Brian Lenihan Jnr (Dublin West, Fianna Fail)
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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.

Richard Bruton (Dublin North Central, Fine Gael)
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The anger and frustration of people in the public service is very understandable today. This is the second time in a year that people are being asked to take a substantial cut in their pay. There is a sense, too, that those who have been at the core of creating this crisis in our country have not been brought to book in the regulatory, banking or political systems. This builds frustration and anger and beyond that, there is no strategy coming from government as to how pain offered up now can resolve the problems of this economy.

One will search in vain for any sign of new vision coming from the Minister, including in his comments today. He stated that the Irish Congress of Trade Unions was not forced into this. None of us will know if this is the case because we have not been sitting around the table to hear the tone and approach taken in the talks. Many people believe that issues congress sought to put on the table, namely, to have a substantial employment dimension to the budget and show a willingness to address the collapse for some workers of pension entitlements, have been rebuffed.

There is no willingness on the part of Government to look beyond the agenda of cutting to see how we can create a fair social contract for the future. Fairness is a vital ingredient. I agree, as I have signalled already to the Minister, that we must find €1.3 billion in cuts to the public service pay bill. I also believe - I did not hear it from the Minister in his response - that there needs to be a dividend for those who make such a sacrifice, as certain benchmarks are achieved, for example, benchmarks on the reform of the public service, and the correction of the public finances. Then there would be some sense of fairness and balance. There needs to be a commitment that sacrifices would be proportionate to one's ability to pay. We have not heard from the Minister about his thinking on how sacrifice should be contributed. If those who are in the most difficult circumstances on the lowest pay felt that was the case, there might be a broader support for the Minister's approach.

There needs also to come from Government a broad-based approach to tackling competitiveness. It is an illusion to think that competitiveness is just about pay. It is also about rents that are only upwardly mobile, rents that are excessive, boardroom pay that is excessive, excessive utility prices that are controlled by Ministers, excessive rate bills and excessive compliance costs. If that was part of a genuine commitment by Government to tackle the competitiveness agenda on a broad base, there would be more belief among workers that while they are being asked to make a sacrifice, a commensurate sacrifice is being asked and demanded in other areas.

The National Competitiveness Council produced figures that show we have some of the highest costs for professional services, including legal and accountancy services, compared to our competitors. Those issues have to be addressed on a par. There is no sense that the Government has an action plan to address those issues either legislatively or by any other method. Balance must be brought into the equation. Most importantly, we need a strategy to convince people that we will not be back in the same position next year, looking for €4 billion from the same source, seeking to make cuts in the social welfare budget and the public service pay bill, and that we will not have moved on. That is at the core of the difference between those in Government and those on the Opposition benches who believe that the financial problems are real and that while they are a constraint on devising a strategy, we must now do so to tackle the employment crisis. That is the big difference. If the Minister wants a key to get people from the trade union movement and the wider community on board, we have to put that goal up in lights, that this is about making room for initiatives that will tackle employment.

We have our backs to the wall. Regardless of whether we like it, 20% has been taken out of our economy. If those of us who are strong enough to resist change do so, then those who are weakest will take all the slack. It will be those people who lose their jobs, who are faced with unemployment or emigration and who will take the burden of this recession. As a community we cannot afford that. It is not a question of the Minister calling for talks; it has already been signalled by the trade union movement that it is willing to enter talks. It is vital that the talks are on a broad agenda. I accept that the issue of public service pay must be confronted, but the talks must also focus on a broader agenda of the sort of country we should be trying to create out of the ashes of this disaster.

Let us not pretend that the problems in the public service have not been actively created by Government itself. That is the reality. There has been a huge void at the heart of the State in the way it has approached the public service in recent years. Decentralisation was a cynical move that was not about delivering professional standards or high performance in the public service, but all about pandering to short-term political needs. It was soft-option politics. Benchmarking was another such example of where Ministers have led the public service into the very crisis we now face. One cannot blame trade unions for accepting benchmarking awards that were dished out without demanding performance in return. The responsibility for demanding performance in return lay with Government. Decision after decision taken by Government has underlined that the Government does not care about professional standards in the public service. We need only look at the way the Health Service Executive and decentralisation were handled. Some of the things that damaged the public service include the refusal to have proper performance measures for people who manage our public services and for people who announce strategies. Those problems have been created not by the trade unions but by the Government.

I do not exonerate the trade unions either. There has been willingness within the social partnership in recent years by the unions to see their role as to resist reform rather than to promote it but, ultimately, responsibility for driving social partnership to achieve new visions lies with Government. In recent years, the Government has not put an ambitious programme of reform on the agenda for the social partners. It has been part of the cosy circle, the soft approach to regulation and rip off that was spawned in recent years by a social partnership that was too dominated by producer interests. We, but in particular the Government, created that tendency to pretend that all social partnership was about was protecting producer interests. That has done huge damage to us.

At this time of crisis we must rekindle social partnership to address a huge challenge, one of unprecedented proportions. This is an opportunity for social partnership to prove its worth. We have not had a challenge to social partnership since the 1980s that makes it worth our while to find an agreement, one that is about more than just solving the Government's problem of the next three weeks. That is what has been missing in this debate, from what I can gather from the exchanges between the trade union movement and the Government. The debate has been predominantly about how the Government is going to solve its problem for the next three weeks. We need to look well beyond that. We need to have a genuine programme of public service reform.

I have heard the Minister and his two predecessors speak about public service reform, but nothing happened. The Minister is repeating what many have said, that we do not need repetitive services in every agency across the board. They can be shared and delivered more cost effectively, but where is the tool that has been put in place to deliver that? Who is driving that agenda? Last week, we learned from the McCarthy group that no one is driving that agenda. The only chance that it might happen is if the Department of Finance squeezes the budget and then maybe the idea will crop up.

We need someone to drive a vision for the public service. At the core of that vision we must have a system where people bid for their money, where managers are held accountable for results, on which they should report, and that they are given the tools to manage. I call it the BART system. It is a smart way in that one bids, one is accountable, one reports and one has the tools to deliver. That has not been introduced to the public service. Until the Government commits to that, we will retain talented people trapped in a public service system that is failing them.

I do not see any radical change of direction evident in the Minister's statement. There has to be a radical change of direction and that starts with the way budgets are put together. Amazingly, Minister for Finance after Minister for Finance has refused to reform that and it is the single greatest blunder made by the Government throughout its period of office. One has to change that if one is to genuinely start a new approach.

This is a time when we need a shared vision, one of a more authentic Ireland than the one created by the Celtic tiger years, one that is really tackling pension equity, for example, which is on the trade union agenda, job creation, which is also on the trade union agenda, and a fair health service, not a two-tier health service. Those are things we need to set as our ambitions and then one can start to bring people along. We need a sense of direction in which we are being led. Social partnership will be at its best when there is a clear vision that we are all addressing. However, the Government has not created that sense of vision. That is the big void that remains. Until the Government creates that sense of vision, we will continue to run into problems of misunderstanding, anger and frustration whereby some people feel they are being asked to carry the entire burden. That cannot be allowed. The forthcoming budget must set out a sharing of the burden. We must ask those at the top of the scale who have been able to shelter their income to pay more. We must have fairness in how we address so many elements of our code. Then we can start to bring people with us. At the core we must have a vision for creating employment.

If we in this time of crisis condemn another generation to emigration and unemployment, as occurred in the 1950s and 1960s, political leadership will have failed dismally. This is a vital period. I agree with the Minister that we do not want an escalation of the dispute, nor do we want to pitch the private sector against the public sector. However, we need to lay the groundwork for reform to which all people feel they can contribute. To date, however, the Government has not done so.

This strike may achieve nothing but it may make those of us in the political arena think more constructively about how we can create an agenda that will command the loyalty and support of all. This is so important at this time.

Joan Burton (Dublin West, Labour)
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I wish to share time with Deputy Gilmore.

Ireland is at its best when its people come together as a community and society. The response to the disastrous floods is a reminder of the community spirit, meitheal and can-do approach that serves our country best. Firemen, soldiers, the voluntary sector, Red Cross, Civil Defence and private sector are all working together to serve the country.

Having listened this morning to the denigration of public service staff on the radio, it seemed to me that there are those who, rather intemperately, seek to promote a propaganda and hate war to divide the public and private sectors. Fianna Fáil, including its Ministers and backbenchers, should be careful about those who cry "war, war" rather than "jaw-jaw". I lived in Africa when the radio was used to drive societies apart. It is a cumulative phenomenon whereby, in the end, the other becomes the enemy and respect is destroyed.

I noted in the media today a reference to a conference that the Minister attended at which Mr. David Went, a prominent banker and businessman and chairman of the industry consultation panel of the Financial Services Regulator, was quoted as having said parliamentary oversight of bankers was more of a lynch mob process than anything else. He was very critical on certain points, including on bankers being asked questions in Parliament about why they had destroyed a large part of the economy and the banking system. In the same statement and in other speeches, Mr. Went called for massive increases in salaries for those at the top level of the financial services industry. He openly commended a reported increase of approximately €140,000 for the new regulator to be appointed in January.

As with Mr. Michael McDowell and Ms Margaret Thatcher, it has become fashionable for some of our economists to say fairness has nothing to do with the solution to our economic programmes. Philosophically, that is a profoundly incorrect approach.

In Ireland, citizens have a right to ask questions and have parliamentarians ask questions about what has led to our economic collapse. It is not just Fianna Fáil, malpractice, misgovernance and the lack of governance that have brought us to where we are, although they have undoubtedly contributed. Ireland is a mixed economy and needs a strong public sector in addition to a strong private sector. We do not need an economic model based on an extreme finance capital market model, which seems to be what many commentators are suggesting.

Ministers in office for 12 years have, in many cases, become rather contemptuous in casual private conversation of public servants. They fail to see their own failings, particularly their disastrous partisan decisions, such as Mr. Charlie McCreevy's decision on decentralisation, which has not only demoralised large parts of the public service, but has also caused some chaos. What can we demand of public servants? All younger public servants have no difficulty living in a world where work is done between 8 a.m. and 8 p.m. without special extra payments. Modern communications, IT and the availability of transport mean the public service model that still applies in the minds of some is irrelevant to most young, qualified graduates. If the Ministers explore productivity in these areas, they will find common ground.

Bearing in mind the various difficulties that arose since we became independent, the reason we developed public sector companies was because the private sector was not willing to invest. Even in today's market, private sector businesses in Ireland, unlike those in countries such as Italy, frequently sell out as soon as they experience any kind of capital growth, either to other entrepreneurs or, as is more usual, international investors. People on the conservative side in the 1930s believed the development of an electricity network by the ESB would ruin the country. The Minister must try to combine imaginatively the best of the public service and the best of the private sector. Unless we manage to do so, we will not achieve the job creation we need to get this country moving again. Instead, we will face a resumption of emigration and, in the word's of the Minister's father, we will send abroad people who are finely educated, but that will be their fate.

Eamon Gilmore (Dún Laoghaire, Labour)
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This week, we have seen the worst of weather and the best of people, the worst of the elements and the best of human nature. Faced with the worst floods anyone can remember, we have seen neighbours helping neighbours, communities working together and voluntary organisations helping out. As a country, we are at our best when we work together to deal with our problems. At the centre of these efforts have been public servants. I refer to fire crews, ambulance crews, the Army, local authority workers, the Garda and even the Naval Service. They have been working through all hours and in terrible conditions to deal with a national emergency.

What a striking contrast to the picture of public servants that has been systematically and unfairly painted for the past 12 months and more. It seems impossible to reconcile the caricature that has been drawn of 300,000 time-serving bureaucrats with the reality that has been seen on our streets and shown on our screens for the past week. Yet today, outside the areas directly affected, these same public servants are on strike, in dispute with a Government that has sought conflict rather than agreement.

Today's strike could and should have been averted. The staff of the State who are on strike today are on strike because of the unfair way in which they have been treated by the Fianna Fáil Government, because they are sick and tired of being belittled by the scapegoaters and because Fianna Fáil has cynically failed to negotiate a way of avoiding the strike.

For the past month, I have been putting to the Taoiseach the idea that there should be a national agreement for recovery with five elements: a coherent jobs strategy; a home guarantee; a fair budget; a negotiated agreement to secure savings in the public sector wage bill; and, in return for the latter, industrial peace. An agreement constructed on the basis of these five points would not only deliver the savings that are needed, but send a clear signal the world that Ireland is united in its determination to deal with its problems in a serious way.

No effort was made by Fianna Fáil to respond to those proposals. All last week, the Government sat on its hands as the strike approached and made no attempt to avoid it. It was as if the Government wanted the strike to take place, to save the day's pay and to allow it to blow over before resuming negotiations. Nothing could be more cynical.

That cynicism compounds the sense of unfairness. This is the third time in a year that Fianna Fáil has reduced the pay of State employees. The so-called pension levy, the income levies in the April budget and now again. Three successive cuts and still nobody has been called to book for the disaster in the banks and no Minister has resigned over economic mismanagement and waste.

On top of that, Fianna Fáil has colluded in the belittling of public servants. For months, there has been a sustained campaign of ballyragging, abuse and denigration targeted at the public sector. It is as if it were somehow the nurse in the accident and emergency department who caused the Exchequer deficit or the rank and file gardaí who caused the problems in the banks.

The Fianna Fáil Government allowed and encouraged this campaign and failed in its duty to defend the State's employees against unfair attack.

Emmet Stagg (Kildare North, Labour)
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Hear, hear.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Are we are not under attack ourselves?

Eamon Gilmore (Dún Laoghaire, Labour)
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In our system, senior public servants are prevented from becoming involved in public or political controversy. That is as it should be. However, that means that when some area of the public service comes in for unfair or inaccurate attack, it falls to the political masters, the Government of the day, to publicly explain and clarify what public servants do. Governments of all hues have taken this responsibility seriously, until now. The cowardly and opportunistic attitude by the Fianna Fáil Government is another reason that the staff are outside the gates.

Where has this campaign of abuse got us? Nowhere. We have a public service that is angry and fed up beyond belief. We have a national public sector strike but are no closer to dealing with the problems that Fianna Fáil and the bankers created.

Many of those commentators who have led the charge against the public service are the same commentators who have always denigrated everything public. Theirs is the ideology of deregulation which got us into this mess in the first place. Their facile idea of how to deal with this crisis is to call for tougher action.

To turn one section of society against another and to sell the myth that by targeting one group in our society the rest of us can somehow avoid bearing any of the burden of dealing with this crisis, does not add up. The crisis is too great for that. The mess that Fianna Fáil has created this time is just so large there is no way to shift it off on to someone else. If one tries to do so, one will simply create division and conflict, make the problem worse and store up trouble for the future.

Neither can we pretend that only those who caused the problem will have to pay for the problem. Unfortunately, that will not work either. The only way to deal with the financial deluge is the same way people are dealing with the other deluge - by pulling together.

This is a small country, with big problems. History tells us if we pull together we can overcome our difficulties with far less difficulty than if we pull ourselves apart. That is the real lesson of the 1980s. It is not of a tough Minister for Finance ready to inflict pain wherever he found it but of a negotiated settlement and an agreed way forward.

We need determined leadership from the Government. There is, however, more to leadership than a willingness to hand out pain to those who can least afford to take it. The system of social partnership set up in the late 1980s has had many critics. I accept there are good grounds for some of that criticism. If we turn our backs on the partnership approach, however, then it may take a long time indeed to restore it. That will be costly. People sent away from the bargaining table in bad times or brought to it for no real negotiations will not feel inclined to return to it in good times when their bargaining position is stronger.

Social partnership has to change but it is dangerous to demolish it when there are few alternatives. Those who hanker after conflict have little knowledge of the past and no sense of the future. They will take us nowhere. The way forward is through national unity and social solidarity.

In the past few months, I have addressed several trade union conferences where I have made it clear that I see no value in industrial action. I have argued the public sector pay bill will have to come down. I accept there is an urgent requirement for reform in the public service with old rigidities about deployment and recruitment coming to an end. It is my experience that message has been understood.

Unfortunately, the Government has not taken up that opportunity and appears determined to plough ahead to cut pay and go its own way. It has refused to engage in negotiations to achieve a package to reduce the public service pay bill through reform rather than unilateral action. Such an approach would have avoided the kind of industrial action we have seen today. It was cynical on the Government's part to allow this dispute to take place, particularly when we are now told arrangements have been made to reconvene talks tomorrow.

Séamus Kirk (Louth, Ceann Comhairle)
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That concludes statements. We will now have a questions and answers session.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I did not know there would be questions.

Joan Burton (Dublin West, Labour)
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Does the Minister accept the line being pedalled by various commentators that fairness has nothing to do with the resolution of our financial difficulties? I refer in particular to Mr. David Went's remarks arguing for a massive increase of €150,000 in the Financial Regulator's salary to bring it up to €500,000. Does the Minister propose to publish the full report on higher level pay before the budget? I spoke to many people on pickets before I came into the House. They all acknowledged-----

Séamus Kirk (Louth, Ceann Comhairle)
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I must remind the Deputy this is a question and answer session.

Joan Burton (Dublin West, Labour)
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-----that there must be change. However, they want to see the people at the top of the public service taking the largest share of the burden. There are many people in the public service, including the Minister, his ministerial colleagues and Secretaries General, earning well in excess of €200,000. Does the Minister agree that fairness would be exemplified if the people at the top took the greatest proportion of the burden of adjustment and lead by example?

Séamus Kirk (Louth, Ceann Comhairle)
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Will we group this questions?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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There seems to be plenty of time not to have to do so. I was not aware there would be questions and answers sessions but I am delighted there is.

Of course fairness enters into the equation. Those at the top must lead by example and must take a greater proportionate reduction. That is not in dispute. I am not aware of the particular comments to which Deputy Burton drew attention.

Joan Burton (Dublin West, Labour)
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The Minister was photographed at the conference.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Yes, I made a contribution myself but I was not present to hear Mr. David Went's speech. Deputy Burton is well aware that is often the case when Ministers address conferences. While I do not know the context in which Mr. David Went made his comments, for my part I want to make it clear there must be a proportionate contribution.

We must also remember the proportionate contribution made to date through adjustments in the tax burden. There has been a highly proportionate contribution made through the income levy, to which Deputy Gilmore referred. The fact is that those who earn most are paying by far the most in the income levy.

Joan Burton (Dublin West, Labour)
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I was not talking about tax. I was talking about top level pay.

Séamus Kirk (Louth, Ceann Comhairle)
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Deputy Burton, please.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Tax is one of the major methods of effecting redistribution in any economy. Almost half of earners are not in the income tax net at all. The numbers in the top rate have fallen from 20% to 12%. The numbers at the standard rate are the same. That illustrates a massive reduction of incomes across every sector of society. Tax receipts are coming disproportionately from the higher end.

I agree with Deputy Burton on higher public sector pay. I have received the review body's report which I will consider. It will be submitted to the Government for consideration and the Government will take a decision on publication of the report. Clearly, the report recommends substantial decreases in the payments for top level public servants. The numbers covered directly by the review groups come to about 4,000, if one includes medical consultants who are not the subject of a recommendation by the review body as part of the last general review in 2007, since there were contracts negotiations under way with the consultants at the time.

The numbers covered by the review group are in excess of 1% of the total numbers in the public service. Having said that, it is important that they give an example. I examined a report published by The Sunday Tribune last week which listed high earners in both the private and public sector and it is fair to say that Ministers did not emerge as the most highly paid of the leadership element of the public service. Even with the inclusion of medical consultants, the pay of the groups covered by the review group would represent about 4% of the total public service pay bill.

I note Deputy Burton's request to have the report published in advance of the budget. I will certainly draw that request to the attention of my colleagues when they consider this report, which will occur before any budget day announcement.

Richard Bruton (Dublin North Central, Fine Gael)
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In his speech, the Minister gave the impression that his discussions with the trade unions have been confined to the issue of public service pay. That certainly seems very surprising. What does the Minister believe is necessary to address the employment crisis in this country? Fine Gael has put forward our proposals which include cutting the cost of employers' PRSI and setting up a holding company that could leverage private investment into our public utilities. These initiatives would make a difference. Does the Minister support those, or has he alternative initiatives for employment that would broaden the base of this budgetary debate?

When Mr. McCarthy started to file reports for the different Departments, a core issue related to moving staff from an area of low priority to an area of high priority. Is the Minister telling us that he has had no initiative on this until days before the budget? Is that the state of preparedness in the Department of Finance for restructuring the public service?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The discussion have not been confined to public service pay. If I inadvertently gave that impression, it was certainly not my intention. I tried to convey in my speech the urgency of addressing the need for an effective saving in public sector pay in order to prepare for the Estimates next year. The discussions are not confined to public sector pay. The Taoiseach, the Tánaiste, myself and other Ministers have engaged with all of the social partners such as business, agriculture, the social pillar and the trade union movement. The discussions have covered both public service pay and the transformation agenda, but they have also examined the wider budgetary and economic questions to which Deputy Bruton referred. We have specifically examined questions which he raised in the course of his contribution, such as how to support jobs, different sectors of the economy and so on. The whole question of fairness as raised by Deputy Burton is also being examined. All these issues have been raised under the social partnership discussions.

The Government hosts social partnership discussions, but the Government is also an employer. The Deputy asked whether the issue of redeployment has been raised in the past few weeks. This issue has been raised by the Government since the inception of the moratorium. The moratorium is a crude instrument. For the moratorium to be effective, redeployment is required. However, redeployment in the absence of agreement will prompt industrial action which the House is discussing today. I am not sure if Deputy Bruton is suggesting that we should have imposed redeployment and provoked earlier industrial action, or whether we should have done what are doing, which is to engage with the different bodies that represent public service workers on how we can have an effective scheme of redeployment which will minimise the disruption caused by the moratorium and allow us to focus staff in the most important areas that require priority.

The Government has maintained a substantial capital programme throughout this particular recession. As a proportion of GDP, it is one of the largest programmes in any EU member state. We must also add the cost of public private partnership programmes to that, which will ultimately be borne by the taxpayer through a different financial mechanism. There is a substantial volume of public investment in this economy. Deputy Bruton is proposing the substantial disposal of a large number of assets that are owned by the State and the reinvestment from the proceeds of those assets in other lines of investment.

Richard Bruton (Dublin North Central, Fine Gael)
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It is a bit more sophisticated than that.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I am not getting into a pejorative argument on how many boards the Deputy is setting up to do this, but the essence of his proposals is that we should realise the value of the ESB and Bord Gáis.

Richard Bruton (Dublin North Central, Fine Gael)
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As part of the equity.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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One must generate the equity somewhere. The question arises in the current market conditions as to whether the taxpayer would get a decent return on the disposal of these assets. Having disposed of the assets, the Deputy is proposing that they be put into some form of public investment vehicle, which will then invest the proceeds in other forms of investment, such as broadband. The Deputy is proposing a great work of financial engineering, but I do not see how these assets will be realised within a realistic timeframe for a realistic price, generating an immediate investment in the economy of the type he wishes to see emerge. I will examine his proposals again if, as he says, he has refined them since earlier in the year.

The issue of PRSI is a budgetary matter. It must be noted that PRSI in Ireland is lower than most other European countries-----

Joan Burton (Dublin West, Labour)
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It has dropped 2% since 2001.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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-----and the social insurance fund provides essential protection for those out of the workforce and for some in the workforce. These are all factors the Government will have to take into account. I will not comment on that in advance of a budget.

Joan Burton (Dublin West, Labour)
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The former Taoiseach promised to halve it at the last general election.

Joanna Tuffy (Dublin Mid West, Labour)
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Many people, including myself, hold the point of view that what caused our economic crisis was free market policies, a lack of bank regulations, speculation in our financial institutions, low income taxes and the general philosophy of the Progressive Democrats Party and of many Members on the Government benches. These people also wanted privatisation of our public sector. These people were very opposed to the public realm and to the public sector. Unfortunately, those voices are still dominant. I noticed that in yesterday's edition of The Irish Times, Mr. Donal Casey claimed that there was more individualism in Irish society due to social partnership, which I find to be absurd.

We need a more controlled market and better, stronger and a more valued public realm. In that regard, does the Minister agree it is wrong to single out public sector workers for the blame and burden of what happens now in terms of solving our economic crisis? Does he agree we need a strong and valued public sector rather than a weakened, demoralised and decimated public sector?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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There are many big questions there. First, I believe we should have a strong, vibrant and proud public sector. As Minister responsible for the public sector, I am very concerned at the demoralisation that has taken place. However, no sector can be immune from criticism and no sector that is paid for by the taxpayer can be immune from cost control. These are fundamental matters for any Government.

The public sector we all want to see in Ireland and the vision I would subscribe to is a public sector that is highly motivated and, as Deputy Gilmore said earlier, showing the virtues and attributes which its members have shown in the areas affected by the floods, which have been very remarkable virtues showing a huge sense of commitment. By and large, that exists within the public sector. However, when we are talking about pay and pay rates, we have to ground ourselves in realities about the public sector. All of the objective studies that have examined this question have shown that the average rates of pay in the public sector, occupation by occupation, are often way above either international comparisons or valid local existing comparisons.

It is true that there is no comparison, for example, in the case of a Garda, a nurse or a teacher because, generally, these are public service occupations. However, when one makes comparisons with other countries, it is clear they are well paid by international standards. We do not debate this often in this House. Some work was done by the ESRI on this and I regret the fact that this ESRI coverage did not seem to factor into the equation the pension levy, and the extent to which this had already effected a reduction, because the 20% referred to by the ESRI as the average disparity had immediately to take a 7% deduction. That is important and worth noting. The public sector has made a big contribution towards resolving our financial crisis. I do not think the argument about pensions can be made as strongly in regard to public servants any more because, increasingly, the proceeds of the levy will provide for the cost of the pensions. This is an example of where the Government has engaged in what is a public sector reform, although not a popular one, I accept.

With regard to the Deputy's wider questions about the causes of the current crisis being the existence of a free market and the lack of regulation, they are two distinct issues. Most individuals nowadays subscribe to the view that market disciplines and performance indicators are very important in measuring the value of any service that is delivered, whether it is in a competitive market or a sheltered market that is free from competition, and there are sheltered markets in both the public and private sectors and there are of course competitive markets in both the public and private sectors. I am not sure the question of the free market bears on this.

I would agree with the Deputy that lack of regulation in banking was a major problem. She makes a fair point in regard to lack of regulation in banking, which was part of a worldwide trend as the banking crisis here is not unique. What is unique about it is the form it took, namely, a rather old-fashioned banking crisis involving excessive lending to property developers. In many countries, the financial crisis took the form of highly sophisticated financial instruments whose face value bore no relationship to their actual value. When market confidence collapsed in these instruments, banking systems and economies collapsed with them.

I do not want to return to the NAMA debate which took place at length in this House. I want to take up the question the Deputy raised about tax rates, including low tax rates, which the Deputy maintained were part of the problem that generated our economic crisis. If one analyses these low tax rates, the incontestable fact is that they have benefited the lowest paid the most. If one has an income tax system where half the earners are paying no income tax, one clearly has a tax system which incentivises work. In ways, that is a very good state of affairs. Of course, one has to balance that with the need for social solidarity and for every citizen to realise that he or she pays a contribution towards the services which he or she receives. That is a balance we will have an opportunity to argue about in the budget.

Pat Rabbitte (Dublin South West, Labour)
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The Labour Party leader said the Minister did very little to stop today's industrial action. I want to ask him what he is going to do to stop the industrial action next week. He has not said anything in his formal script or since that tangibly will have any impact on what is happening outside the gate. The people outside the gate know that Fianna Fáil has brought this country to the edge of ruin. They know that when the economy crashed, the Taoiseach was driving the car. I want the Minister to acknowledge there is a lot of ballyhoo surrounding the budget about secrecy and so on. If the Minister was to announce here this evening that, in the matter of basic pay, he does not intend to impact further on public servants of modest incomes, I believe it would do wonders to avert the industrial action now scheduled for next Thursday. Can the Minister say in the House now that people on modest incomes will be protected from further attack on basic pay in order to avert industrial action planned for next Thursday?

Seán Sherlock (Cork East, Labour)
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The Minister states that the €1.3 billion reduction - he calls it an adjustment - envisaged will be offset by the 6.6% decrease by which prices have fallen. The import of this is that a reduction of €1.3 billion in the public sector pay bill has no effect in real terms because prices have been reduced effectively by the same amount. If one takes the 6.6% and the 7% levy, that is over 13%, and if one takes the potential for an increase in interest rates which is inevitable against a backdrop where there are no adequate supports for those people who will inevitably fall into arrears on their mortgages, then the Minister is creating a major problem for those people who are on middle to low incomes. I ask the Minister to address the question of the inevitable rise in interest rates in real terms and the effect that will have for those people who will be affected as a result of such an increase.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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There are two points. First, in response to Deputy Rabbitte, discussions are taking place with the organisations that represent public service workers. Clearly, we will continue to engage with them. The Taoiseach urged them not to engage in today's industrial action. I do not believe the public are impressed by today's industrial action. While I agree that there has been an amount of irresponsible media coverage about the public service, there has also been, I think, an amount of public anger at what is taking place, and this is reflected in media coverage. This type of action affects workers who are going about their daily business and doing their jobs, and individuals who have important transactions to perform with public servants, and it also affects the capacity to attract jobs to Ireland. It has not been possible today, for example, for some senior officers to meet people who are investing in Ireland, which is a serious matter.

This is why a group in negotiation with the Government should be reluctant to engage in such an action. I appreciate ballots were held and democratic decisions taken that must be implemented by the representative organisations. As I understand the position, there is no irrevocable commitment to further industrial action. I hope this position is reflected upon.

Regarding Deputy Sherlock's question on the distribution of public service pay in the context of interest rate rises, approximately two thirds of public servants have salaries of €50,000 or less, accounting for approximately 50% of the public service pay bill. If significant savings are to be achieved through reductions in the pay bill, this group cannot be excluded totally. Approximately 15% of public servants have salaries in excess of €60,000, accounting for 29% of the pay bill. Some 10% of public servants have salaries of more than €70,000, accounting for a little over 20% of the pay bill. Only 3% or so of public servants have salaries in excess of €100,000, accounting for approximately 9% of the pay bill. In any discussions with the relevant organisations and in any Government decisions taken with, I hope, the representative bodies or in the national interest, there must be some tiering of the degree of reduction that applies to different sectors.

Deputy Sherlock raised the question of the decline in the cost of living and the impact of interest rates. The latter have had some effect, but they are not the whole effect. I have often heard Deputy Burton speak in the House about deflation. No one wants deflation, although we have had it this year because of the decline in economic growth, but it is possible to have economic growth while the cost of living reduces, a more benign scenario. A part of the reduction in the cost of living in the past year has been due to the devaluation of sterling. Products originating in the sterling zone are cheaper in Ireland. This situation has not been caused by the Government's budgetary decisions or economic decline here. Rather, it has been caused by economic decline in our nearest neighbour, which is worth noting.

Not all of the reduction in the cost of living is accounted for by the decline in interest rates. The examples that I gave illustrated the reduction in the cost of food, rent and clothing. The basics have all seen substantial reductions, much of which owes to British products becoming cheaper or Irish products being made more cheaply to compete with British imports. These have been major factors in the reduction in the cost of living.

Interest rates played their part and introduced some of the variability that is evident upon examining the different deciles. In particular, they show how the cost of living has reduced the least for those in retirement. Interest rates are at historically low levels. The question of an exit strategy from the monetary support adopted by the European Central Bank and other banks is under discussion in Europe, but no decisions are imminent. Some pressures on domestic interest rates have come about due to poor funding practices in our banking sector. For example, some institutions had an excessive number of tracker mortgages. The effect of the European interest rate decrease has been to make those mortgages uneconomical for the institutions concerned. The overall trend in interest rates is not as apocalyptic as Deputy Sherlock suggests. We are not looking at any immediate increase.

Seán Sherlock (Cork East, Labour)
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I did not suggest an apocalypse.

Séamus Kirk (Louth, Ceann Comhairle)
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Deputy Varadkar will follow Deputy Lee. I remind Members that we will begin statements on flooding at 6.40 p.m.

George Lee (Dublin South, Fine Gael)
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Last April, there was much hullabaloo when it became clear that we had a large deficit. In such situations, corrections must be made. It cannot be ignored that €5.3 billion in potential savings have been identified by the McCarthy report. According to the Minister, the statement by the Irish Congress of Trade Unions that the Government has forced it to take this strike action is not correct. My understanding is that one of ICTU's principle concerns is the pace at which the Minister is going about the adjustments. This matter is at the centre of today's strikes.

Last April, when it became clear that corrections would need to be made, the target was to reduce a 10% deficit of GDP to 3% by 2013. At the time, there was a concern that if we did not make great efforts to do so, financial markets would take fright and interest rates would become high. Some suggested that we would not be able to borrow money.

Since then, the situation seems to have changed. The numbers were wrong in the first place and the deficit has turned out to be greater than was believed in April. As a result, the 2013 date has been allowed to slip, but not by the Minister originally. The European Commission has given us until 2014 to reduce the deficit from 12% to 3%. From next January, this will be the same time span that the Minister would have had between last April and 2013, yet the reduction is greater. It would not have been possible to reduce it from 10% to 3% in the time given. In my opinion and that of many others, it is not possible to reduce it to 3% by 2014, even given the pace of these significant adjustments.

I am not saying that adjustments should not be made, but the pace is the cornerstone of the debate. When it was announced that we would allow the pace to change, there was no difficulty in the financial markets. Interest rates for Government bonds did not increase and people did not tell us that they would not lend to the Government. The situation was not as calamitous as it was made out to be in the first instance. Is it not disingenuous to suggest that the unions have forced the Government to take this action if the adjustments' pace is at the core of the argument?

The Minister stated that we will have a permanently smaller public service. I can understand why the Minister did this, as he wants to reduce the overall costs. However, it is a negative way of viewing the issue. It is possible to grow the public sector and sell its services in other countries. For example, the ESB sells some of its services abroad. Viewing the matter more creatively is possible. For a number of years, public service employment was the particular engine of growth for female employment. The engine of growth for male employment, construction, has been broken and thrown into reverse.

Séamus Kirk (Louth, Ceann Comhairle)
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I must ask the Deputy to conclude.

George Lee (Dublin South, Fine Gael)
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Given the pace of the adjustments, the Minister will not only stop the engine of growth for female jobs by making the public sector smaller. He will also put it into reverse. The two engines of employment growth will be in reverse at a time when we are trying to get out of a problem. Is there a level of unemployment and emigration at which the Minister might say enough is enough or maybe the unions have a point about the pace being too difficult for a small open economy?

Mr. Colm McCarthy, the economic consultant on whose advice the Minister is basing much of his approach to cuts, attended a meeting of the Joint Committee on Finance and the Public Service last week.

Séamus Kirk (Louth, Ceann Comhairle)
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Deputy Lee will not receive a reply, as I wish to allow Deputy Varadkar to contribute.

George Lee (Dublin South, Fine Gael)
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In terms of public sector pay cuts, Mr. McCarthy was asked whether it was fair that people at the top would get a higher pay cut than people lower down. He said "No", as ESRI studies had shown that people at the lower end and in the middle of the public sector were better paid than their counterparts in the private sector. According to him, cutting their wages by less would not address the problem. I would be interested in learning the Minister's opinion of Mr. McCarthy's suggestion that people at the top should get the same proportional pay cut as those in the middle.

Leo Varadkar (Dublin West, Fine Gael)
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I will be brief, as the Minister will want to respond.

Séamus Kirk (Louth, Ceann Comhairle)
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Do not worry.

Leo Varadkar (Dublin West, Fine Gael)
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The Minister's comment that no one wants deflation is interesting. Given his economic strategy, one would be forgiven for believing that he wants deflation. Deflating the country back to competitiveness is at the centre of his strategy.

Many public servants are on strike. I do not agree with the strike but I understand why they are doing it. They took a 7.5% pay cut through the pension levy earlier this year. Many feel that they did not stand up for themselves at that point and that they need to do so now. Many of those who voted for the strike today understand there must be pay reductions in the forthcoming budget. I understand that. They would like an assurance that any pay cuts in the forthcoming budget will be the last set of cuts. If the Minister makes such a statement in the next few days, it will make a difference. He should say to the public servants that they took a big cut in April and must take another in the coming budget, but that it will the last one, that the Minister is not going to come at them again in the spring or summer. If the Minister could do this, it would make a big difference.

Séamus Kirk (Louth, Ceann Comhairle)
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Some 30 seconds remain.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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A minute or two, with the leave of the Ceann Comhairle. Deputy Varadkar made a very constructive suggestion. Were we to say that a combination of a pay reduction with improvements in work practices in the next year would secure the necessary savings for 2011 and bring certainty into the public service and certainty to their income, it would be of enormous assistance to the public sector. The longer we can give citizens certainty in which they can plan their affairs for the next two years, the better. It is a constructive suggestion. Incidentally, it is not at 7.5% reduction, it was adjusted in the April budget and amounts to 6.9% or a 7% reduction if rounded up. There was an alleviatory measure in the April budget for the lower paid.

Leo Varadkar (Dublin West, Fine Gael)
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It was more than that for some.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Deputy Lee introduced a wider question and I was somewhat disturbed by the thrust of his remarks. The issue is not how long we spend exiting from the excessive deficit position. It is true that we have an agreement with the Commission, which runs for five years. It is true we are the first European country to get into serious difficulties. Many other European countries are now surpassing us in their difficulties and because of this the Commission relaxed the period by one year. No doubt there will be a debate next year about how long the exit strategy in fiscal terms should be for all member states. We will participate in the debate and I have an open mind on the issue.

I do not have an open mind on the fact that we must make a €4 billion adjustment this year. I welcome the support of Fine Gael and Labour on this point. We have escalated to a deficit of 12%. We thought it could be stabilised at 6.5%. This did not become apparent last April, it became apparent all through the latter half of last year.

Joan Burton (Dublin West, Labour)
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Anglo Irish Bank cost us €4 billion.

Séamus Kirk (Louth, Ceann Comhairle)
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Please Deputy Burton, we are over time.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Please Deputy Burton, I am restricting myself to the public finances. That money has nothing to do with the figures we are discussing.

Joan Burton (Dublin West, Labour)
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It is in the €26 billion.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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It is not in the €22 billion I referred to in my speech, nor is it in the Stability and Growth Pact calculations-----

Joan Burton (Dublin West, Labour)
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The Minister reduced €26 million to €22 million.

Séamus Kirk (Louth, Ceann Comhairle)
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Deputy Lenihan without interruption, please.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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It will be very difficult to have a debate on this if Deputy Burton keeps introducing matter external to the debate. It is not included in these Stability and Growth Pact statistics. It does not count in Brussels.

Joan Burton (Dublin West, Labour)
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What about the €3 billion from the NPRF?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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It does not count in Brussels. I will conclude on my response to Deputy Lee's comments. What we must do, as the Labour Party and Fine Gael have acknowledged, is to stabilise the figure at 12%. That is the target of this year's budget. We cannot allow the figure to deteriorate further. Given the general economic signs in the economy, the growing improvement in the live register position, there is no doubt in my mind that we can stabilise this figure. Let us do this and have a theoretical debate about the exit strategy afterwards.