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The pension levy is regressive
Read more about: Economy, Taxation 
A key Cowen-Lenihan talking point has been concerning the claimed progressivity of their fiscal adjustments: that people on higher incomes pay a higher percentage of their additional income in taxation. As we’ve already noted, this is not the definition that they’ve applied when they get around to supporting this claim. But the pension levy fails even the simplest version of the test.
The spectacle of ministers doing solo runs in explaining how the levy would work has prompted the department of finance to issue a ready reckoner (pdf) for various civil service salary levels on the impact of the levy on take-home pay. The key point is (as was not made clear by Brian Cowen yesterday), the levy is tax deductible. Thus people on higher income tax rates get a bigger deduction. The resulting impact is shown the “net pension contribution as percentage” of this table (5th column). The net contribution is around 4% on average, and for married one-earners actually declines as income increases. In several scenarios, clerical officers get hit the hardest. Total deductions still rise with income, but then whether the person is under the pre or post 1995 rules is making a huge difference in take-home pay.
The taxation and pension system were riddled with inequities even before yesterday. The new plan makes them worse. And as Brian Lucey pointed out on the Irish Economy blog, it’s unclear that the revenue-raising projections for the levy take account of the offset to income tax revenue resulting from deductibility. Note also that Cowen yesterday let slip one of the apparent criteria for determining what adjustment to make: that existing civil service pension recipients not be adversely affected. God forbid that certain recent prominent retirees pay any price for the current mess.
As a retired middle-grade public servant I have to agree that not only is the levy unfair between the public and private sectors but it is also unfair within the public sector itself as it seems that, if things get any worse in the deductions front for those working, us retirees will be getting more into the hand than our working equivalent. I can only presume that the reason for this is the government were afraid of another pensioners revolt. It shows what a mess can accrue when you depart from the old reliables such as increasing tax rates.
New Pension Levy, where will I start!
Husband lost his job, we have 3 children and a high mortgage to pay and I am the only earner on low grade public service pay, I am struggling as it is without taking the new pension levy from me, there are loads of people in my department who are in the same boat. Brian Cowan seems to be pushing the people who are trying to make ends meet as it is, into poverty.
it is so distressing and depressing – it is true with recession brings depression. I agree to contribute money to get Ireland out of the financial ecomonic crisis (even though I had no part in bringing the economy down) but at a lower percentage. Let the rich guys pay more.
There is all this anomisty regarding public sector employees having secure jobs, but think about the last decade during the celtic tiger, public sector employees never got a bonus at christmas, we saved into a christmas club, we never got bonus’s from profit share, we never got bottles of wine at christmas the way the private sector employees did.
We watched while employees in the private sector got all these perks and we got nothing and said nothing about it, now that these people are being laid off and I am very sad for them, they attack us low paid public sector workers. We choose to be an employee of the public sector the way they choose to be an employee of the private sector. It is very disheartening. We do actually work hard for our salarys.
2 billion savings this year – 4 billion has to be saved next year, are we going to be hit again?
I would buy a 6inch rope if I could afford to!
Shaz,
I have every sympathy with your plight and how difficult it is for so many other public service workers who are hit by this. But it’s not a ‘them and us’ thing. We’re all on the same boat, and workers in the private sector, ordinary young men and women, are having their lives, their dreams and their hopes for the future blighted too. But in the private sector they are losing their jobs not 10% of their income – they have nowhere to go tomorrow except the dole office.
This is a small country. The UK has 70 m people, the US has 325m; they have big internal markets. We do not. We rely on our exports to generate wealth for this country. If our private sector cannot generate profit and exports then we cannot pay for our public services. That’s why things have deteriorated here so quickly, and so drastically, compared with other countries. Small open economies are always the hardest hit in an international downturn.
In the old days, governments had the option of devaluing currencies to make their economies competitive – we never did, by the way, because we were linked to the British pound. So if Sterling devalued we had to devalue too, even if it didn’t suit us and often without any notice from the British. But that’s another story that did us great damnage in the past.
Now. as part of the Euro zone, we can’t devalue anyway. So we have a choice: cut public services or cut public service pay. Back in the late 1980s we faced a similar fiscal crisis and the government then cut public services as well as public service pay. The cuts in services were awful and carried a social legacy that is with us to this day.
I agree with you that the impact of the levy on lowest paid workers in the public service should be revisited and reordered. As it stands, it’s inequitable in its impact on the lower paid.
But the trades union leaders had the opportunity to do that last Monday night. Instead, they walked out, because they did not want to carry any responsibility for difficult decisions that are necessary to save our economy and our future as a country. I never saw them do that when they were getting tax cuts or any other upward deals on public service pay.
What nobody with as much as a grain of political or economic common sense is disputing is that we need to make the 2bn euro cut this year – except for the Labour Party and the extreme Socialists, that is.
I remember visiting a friend in hospital in the late 1980s. A man had either died or been discharged from the far end of the ward half an hour previously. Whilst I was there, workmen came in with toolboxes to dismantle the vacant bed. When I asked what was going on I was told it was because they did not want to have any bed available to take any new patient into that ward.
So when it comes down to a choice between cuts in public service pay or cuts in public services, believe me, I never want to witness anything like that again.
I hope whatever union represents you will come to their senses and go in and represent the interests of lower paid workers in the public service and have the package ‘tweaked’. The government is willing to entertain this and the Taoiseach has said so publicly. It’s up to the unions to take up that offer.
The Government is not in the business – no government is – of inflicting pain and hardship unnecessarily on people. But the fact remains that Ireland has to reduce its public finance expenditure by at least 2bn this year – and without raising taxes that would only make matters worse – or we all lose out, never mind in the long term, but also in the short term in respect of the international interest rate we must pay to borrow money to pay for public services and the public sector pay bill, even after the current measures are implemented.
This crisis will pass. But it will pass a lot quicker if we all pull together and stop trying to fix the blame instead of the problem and use our six inch ropes to tighten our belts and reduce our discretionary expenditures rather than hanging ourselves.
By no means am I, nor do I, want to create a ‘them and us’ scenerio. I feel people are attacking the public sector as “they have cushy jobs” they forget how “cushy” they had it when the economy was booming.
I am worried for my family to whom I have to provide for alone, which is a lot of pressure for me and this pension levy has not helped matters.
The dole que would be a bleeker plight I agree, but with the dole que brings more entitlements like mortgage interest supplement, entitlment to medical cards, back to school allowance, supplementary welfare allowance etc. Obviously I would not prefer this route for my own sanity, but sometimes I think would I be better off financially? – I would come out with more pay per week and have luxury time with my children.
I suppose everyone has a story to tell! But if the rope gets thinner because I want to vent my anger in words then great for me.
I do agree the trade union leaders did walk out because they did not want to take responsibilty for any actions taken, it was the easier way out. But we could then agrue the government should know not to put a high percentage of pension levy on the lower paid.
No-one (trade unions and government) want to look after the lower paid people and it is always us that suffer. We are an easy target….
You have written about your experiance of hospitals in the 1980′s, I had my own recent experiance with hospitals, I lived there for over 2 weeks from christmas eve with my eldest daughter – for days before christmas eve I tried in vain to get doctors to listen to me, my daughter was sofa bound and having severe abdominal pain for several days, 2 visits to childrens A & E and twice sent home, finally a kind surgeon listened to me on Christmas eve and admitted my daughter with suspected appendicitis, my daughters appendix burst just before emergency surgery was initiated, nercrotic appendix is the term they used. Triple IV antibotics were then administered for 7 days after which they tried to send her home with no further prescription of antibotics until I protested and got a low dose antibotic prescibed, (mynute in comparision to what she was on) only to be back to A & E 2 days later with the same symptoms, the reponse I got was “she has a gastric bug”, again challenged by myself, she was admitted again for observation. Finally the following morning I got to speak with the Professor and a ultrasound was ordered, again under my protest, there was an abcess at the site of appendix,(a rare complication of surgery) triple antibotics were again administered, new antiboitics had to be administered after day three because the previous ones were not working. Veins collapsed, blood, sweat, tears, aswell as neglect of my other two children. Another 7 day hospital stay, finally she got the all clear the end of January.
I await in anticipation for that hospital bill. So it seems the Health Sector has not changed much since the 1980′s even with the decade of the celtic tiger. Yes my daughter got a bed and yes my daughter got treatment, but only after my duly protesting, suppose I was lucky I did not get arrested for a public order offence whilst trying to get treatment for my daughter.
The current analysis suggests that because the levy is tax deductible it will weigh disproportionately on the incomes of lower paid public servants. Obviously, this is not right.
But the opportunity for rebalancing the impact is there because the government has to introduce legislation to give effect to the scheme. There is no question that they can change the overall total 1.4bn that they need to raise from it, but certainly adjustments can be made to make it fairer in its impact on lower paid public servants. I think you should contact your trade union, if you are a member of a union, and insist that they enter talks with the government before the legislation for the scheme is introduced, so that this aspect can be dealt with. Also, and otherwise, you may go and see your local TDs, both government and opposition parties, and ask them to propose amendments to the legislation or make direct representations to the Minister when the legislation is published to ensure that the levy is applied fairly across the board.
On the health issue that you mentioned and your concern about the eventual hospital bill, it sounds like you don’t have a medical card. It might be worth checking out if you are now eligible for one, especially if your partner has lost his employment? Also, if you are ordinarily resident in this State and do not have a medical card, there is still a daily limit on what hospitals can charge for treatment – it was 65 euro per day to cover all treatments/procedures etc. last year. In cases of genuine hardship hospitals will either reduce the bill or may agree to waive it entirely. You need to get in contact with them once you receive the bill and start negotiations. My advice would be: don’t ignore it; deal with it quickly. That way you will achieve the best possible outcome for yourself in the long run.
As to nobody looking out for the lower paid and being an easy target and all that; I do not agree – this State has a far better network of social and health supports than a lot of others I could mention. The US comes to mind, for one. Also, most public representatives are very accessible and usually very helpful to people who need to find their way around State services and agencies. Use them and best of luck to you.
2 things:
1. It is obvious from the comments above that there is a very big “them and us” problem in this country at the moment.
2. This is a classic case of divide and conquer by IBE£C and their friends. I cannot forget the glee on the face of the IBEC spokesman on Primetime the other night.
I find tragic that instead of blaming private the sector for bad pay and pensions the public sector is blamed for decent pay and conditions. Are people not entitled to decent pay and working conditions? When I started working people were willing to go to jail for their rights. Now it seems that people are willing to go to any lengths to deny others their rights claiming that insecurity and poverty should be the norm for all workers.
Our present situation is not due to an ordinary recession which will end with an upturn in a few years because there is nowwhere for the upturn to come from. We have built enough houses to last us at least 50 years and the technology revolution has more or less come to a standstill.
To finish, all I can say is if we believe that poverty should be the norm there will always be those who will be only too glad to give it to us.
‘We’ voted them in, and we should vote them out. I am wondering how much people will take before they actually react.
I can’t help noting that the levy nearly approximates to the amount my husband gained with the benchmarking process.
One thing I would like to see is small ‘schools’ countrywide where ordinary people can learn about politics and can understand what is actually going on here.
Young people seem particularly ignorant, with the exception of those being groomed for future TDdom etc., or those actual studying the subject in college.
There are in my opinion too many older people running the country or trying to, and I would like to see at least 60% of TDs being under 35, young blood with young ideas, in other words. After all, young people make up a large proportion of the general population.
I am not talking here either about young people joining ‘young’ branches of political parties in existence already; the future of this country is young people – let them unite sensibly and take the reins.
They certainly could not make more of a mess of it than has been made already. Only they can turn their despair to hope!
We, public servants know that this country is in economic crisis and we need to step in but to get between €45,000 to 55,000 to pay a levy of 7.2% when someone over 200,000 pays only a little pity 9.2% is a scandalous because this Irish politicians who are overpaid should think of redusing their salaries to 25% to show to the public that they are fair and juste. Also who deserve to get over €500,000 per year when people like public servants, who work hard with the pressure to deliver good services to the public get under 50,000. I am talking about those below the senior managers.
If this country cannot reduce bankers CEO salaries to €500,000 per year, and the senior managers, politicians and if possible reduce the dail members, this economy can never recover and it would be a high risk of being colonised again. The overpaid bank CEO, Top managers and politicians and the lack of governing skills are the problem to the economy.
Don’t blame the public servants on the ground, blame those selfish government members who do not want the salaries to be reduced remarkably and who give themselves after 5 years work when a genuine citizen has to work over 35 years to be qualified for minute pension.
Shame on politicians.
Klalisa
I am a clerical officer in civil service, I have always paid into a pension. People in the private sector are led to believe that we are on brilliant money, we do nothing all day, just drink tea. I deal with unemployed customers and I have to deal with their anger every day of the week. Why should i have to pay for the banks and builders who got us into this mess in the first place. In early 1995 Civil Service advertised on all radio stations looking for staff they could not get any staff. It was the boom and I suppose people in the private sector were on good money and bonuses and plenty of overtime. I am struggling as it is, with this levy I will find it alot harder. I do not mind paying my share for this recession but when will it stop. This time next year my tax maybe increased and if i have to pay anymore out of my wages I might as well be on the dole. Oh, I am not entitled to any social welfare payments because I am a civil servant. I guess people in the Private Sector do not know what I am entitled to at least you can get the dole.
At this stage of the game, I think the government has won what is next I do not know. I will just have to struggle on as usual.
I have sympathy for Shaz, I know job loss all too well. I was made redundant last September, a few weeks after my wife had resigned her job to go back to College, leaving us with no income apart from welfare which was a big help but far from enough to cover our expenses when our mortgage is included. I consider myself extremely lucky to have been able to pick up a job again in January. I don’t even want to think about how precarious it is, we are just taking it week by week, but still, I’m very grateful for it.
I think the way the public service pension levy was distributed is deeply unfair. In principle I am fully behind the idea that we must cut public expenditure, but it must be fair, and so far it is not. I don’t accept the idea that we can rein in the deficit with tax increases alone. True the whole tax base needs to be readjusted – and made far more progressive (and deeper overall for probably everyone). But the scale of what is required could hardly be done in one big jump now for it would amount to a gigantic anti-stimulus. But radical changes must come down the line and the sooner the public gets mentally prepared for this the better.
I think there is a real danger of the ‘them and us’ problem. This is precisely the time when we need solidarity and a sense of common purpose. To fall into rival camps now is certain to prolong the agony for everyone. I think the big enemy here is ignorance. Both the public service and the private sector are happy to live with shallow stereotypes about what the other is all about, and about how the other lived the good times as well as the bad. I think we need more public servants – like Shaz – to get in front of the microphones and tell people exactly what their situation is. True, public servants have far more security and better pensions, broadly speaking. But they are not a monolithic group and pay and conditions vary massively. The least they deserve is a fair hearing – which I don’t think they have been getting recently.
But likewise there are massive misconceptions about the private sector among public servants. Anne, the public servant from Dublin hits a couple of points that I’ve heard a bit recently from public servants. One, “we didn’t cause this it was the bankers and builders”. Two “during the boom people in the private sector were on good money, bonuses and overtime.”. First, yes, true public servants didn’t cause the current crisis. But neither did the big bad private sector. The global downturn and financial crisis is a major factor – which itself would have caused a recession in Ireland, especially given that Ireland is extremely dependent on the global economy. The problem in our budgetary position was set up primarily by a prolonged period of terrible governing when it comes to finance. The last three governments ran us into this corner in a big way with their obsession with cutting away our tax base and overdependence on property taxes. There are other smaller factors – and the banks hardly shower themselves in laurels – but let’s try to be clear: workers in the public service did not cause this, but neither did the 1.7m private sector workers. Yet this crisis is hitting both groups. That is the reality of a country wide downturn, it pretty much brings everyone down. There is no point in trying to find some scapegoat, that might, if the right level of anger is applied, turn around and put humpty back together again. So we are all in this together. Are we prepared to admit that and then discuss the best way to share the cut in living standards that will now be inevitable?
The second issue is about the private sector and their bonuses. There is a misconception that the public sector is secure but badly paid while the private sector is volatile now, but during the boom was very well paid. Both sides of this equation are simplifications. Most public servants are not paid huge salaries, but neither do they lie at the bottom of the scale. Most of the very worst paid employees – and they are surprisingly large in number – are in the private sector. It is also true that the most outrageously inflated wages are in the private sector – from CEOs to certain lawyers etc. But those high paid groups are not representative of the private sector – which is, clearly, far more diverse than the public sector.
In short, the picture on both sides is more complicated than simple shorthand would allow. And without exploring a bit more the reality on both sides, we risk drifting into the damaging ‘them and us’ scenario.
We must try to resist that. One way of course is more honest reporting by media, but also the obvious is some form of continued partnership.
Yet in the end the fundamental difference between the private sector must be acknowledged. One group works providing services for the public and is paid by taxes. The other provide goods and services and can remain employed as long as there is a prospect of profit. Mixed economy and all that. But there will always that difference.
As I said earlier – both government and market were responsible for the multiple layers of difficulty Ireland is now experiencing, and I think a medium term challenge is to figure out ways to make both serve us better – in terms of accountability, competence, and fairness.
I thought it might be useful to summarise this discussion.
As a country, we have a number of problems that are immediate:
- plug the hole in the public finances
- restore competiveness of Irish exports
- get the financial system operational
A key objective of these policies is to save jobs; as many as we can in both the public and private sectors, because people who are employed spend money and generate taxes that keep the country afloat.
None of our problems can be solved overnight. All are interlinked.
The bank guarantee scheme of late September was designed to save the banking institutions from imminent collapse. It worked.
The proposed recapitalisation of the banks is intended to get the banking system operational again, so that it will start lending to enterprises, who need normal credit restored so that they can pay for wages and new stock and rent and other bills that come at them regularly. Dealing with the banks is an incremental process of at least three stages – prevent institutional collapse, reinvigorate lending capacity; reform regulatory and operational systems – as is evident from the experience of every other country with a similar banking problem.
The opportunity for our government right now is to make the banks work for the community on which they depend for their deposits. The days of them raking in low interest money from other international banking institutions and doling out to their friends, Builder Jack, Developer John and High Tail It Harry are over. That money is gone. It’s not coming back.
It is time for us to reclaim the banks. Because in reality they belong to us as citizens, not to the deluded elite that happen to run them at the moment. And we need a properly functioning banking system to get the economy up and running again.
That does not mean we need to own them; we just need to set the conditions under which they wil operate. And we’re entitled to demand that since the 7.5 bn euro they are about to get for recapitalisation is our money; money that the Government saved up on our behalf in the boom years to pay the pensions of the elderly in the future.
As for the fairness or unfairness of the proposed pensions levy on the public sector workforce, of course it is unfair. But it is necessary to plug the hole in the public finances and go some way towards achieving the broader macroeconomic effect of restoring competitiveness to the Irish economy and saving jobs; private and public sector jobs.
What needs to be sorted out about it is the inequitable impact it will have on lower paid civil and public servants as it is presently proposed.
A personal opinion here: I think the public service trade unions have lost all credibility in the past week. They have let down their members very badly. They have let down society very badly. Legislation has to be introduced to give effect to the government’s measure and the best option for lower paid ranks in the public service is to lobby individually and collectively for a fairer distribution of the impact of the pension levy. If I was a member of a public service union right now, by the way, I would also be surrendering my membership card and refusing to subsidise their existence any longer.
This is no time for special pleadings on behalf of anyone in our society. Anger is justified. ‘Them and us’ divisive attitudes are not. What we need to do now is fix the problems we can fix and stop throwing our toys out of the pram.
When Ireland was threatened with the foot and mouth fiasco a few years ago it was remarkable how people pulled together to prevent the disease coming into Ireland. Walkers stayed off the mountains and out of the parks. People observed all the travel inconveniences. There were, of course, a few greedy farmers and others who tried to exploit the situation; but, by and large, the national effort delivered a result.
We need to invoke the same spirit again. We need to believe in ourselves.
I also believe that we need to have patience. There is no ‘quick fix’ to our problems and the same applies to the world economy. It will take two to three years for the financial system to right itself and for the world economy to get back on track – that’s if we’re lucky. The alternative is too awful to contemplate and at that stage the pension levy will be the least of anyone’s problems.
As a public servant (now retired) I agree with Tomaltach. Mistrust has been created between the public and private sectors. Also increasing income tax alone will not solve the problem. Neither can the country afford to pay the salaries some public servants are getting (as is also true with the banks, the politicians and the private sector professional fees being demanded etc.).
But unfortunately the solution is not as simple as we are led to believe by IBEC and their friends that the problem will be solved by a “race to the bottom” in incomes because that would mean living in a high cost/low income economy. This is not a viable proposition.
To give an example: I know a couple, both middle-grade civil servants, who had a child recently. I was surprised to e told that the child’s mother could not afford to give up her job because they had to take out a very big mortgage and other loans to buy and repair the modest house they live in which they bought near the height of the boom. (In the bad old days of the 70′s and 80′s I could support a family on a CO’S wage.) This means that we are now in very deep trouble if this is the situation of people with good incomes.
A few years ago I saw a headline in “The Kerryman” saying that Kerry was “awash with money”. The pendulum has now swung in the opposite direction. A question I would like to ask is where has all the money gone? Who has it? Why are they not asked to contribute?
Public sector workers would accept this levy if they did not have to listen to patronizing hypocrisy about us “all being in this together” and “we must all share the pain”. If CAB had gone in with handcuffs to the crooks in the financial sector who hid and are still hiding, if double-jobbing, double pension TDs, bankers etc were not merely ‘invited’ to take a paycut but were ruthlessly axed like we were, if the crony cliques on 200K and upwards were capped, if bank bonuses were axed NOW, the same day as nurses / teachers ten per cent…THEN we would feel “we’re all in this together”. Why one in every six workers was selected for this punishment is beyond me…Although not really, when I read the page after page of hysterical anti-public sector ranting every Sunday in the Sindo (“sack these useless pen-pushers” etc) I agree we should not “divide and conquer” public and private. It is terrible that private sector workers are losing their jobs. But the threat “you’re lucky to have any job” has been used before to whip workers into line, even during the Celtic Tiger, and we should not use it to attack each other. IBEC et al will use this crisis to ram through pet agendas like “We’re paying ourselves too much” That’s you, on the minimum wage, buddy, not your boss. The Celtic Tiger created a Master and Slave class that this crisis looks like consolidating
It is now patently clear that the government knows what is going on but is unable or unwilling to provide the solution. If it wanted to solve the problem it would have:
(1) gone after the old reliables, income tax, petrol, VAT, rates on property etc. (2) It would have abandoned the inequality of percentage pay increases which have responsible for the widening gap in incomes since “partnership” was introduced. (3) It would have cut back on the white elephants in state capital expenditure on which our friends in IBEC depend for so much of their income and their reliance on maintaining the supply of mported goods. (4)It would make sure that the state was not a soft touch at taxpayers expense.
However all the government did was to go after those IBEC considered to be too well paid and outside their control. So it is now abundantly clear that the government agenda is the same as the IBEC agenda. So Therese is right. If you are an employee and do not want to be on the minimum wage you had better look to it.
Cowen described some of the anger at the cuts as “irrational”. Well anger is usually like that. I have ceded ten per cent of my (low) pay. Low paid friends in the private sector are losing jobs and even houses. Now I want payback. I need to see guys in jail. It is patiently explained to us over and over that even if the Taoiseach dropped his salary to Obama levels, even if we jailed a few Masters of the Universe, even if we took bankers’ bonuses off them and capped their obscene salaries, even if we got rid of off-shore and non-resident tax scams, we STILL would not make any serious dent in the huge deficit. You see, it would take too much time and money to go after a few crooked billionaires. What good would it do? Well, it would make ME feel better for a start, and right now I feel like calling the shots. “We are where we are” i.e. don’t look too closely at who got us into this. To hell with that (going forward). This is my Victim Impact Statement. I need my day in court.
Therese, are you sure it’s 10%. (Not suggesting that if it’s 4% that it’s nothing). But the figures I read in the papers (and the average given by P O’Neill in the original post above) had it at around 4% of take home pay. Those on higher salaries will pay a higer levy – up to around 9% I think. Those on lower salaries pay a lower levy – down to about 3% ish. But this is from gross income. And therefore some of it would have gone on tax anyway. For higher earners more of it would have gone on tax, so their say 9% is pared back significantly. Those on lower incomes have a smaller tax effect. But overall the figures hover between 4 and 5% of take home pay.
So if these figures are correct you will not lose 10% of your take home, but significantly less.
Tomaltach: Percentage wage increases always applied to gross wages. Similarly percentage wage reductions apply to gross wages. This means that public sector wages are being reduced by the stated percentages (we’ll pretend that it is a pension contribution). Take home pay can vary between individuals as we see with millionaires paying little or no tax. Therefore it is the gross income that is important. For instance it should be noted that pension contributions are only tax-deductible to a maximum of 15% of gross income (unless it has changed recently) and having worked in the pensions area I know that some people who started late etc have reached that limit with AVC’s etc prior to this levy. Perhaps it should also be noted that some public servants like Secondary teachers have a voluntary pension scheme, so it may be worth their while opting out of the scheme until the government sees the pitfalls in what they have proposed.
The goalposts have been moved by ICTU – this is now a battle to prevent wages across the economy from being lowered, which is an employers/government/conservative media conspiracy according to them.
Jack O’Connor of Siptu is reported as saying that widespread industrial action will be required to defeat this conspiracy to “drive down wages in the private sector” whilst the “wealthy (are) not contributing a single cent.” Ballots for a ‘day of action’ to campaign against the pensions’ levy are now in progress amongst public sector union members, the result of which presumably, given the genuine and justified anger amongst lower paid public servants over the unfairness of the measure as currently proposed, will be overwhelmingly in favour.
So what are the facts here?
Even before they went into talks with the government and employers last month, the trade union leadership ruled out any pay cuts in the public sector. Yet they signed up to a document that accepted that 2bn euro needed to taken out of public spending this year. It appears their preference was for this amount to be raised from increasing income taxes, especially on the higher paid – highly laudable considering the basic salary packages most of them enjoy (about ten times the annual wage of their lower paid members and that’s not including other salaries for Board memberships, expenses, perks etc. deriving from the Social Partnership quango gravy train.) The compromise offered by the Government was the pensions levy. And then the unions ran for the hills.
So has the requirement to reduce public expenditure by 2bn euro this year changed? No. Will the government change its mind on the mechanism of a pensions levy? Yes it can, but the alternative might be a 10% pay cut across the board in the public sector as was originally proposed, plus a requirement for probably as many as 30,000 jobs losses across the public sector over the next couple of years.
Are immediate increases in taxation – some economists estimate that the requirement would be for 30% as the base rate and 60% for the higher rate – an option for the government? No, not right now, if ever. Besides, everyone knows we need to widen the tax base, increase the rates and raise new forms of taxation (property and carbon taxes) in 2010 to raise an additonal 3bn euro. (Raising taxes any further now would only accelerate the increase in unemployment. Generally the hope is that the US and other stimulus packages and banking recapitalisation will show some result in the next year to eighteen months and therefore ease the situation in our own economy, so that the introduction of penal and possibly self-defeating tax increases can be avoided.)
Meanwhile, can the pensions levy proposal be ‘tweaked’ to make it more fair in its impact on lower and middle paid public servants? Yes, it can.
So it seems that what the union leaders are about is creating a means for allowing members let off steam – a bit like the 250,000 strong tax marches of the late ‘seventies, a great day out for us all marching along behind our colourful union banners on Leinster house and drifting off home again, feeling good; though nothing happened in consequence.
After the steam release, they will get down to the real business of negotiating with the government on the implementation of its unpalatable measures under the umbrella of social partnership. Won’t they?
EddieL, you are right that increases and decreases apply to gross. But in terms of providing for a family and covering household expenditure, it is take home that matters.
A 5% decrease in take home is unpleasant, but hardly a catastrophe. Certainly not for those with mortgages and who use petrol or oil. Since last year some mortage monthly repayments have decreased by a full 20%. The same applies to the price of oil. And there are predictions that other commodities this year, perhaps most, will be down at least a few percentage points. In that context a five percent drop in take home pay is certainly not a huge blow to standard of living.
But as the title of the post suggests – it’s the regressive nature which is unfair. After deducations, tax etc, surely if those on lower incomes are down 4% then those on higher incomes should be taking a bigger hit, say 10%. Or put it another way, those on the very lowest salaries could have been spared altogher and hit those on higher salaries a bit harder.
The pension levy is regressive but it is probably also illegal. Pension schemes are by their nature complex because they have to take into account at least 40 years of legally binding agreements on both sides. For this reason it is a basic principle that any change to any aspect of pension obligations on both sides have to be agreed by both sides. I cannot see therefore how the government can unilaterally legally alter previously entered legally binding obligations on their part, in this case changes to the 5% contribution without any benefit accruing and without the consent of the contributer. It is like buying something in a shop and three times the agreed cost being taken from your credit card.
So if this arrangement goes ahead you can bet your bottom dollar there will be years of litigation ahead.
As a clerical officer earning 30,000 a year with two people working in our house, we are finding it very difficult to make ends meet and we have no children. Can’t afford them. We have tried to support local but we can no longer afford to even eat groceries from here. The pension levy means we will have to cut something else from the very tightened belt. We did not reap the high wages the private sector earned in the last decade and do not have the savings that some of them should have. My non-working brother and his non-working wife have just had their 4th baby in 4 years. They can afford everything and the resession means nothing to them. They get every allowance going, cheap rent, domicilary allowance – even though they dont need to put their kids in a creche, extra money at Christmas. Will the people who didnt bother to work in the last 10 years get their money cut? Not at all. One of them said to me recently and Im quoting “this resession is the best thing that ever happened”. Made me feel great that did. I dont think the general public realise how little we actually earn and the expense accounts we don’t have. I have 490 euro a week now before the pension levy and Im up the creek without a paddle.
I despair at the thought of what will happen once this levy hits my already strained finances. As a single male trying to negotiate the cost of living in rental accommodation in Dublin and survive within the limitations of an exorbitant cost of living, I feel extremely aggrieved at further proposed cuts in my take-home pay. I can not even imagine the strain this must be placing on single-income families.
Mr. Cowen reckons that our collective standard of living will drop by 10% in the next year. I didn’t think this was possible! We have, as a nation, been constantly fed the party-line of belt-tightening and ‘civic patriotism’. I, along with many of my contemporaries, can barely afford the belt in the first place! A generation of people like me are worried about the outcome of this whole mess. No amount of feigned solidarity will cover up the inequalities in our society and the underlying motivations of privilege protection driving the current reactionary tactics of our government.
In many respects, I feel that the morality and hard-working ethos instilled in most of us by our predecessors is an inhibiting factor in our own progression. It is at times like this that I would gladly play the system for all it is worth, if I knew where to start! Transparency and accountability seem to be dirty words in the current climate and unfortunately, it will be the people who placed us in this predicament who will experience the least negative impact. If not upgrading the Range Rover this year was my only setback, I’d be a far happier man!
Anne, “Oh, I am not entitled to any social welfare payments because I am a civil servant. I guess people in the Private Sector do not know what I am entitled to at least you can get the dole.” How are you not entitled to any social welfare payments at all? If you lost your job in the morning are you telling us that you wouldn’t not ever get any social welfare payments?
The problem here is much like the situation that used to pertain in the north, the rich landed and business class worked tro ensure that the loyalist community who were working class was constantly in fear of the working class Catholics.
Social solidarity should mean that your No.1 priority is to ensure that no one loses their job that is really standing together, instead the public sector unions set out their stall that their priority was that terms and conditions should be unaffected. They preferred that there would be cuts in staff and services over pay cuts. Those staff would be those on contract that is the choice the unions preferred so why do they think they can talk about solidarity? Why are public sector worker not making any references to those who are very well paid in the public sector outside of the Taoiseach and ministers? Is it because they hope to attain those positions some day and they prefer that they be as well paid as possible? The language has to change from public vs. private to the underpaid vs. the overpaid, they exist in both the public and private sectors and they have to be dealt with by separate means.
The state can’t cut the salaries of the well paid in the private sector as it does not employ them, it can and should crawl more money back from them in the form of increased taxation.
But the state can and should cut the salaries of those on high salaries in the public sector. Sarah Carey pointed out on Q&A last week that we have 5,000 in the public sector earning over 150K per year, doing what exactly that needs paying so much?
I personally think that we shouldn’t have anyone who outside the tax net and that does include those on minimum wage. I’d have a 10% tax rate for those on up to 125% of the minimum wage. For those on the minimum wage this would mean little as the PAYE tax credit would cover it but people would be aware of paying towards the state services and some when it comes to the use of state services.
I would go for new tax bands of 25% and 45% and even 65% for those on the top as temporary measures until the books are balanced. And I would prioritise reductions on the bottom band over the others as things improve.
As for the constant refrain that public sector workers already pay for their pension, they don’t. They pay a contributions towards their pensions but their pensions are not related to the contribution they make but are in fact guaranteed to be significantly more than what their contributions have paid for. No one on the same salary in the private sector can remotely afford to pay the contributions necessary to guarantee themselves at the level as the public sector get. It is also a rip-off that increases in pay to public servants automatically results in increases in the current pension pay out to retired public servants. That is wrong and if we were really talking about solidarity those working in the public sector would tell those retirees to take a hike.
Tomeltach, please can you explain how mortgage rates have fallen by 20% in the last year. While that may be true for some mortgage holders, those of us on fixed rates are now paying at 2% over the current svr of their respective lenders. This would not normally be a problem as you would remortgage at the lower rate but because of the plummeting house prices around the country those people who bought at the height of the boom are locked into negative equity. Remortgaging is not a possibility. Some lenders (IL&P) are now refusing to allow their borrowers to transfer from the fixed rate to the svr even with the payment of a penalty. Good business sense for a bank that needs to maximise its revenue atm but disastrous for those borrowers who are taking redundancy or paycuts, be they public or private sector. Personally, I am breathing a sigh of relief this week because my wife has just been signed off from the physiotherapist. The €160 monthly cost will now go towards the weekly foodshop, once Cowan’s Levy kicks in in 3 days time. Otherwise I was looking at having to hand back the keys to the car- there is nothing else there.
A summary of what I believe to be the facts:
1.The government knows what it is doing. It has specific sums for cuts and bank bailouts (we may not be told everything).
2.It is pursuing an IBEC agenda – lower wages and greater insecurity for employees, high private debt to tie people to the system.
3. It has made no attempt to reduce employers fees, charges, subscriptions etc.
4. It has set its face against raising tax rates.
5. It pretends that this recession is going to end in a short but unspecified time even though it knows that the era of full employment is a myth because there is no need even for much of the employment we already have e.g. the bloated financial services sector.
6. It provides unconditional support, financially and otherwise, for certain influential sectors of the community except where they are forced to change their mind.
7.It is making no effort to provide jobs for our own people on the dole and instead seems to welcome immigrants where they help to force down labour costs (every shop I go into).
9. It knows that we live in a protectionist world yet it does nothing to stop the tide of replacement of Irish products (even food) with foreign products (note all the “but now, pay later” offers for imported goods).
I am sure there’s more……