GOVERNMENT Ministers and senior officials in the public sector will face substantial reductions in pay, Minister for Finance, Brian Lenihan said last night.
Mr Lenihan said that he had received the latest report by the body which examines pay levels for the higher grades in the public service, including politicians, civil servants, judges, university heads and executives of State agencies and bodies.
“Clearly the higher grades have to lead by example. There will be substantial reductions in ministerial and senior official salaries,” Mr Lenihan said, adding that he has benchmarked their pay against their counterparts in comparable European countries.
The Minister was giving the keynote address to the annual dinner of the Dublin Chamber of Commerce, where he also gave a stark outline of the economic difficulties the State will face if the Government does not confront the “€22 billion black hole” in the public finance immediately.
“Budget 2010 will be a test of our ability to rise to and deal with our difficulties,” he said.
Mr Lenihan said that State borrowing that now reached 12 per cent of the entire output.
He pointed out that not a cent of this had gone near the banks – which was a separate issue – but that €1 out of every €4 that went on day-to-day spending was being borrowed.
Quoting the American economist Herbert Stein, he said: “That which cannot go on forever won’t.” Mr Lenihan said national debt has doubled to €76 billion in two years and warned that if action is not taken it will double again to €160 billion by 2013.
“The interest bill will be €10 billion per year, which means that two-thirds of all income tax will go to fund the national debt. This is not sustainable . . . We will need the equivalent of two or three Bord Snip reports to bring public finance into control at that stage.”
He ruled out any income tax increases in the December Budget, save the promised carbon tax. The reason, he said, was that the top marginal rate is 52 per cent, the highest it has been since 1992. He said that if it increased beyond that, it would create difficulties in attracting business into Ireland.
“We did that before. We saw the law of diminishing returns. That did damage to the economy.
“We don’t need to load a whole pile of additional taxes on people to solve our economic problems.” He pointed out that this year 50 per cent were outside the tax net, 39 per cent paid at the standard rate and 11 per cent paid at the higher rate. He also said that 4 per cent of earners paid 48 per cent of tax.
“There is no pot of gold that can be raided from the wealthy that can solve our difficulties,” he said.
Mr Lenihan also strongly signalled that there would be further cuts in pay across the public sector.
He argued that the fall in consumer prices – 6.5 per cent down in September compared to September 2008 – was the highest in Europe and had to be borne in mind when it came to the issue of pay.
He said: “The debate is to take the brunt of that adjustment now or to stretch it out to 2017.”
The Minister also strongly defended the Nama business plan in the face of opposition criticism of it in the Dáil yesterday.
He said it was a draft business plan and not a statement of hope, as Fine Gael’s finance spokesman Richard Bruton and his Labour counterpart Joan Burton have contended.
