?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Policy can be reviewed regarding the pension levy but any fair minded person examining our economic circumstances and the forecasts for this year and next year would see the levy as part of the landscape for public servants for some time to come.