Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

I thank the House for the opportunity to set out the Government's priorities in respect of two major areas of expenditure, namely, capital infrastructure and where we stand now on public sector pay. It is particularly appropriate that these are being considered together, as choices in one area will inevitably shape demands in the other, while also impacting on the total amount of resources available. While resources are fixed and finite, demands and choices are not only limited to pay and capital expenditure because there are other demands such as social support payments, health care demands and educational supports.

What are the linkages between our capital spending and pay expenditure? First and foremost, public services are delivered by public servants and, therefore, if we build a new hospital or a new school, it will be staffed by public servants. These new facilities, however, will have the most modern equipment and this combination of advanced technology and human capital drives productivity in public services, which, in turn, is a fundamental goal of organisational or business endeavour.Ultimately, productivity gains justify increases in salaries in the public and private sectors.

As we get into these negotiations, it is important to recognise that while some would try to drive a wedge between the public and private sectors - pitting one against the other - each sector makes its own important contribution to economic and social life. Neither sector can perform in the absence of the other. Business cannot flourish without well-educated employees, the necessary infrastructure to get goods and services to market and the creation of level playing fields through appropriate regulation of markets. A society cannot provide increasing standards of living and good public services without a strong economy and a healthy enterprise base. While we look at remuneration in a public service context, we have to take account of what is happening with wage developments in the private sector. The public sector should not lead the private sector nor should it be left behind because we have to be able to compete for talented skilled workers in may key sectors. We cannot run a country with two economies, one composed of lawyers, shopkeepers and technologists, and the other made up of social workers, civil servants and doctors. We must acknowledge our mutual interdependence.

This is one of the reasons I established the Public Service Pay Commission. I thank everybody who has worked on the commission for their efforts. The commission generated findings that have a general relevance that is not focused on or confined solely to the public sector. For example, let us consider what the commission found in respect of pay and pensions. On pay, it found that the pay premium that used to favour public service workers declined over the period 2007 to 2014 and is now approaching parity. Statistical comparisons on public and private pay are important but they do not explain why these disparities exist or why they should exist. The commission also found that lower-paid public servants still enjoy a pay premium of 15% compared with their equivalent counterparts in the private sector . Does this mean that the public sector overpays in respect of lower-paid employment or that the private sector underpays? Does the finding that women are paid better in the public service mean that we overpay women or that the private sector has to do more to ensure gender balance? Similarly, the commission found that a person at the top in the private sector is earning nearly seven times more than someone at the bottom. The equivalent figure in the public sector is about half that. This gives rise to further questions. Does the finding mean that the public service is underpaying senior management or that remuneration in certain areas of the private sector has become more inequitable?

I am proud that the public service is a good employer, that public servants are treated with respect and dignity, have pension entitlements, flexible working arrangements and decent pay. The real challenge is to ensure that this model of good employer-employee relations is not limited to public servants but is accessible to all. Another clear finding of the Public Service Pay Commission is that there are valuable pension arrangements in the public service. In the commission's opinion, having looked at all of the information provided, the additional value of a standard public service pension for those who joined the service prior to 2013 is within a range of 12% to 18%.Of course, this statistical comparison is based against a subset of the private sector that actually has pensions which can be compared with. Most in the private sector do not have an occupational pension at all; in fact, only 35% of private sector workers have an occupational pension. As we know, the demographic structure of society is changing, with those in the old age cohort growing by an additional 20,000 every year. Therefore, yes, the value of public service pensions should be considered as part of total remuneration, but we also have to do something about the level of pension coverage and provision more broadly. These considerations are central to the negotiations and discussions that are happening under the auspices of the Workplace Relations Commission.

Moving on to the issue of capital investment, I want to pick up on a theme I have just referred to in regard to pay, which is the concept of demographic change and what this means. First, it means there are an increasing number of elderly citizens, which in turn has implications for our approach to medium-term capital spending. We are fortunate, as a country, to possess many of the elements required for a strong infrastructure base. This can be seen in our extensive motorway network, our international airports and ports and our high-quality energy network. However, there are also challenges in terms of meeting the high level of pent-up demand for further infrastructure investment following many years of budgetary consolidation.

The Government is strongly committed to increasing public funding for capital investment in Ireland over the coming years in order to meet those demands. As outlined in our most recent budget, Exchequer capital expenditure will increase by almost 75% between 2016 and 2021. While the Department of Finance continues to liaise with the European Commission in regard to the fiscal rules, we of course must make our decisions on the basis of existing rules. The Government is, therefore, making use of continued economic growth to increase capital expenditure over the coming period without the need to raise taxes, but alternative means of funding infrastructure investment continue to be explored by the Government.

The Minister, Deputy Noonan, and I recently met the European Investment Bank in Luxembourg to explore such opportunities. This organisation supports crucial investment across the country and has funded many projects. For example, the Luas cross-city project, which is in the final stages of construction, received significant funding from the European Investment Bank, as is the case with the Gort-Tuam road and will be the case with the Grangegorman project on the northside of Dublin, and the expansion of our national road network in the south west. Again, these are all expansion projects that happened due to European Investment Bank support. I believe this kind of co-operation can continue in the future. The existing capital plan has laid out priorities in regard to initiatives such as Luas cross-city, metro north, the Dunkettle interchange, the new national children’s hospital and housing projects. We are committed to identifying new ways of delivering such projects while being mindful of all of the pressures I have just identified.

With regard to how we will do this, the Government made a commitment to a mid-term review of the capital plan. Within existing resources, we indicated we would increase such investment by an additional €5 billion over the coming years. Now, due to commitments we have already made in the area of public housing, there is approximately €2.6 billion in uncommitted additional capital expenditure up to 2021. The review is now under way. I have invited submissions from the public in regard to choices the Government can make. It is my intention to bring this process to a conclusion in the second half of the year and to confirm where we are with regard to the availability of resources and how they might relate to either existing or new projects.

As part of all of this, we are continuing to work closely with the Department of Housing, Planning, Community and Local Government to ensure there is close alignment between these capital choices and the new national planning framework which will be published later this year.We will assess the submissions received from Departments and use this to inform final decisions on capital allocations, to be announced in completing budget 2018 and feeding that into the new national planning framework being led by the Minister, Deputy Coveney. It is also our intention to assess and report on the framework required to underpin a longer-term ten-year analysis of our infrastructure planning needs.

We must have a long-term plan to provide greater certainty to businesses and society at large which depend on our infrastructure. It will also provide certainty to those involved in the delivery of infrastructure on what construction is in the pipeline and enable the industry to plan accordingly to ensure capacity is available to deliver projects.

At the outset I stated that pay and capital are two different priority areas but one will influence the other. Choices in one area will have an effect on choices we make elsewhere. I look forward to discussing these choices and the framework I mentioned. I also forward to hearing contributions from Senators.