COWEN RESPONSE:THE PUBLIC service pension levy was introduced to avoid impacting on current pensions, Taoiseach Brian Cowen said.

"If one went for a payroll cut, one would also be affecting the income of existing pensioners." On the conduct of the social partnership talks, Mr Cowen said it was standard practice in industrial relations to deal with the specifics of a proposition at the end of the process after consideration of the background and relevant issues.

"That was the practice followed on this occasion. There was, however, significant discussion, both formal and informal, in advance of the tabling of these specific proposals about the contribution which the public service payroll should be to the necessary fiscal adjustment."

Mr Cowen said the fact that Ictu felt unable to agree to the proposals tabled by the Government was due to their content and not the timing of their presentation.

"The measures proposed were what the Government regarded as necessary and appropriate, having regard to all the relevant considerations including those put forward by congress itself."

Replying to Opposition leaders' questions, Mr Cowen said the economy would contract this year by 4-4.5 per cent and it was a question of ensuring that they did not have further major tax changes during the course of this year.

He had indicated, he said, that the gap of €17 billion could not be simply filled by expenditure savings. There would "obviously have to be a contribution by the taxation system in the years ahead to meet the difference which now exists between the spend the Government is engaged in and the tax revenue which is being provided at the moment".

Replying to Enda Kenny, Mr Cowen said whatever legislative changes were required would be introduced as a matter of urgency.

Asked by Eamon Gilmore about the impact of the latest exchequer returns on the Government measures, he said the returns were in line with the "profile" and the Government had factored in the reduction in revenues this year. "I understand from the Department of Finance that that profile of expenditure was expected."

Mr Cowen said that the recession was obviously having a particular impact on the public finances which needed to be addressed.

"So it will be a combination of tax and expenditure items. Regarding identifying those for next year, for example, for 2010 and further on, we have the McCarthy public service committee looking at numbers and expenditure items in all areas in all departments.

"We also have the Commission on Taxation which is taking a systemic review - the first in more than 25 or 30 years - as to what is the best way in which we can provide a taxation base that can meet the needs of the society in which we live today and in the years ahead."

Mr Cowen said under the Government's proposals there would be a deduction of 3 per cent, €450, on a salary of €15,000; at €20,000, it was €750, or 3.8 per cent. It graduated up the scale, and was €1,250, or 5 per cent, on €25,000.