Séamus Healy (Tipperary South, Workers and Unemployed Action Group)
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5. To ask the Minister for Public Expenditure and Reform his views on the report by the Nevin Economic Research Institute which claims that a cut of €1 billion in the public sector payroll will result in a saving of only €250 million euro to the Exchequer and will also result in the loss of 10,000 jobs including 5,000 in the private sector. [25013/13]

Brendan Howlin (Wexford, Labour)
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Consolidation measures amounting to around €28 billion, or over 17% of estimated 2013 GDP, have been implemented since the crisis began. This represents about 85% of the total consolidation required and highlights the scale of the challenge faced by the Government on taking office.

The policy response requires a continuous, ambitious programme of fiscal consolidation, accompanied by structural reforms, to improve the fiscal position of the State, allied with measures necessary to ameliorate the impact on those who are most vulnerable in society. The fiscal parameters, while improving, do not provide any significant latitude to the current programme necessary to meet the general Government deficit target of less than 3% by 2015.

To meet Ireland’s commitment to a deficit of less than 3% by 2015, the medium term fiscal statement published in November 2012 indicated that, in addition to the overall consolidation of €3.5 billion required for 2013, an additional €3.1 billion in savings and revenue raising measures must be identified for 2014 and €2 billion in 2015. If the public service pay and pensions bill, at 36% of spending, is to make a proportionate contribution to the necessary additional expenditure reduction currently identified as necessary over the next three years based on current economic forecasts, it will require a reduction of some €1 billion in the cost of pay and pensions.

Otherwise the existing significant burden of adjustment falling on services and social transfers, rather than pay, would be untenable. The report referred to by the Deputy focuses on only one element of the consolidation measures required to put our public finances on a sustainable path. While acknowledging that it is difficult to model all of the impacts of the proposed adjustments, it models a form of pay bill reduction that is not proposed by the Government. The report also does not review or consider alternative strategies, particularly in the context of the wider economy.

Model simulations conducted using the ESRI’s HERMES model suggest that a €1 billion reduction in the public service pay bill would reduce the level of economic activity by some 0.25 to 0.5 of a percentage point in the short-run. The exact impact would, of course, depend on how the reduction was achieved. This impact on the economy must be balanced against the need to ensure that the fiscal deficit is reduced so that the debt to GDP ratio assumes a downward path from next year onwards. Continuing to meet our fiscal targets can generate positive confidence and investment and can have a favourable impact on our economic performance.

Séamus Healy (Tipperary South, Workers and Unemployed Action Group)
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It is now clear that Government policy, including the public sector pay cuts, is causing long term social damage and involves huge degrees of pain with relatively little gain. In fact, it is counter-productive. The Nevin Economic Research Institute professional review has shown that cuts of €1 billion would have a net gain to the Exchequer of €250 million. That is because there would be a reduced income tax and universal social charge take, reduced retail sales tax, VAT and excise duty, increased social welfare payments and, crucially, anything up to 10,000 job losses, 5,000 of would be in the private sector.

This is a view which is generally supported by other economists. This week Professor Ray Kinsella of the UCD postgraduate school of business studies also said this sort of adjustment is tantamount to self harm. I suggest to the Minister that it is now clear that these proposals should be withdrawn and Government policy should be to stimulate and grow the economy to ensure the social damage which has already been done is reversed and real jobs are created.

Brendan Howlin (Wexford, Labour)
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I listened to the analysis and rhetoric, but the truth is a very simple matter.

Séamus Healy (Tipperary South, Workers and Unemployed Action Group)
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It is not rhetoric. It is a professional view.

Brendan Howlin (Wexford, Labour)
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Does the Deputy want to hear an answer or does he want to keep talking? He does not want to hear the answer because he has made his mind up. Does he want to hear a different view?

We came into government and were faced with an economic meltdown. We could not pay beyond five months for services - that is how much money was in the kitty - unless we got an external funder to give us money. The only people who gave us money was the troika, and they gave it with conditions. The idea that one can stop austerity, as if one can walk away and money will flutter down from the sky, is not accurate. We need to work towards a balanced budget. Our income as a State fell by 30% because the previous Government built an artificial model where income was predicated on construction and outgoings were expanded exponentially for the years it was in office. That had to be brought into balance. Anybody who examines the fiscal situation understands that.

Of course there are implications for taking money out of the economy. That is why we have done things in such a measured way. We first extended the consolidation period to get to 3% by a year, from 2014 to 2015. We have hit the targets. The Deputy is quite wrong to say there are no obvious benefits. We have stabilised the economy and are one of the few economies in Europe to grow. The ESRI indicated that the economy will grow this year and next. We are the most attractive country in Europe for inward investment and are creating jobs. All of this is extremely difficult and I wish to God we were not forced to have to do it, but there is no simple alternative which allows us simply to continue paying because we will run out of money in very short order. Nobody will give us money at an affordable rate.

Séamus Healy (Tipperary South, Workers and Unemployed Action Group)
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There is a commitment under clause 16 of Croke Park I to restore pay cuts starting with low paid workers. The Government has reneged on that. Today the Government published virulent and outrageous anti trade union legislation, which does not even provide for the commitments given under Croke Park II to restore the cuts. How can any public sector worker accept that these restorations will take place or that they will be the last ask for public servants? It has not been in the past and is not provided for in legislation.

Brendan Howlin (Wexford, Labour)
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Let me be clear. The only pay cuts that are provided for in the FEMPI legislation which was published today are for those earning over €65,000. I do not know where the Deputy stands on high pay and whether he thinks those who can afford it should make a proportionate contribution to the recovery of the nation. The Deputy is against everything and for nothing.

Séamus Healy (Tipperary South, Workers and Unemployed Action Group)
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That is outrageous. I have supported-----

Seán Barrett (Dún Laoghaire, Ceann Comhairle)
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Please, I want to listen to the answer.

Brendan Howlin (Wexford, Labour)
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On the restoration of pay cuts, I have deliberately structured the Bill I published today as a Financial Emergency Measures in the Public Interest Bill. By definition, it is anchored in the financial crisis. If one examines its latter sections, one will find I have amended it to include an annual report to the House on the continued existence of the financial emergency conditions. It is part of an emergency set of measures to bring us through the crisis. I hope pay levels will be restored over time, but it will take a long time, in order that we can have sustainable, affordable and efficient public services and taxation in the State in the future.