PUBLIC SECTOR workers will, in effect, get tax relief on their pension levy contributions. As a result, the impact of the levy on middle- and higher-income public servants will be considerably lighter than initially indicated.
The average public sector worker, earning €50,000 a year, will see a 4 per cent cut in their take-home pay, despite paying 7.5 per cent in the pension levy. Speaking in the Dáil yesterday, Minister for Finance Brian Lenihan said: “Public servants paying the new pension contribution will be treated for tax purposes in the same way as those making pension contributions in the private sector.
“Contributions will be deducted from gross pay by employers before income tax, PRSI and health levies are calculated and, as such, pension contributions will be effectively relieved of tax at the marginal rate.”
Mr Cowen announced the levy on Tuesday as part of a package of measures designed to cut €2 billion from Government spending this year after talks with the social partners broke down over the refusal by the Irish Congress of Trade Unions to accept the proposed levy.
He said the pension levy was projected to cut Government spending by €1.4 billion in a full year. However, the money lost in income tax and other deductions will significantly offset this. While no precise figure is available, Government sources said the exchequer was likely to benefit by about €900 million in a full year. This year, the figure is likely to be closer to €750 million, as the levy is not due to take effect until March 1st.
A spokesman for the Department of Finance said the Government had taken into account the loss in tax income when it presented its EU Growth and Stability Pact update to the European Commission last month. The Government, in that submission, had budgeted not only for lower income tax receipts from public sector workers but had also allowed for the impact on consumer spending of the lower take-home pay for those workers, the spokesman said.
Mr Lenihan said in the Dáil yesterday senior public servants who had voluntarily offered to cut their salary could now revert to their previous pay and make their contribution instead through the pension levy.
“We believe that those in positions of leadership in all parts of this country should and must lead by example. The remuneration of politically appointed advisers to the Government will also be adjusted in line with the pension contribution,” said Mr Lenihan. He added that Ministers would continue to observe the 10 per cent cut in salaries as well as paying the levy at a rate of over 9 per cent.
“We are simply asking public servants to make the same adjustment that is taking place across the economy,” he said.
