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News : Irish Last Updated: Feb 14, 2013 - 10:01 AM

Thursday Newspaper Review - Irish Business News and International Stories - - February 14, 2013
By Finfacts Team
Feb 14, 2013 - 9:56 AM

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The Irish Independent reports that new cuts to the pensions of former highly paid public servants like hospital consultants, judges and politicians are inevitable, a government minister has warned.

Public Expenditure and Reform Junior Minister Brian Hayes said a plan to reduce large pensions has been tabled to achieve €1bn payroll savings. He said there was an "inevitability" that those who enjoyed the biggest yearly payouts would be hardest hit.

The junior minister also indicated measures are being considered to impose a higher rate of tax on certain retired state employees.

Currently there are retirees with pensions worth a combined €100,000 but they avoid a 20pc rate of tax which applies to a single pension of that value.

Former ministers, including Charlie McCreevy, Dermot Ahern, John O'Donoghue and Mary Harney, escaped the tax because of a legal loophole. Anger about top-level pensions has mounted since it emerged that former Taoiseach Bertie Ahern, who had volunteered to give part of his €150,000 pension back to the State, did a U-turn and took it back.

When asked if he felt cuts to higher paid pensions would be part of €1bn payroll cuts over the next three years, Mr Hayes said: "I think there is an inevitability around that. All I'm saying is, it's on the table. The only way this agreement can be forged is if it is seen to be fair, and those who have most will have to give most."

He said the Government had already imposed a 20pc additional charge on "very substantial" public service pensions, but accepted there were "issues" with the measure.

"There are issues which will have to be part and parcel of an agreement in this area, so it could well include highly-paid public service pensioners in terms of additional reductions to their pensions," he added.

It is understood that the cuts could be imposed by capping top pensions, or imposing deeper cuts by amending legislation that reduced pensions.

Imposing pension cuts has an advantage for the Government in brokering a successor to the Croke Park deal as it will not be opposed by unions, who represent serving staff.

It would also send out a strong message that well-paid retirees are sharing the burden of the crisis in the state purse.

The junior minister also issued a warning to nurses, gardai and other staff who are refusing to engage in the talks or have threatened to pull out.

In what may be seen as a hint that they may face government-imposed pay cuts, he warned that they could not expect "favourable treatment" if they do not back a deal.

"I'd say to the nurses and to everyone else, to be part and parcel of these discussions," he said.

"You can achieve nothing on the fringes. You can achieve nothing on the outside. We want engagement on the inside.

"And of course no one group, be they nurses, gardai or anyone else, has the right to stand back from the process and think that they will be treated favourably just because of their negotiating tactics."

The minister's warning comes as frontline workers are gearing up to begin a campaign of lobbying TDs and senators over cuts to their premium pay and allowances this weekend.

"The Government is very ambitious for a deal here," said Mr Hayes. "You can't start picking and choosing your negotiating strategy."

He said the public sector unions who are at the table realise the talks are about the sustainability of state employees' pay and pensions in the future.


"If we get this agreement, it would put us in a very strong position in terms of what we need to do in the public sector, so I'm encouraging everyone to be part of this."

He said he agreed with Public Expenditure Minister Brendan Howlin that this would be the "last round" of cuts that public servants would be asked for. "I don't think the issue can be broached again," he said.

Mr Hayes was speaking at the launch of a guidebook 'Are tenders on your radar?' to help small and medium-sized businesses win public sector contracts at the Dublin Chamber of Commerce.

The Irish Independent also reports that Aer Lingus staff face a continued freeze on wage increments until a deal is struck to resolve a near €800m deficit at a pension scheme that serves the employees.

The airline's director of change and engagement, Sean Murphy, wrote to the Irish Congress of Trade Unions (ICTU) informing it of the continuing impasse.

The differences between unions and the airline are thought to be so great that the threat of industrial action during the spring can't be ruled out.

Aer Lingus has been engaged in a long-running effort with unions to thrash out a solution to tackling the huge deficit at the Irish Aviation Superannuation Scheme (IASS).

This scheme serves thousands of current and former employees at Aer Lingus and the Dublin Aviation Authority (DAA).

The Labour Court will now draft its own proposals to finally resolving outstanding issues.

They include so-called cost offsetting measures put forward by Aer Lingus, the pension capital requirement being sought by unions, and the fact that the airline doesn't agree with financial projections drafted by actuaries – who are members of a technical group set up to assist in finding a resolution.

The Labour Court could deliver its proposals as soon as next week. It had hoped to have the pension issue resolved by March.

But it's thought that no matter what suggestions it comes up, the unions and the airline could remain so far apart as for the pension problem to be almost intractable.

Aer Lingus has demanded fresh productivity gains in return for making any contribution to a pension scheme – a major sticking point with unions.


Under its 'Greenfield' cost-saving plan, introduced in 2009 as the airline faced enormous financial difficulties, Aer Lingus sought to cut about €100m a year from its cost base. It has exceeded that target.

The plan included pay freezes, which were to expire at the end of last December. There had been an expectation among staff that pay increments would resume in April.

But Mr Murphy told unions yesterday that Aer Lingus is seeking "cost moderation and stabilisation" for staff members affected by the pension issue.

"This is necessary to facilitate funding of the pension proposal to the required level. Our proposal seeks to do this through the moderation of pay increases rather than through pay reduction," he said.

Aer Lingus is proposing that for a four-year period, normal incremental pay increases would be replaced by an annual stabilisation payment amounting to €16m over the four years.

It has proposed two methods for calculating what staff would receive under the planned payments.

"Aer Lingus will not make any increases to pay, including increments, pending resolution of this issue," he added.

The Irish Times reports that the family of bankrupt businessman Seán Quinn will challenge the constitutionality of the new IBRC Act if the courts are found to have no power to lift the “absolute” stay in the Act halting the family’s action against the bank, their lawyers have said.

Martin Hayden SC, for the Quinns, said yesterday his side would bring “a full challenge” to the Act if it prevented the stay being lifted.

He suggested that the Attorney General should be put on notice of the possible challenge.

Mr Justice Peter Kelly will hear arguments on March 7th before deciding whether the Act, which last week liquidated Irish Bank Resolution Corporation (formerly Anglo), permits the courts to lift the “immediate stay” on “all” existing proceedings against IBRC.

Provisions disapplied 

That stay is set out in section 6 of the Act; the judge previously noted that the Act also disapplied provisions which normally allowed the courts to lift such stays.

The many existing proceedings against IBRC include the action by Patricia Quinn and her children alleging that they are not liable for €2.34 billion loans by Anglo to Quinn companies on grounds that those were made for the unlawful purpose of propping up the bank’s plummeting share price.

There is no stay on existing – or new – proceedings “by” IBRC. Issues were mentioned at the Commercial Court yesterday arising from its action alleging that various Quinn family members and others conspired to put assets in the Quinn’s international property group beyond the bank’s reach.

The full hearings of the IBRC action and the family’s action have been parked pending criminal proceedings against former Anglo chairman Seán FitzPatrick and two former bank executives, Pat Whelan and Willie McAteer.

However, pre-trial matters have continued, including the cross-examination of the five Quinn children and two of their spouses – Niall McPartland and Stephen Kelly – about whether they have fully disclosed details of their assets and involvement with Quinn property companies.

That cross-examination has concluded and the judge yesterday fixed dates for the exchange of legal submissions between the sides. He also fixed March 19th to hear oral submissions as to whether the bank is entitled to fuller disclosure.

Freezing orders 

He also agreed to vary freezing orders on the Quinns accounts to allow them to pay €6,285 fees for the transcripts of the five- day cross-examination, plus another €15,000 for stenography fees related to earlier matters.

Mr Hayden asked that the oral hearing be deferred so as to allow his side adequate time to prepare submissions for the March 7th hearing concerning the stay issue.

The hearing was “not a matter of small import” and “goes to the heart of the constitutionality of the Act”. Mr Hayden said the court would be asked to construe the Act and he would be making the case that for the Act to be constitutional, it must allow the court to lift the stay on the Quinns’ action.

The judge said if an issue arose from the March 7th hearing regarding the validity of the Act, the attorney general would have to be put on notice.

The hearing would not be deciding the issue of constitutionality, he stressed.

Adequate time 

The judge added that he believed the Quinns’ lawyers had adequate time to prepare submissions both for the March 7th and March 19th hearings and he refused to defer the latter date.

The Irish Times also reports that the failure to repossess people’s homes may be contributing to the duration of the economic crisis, a conference organised by the Central Bank heard yesterday.

A banking expert with the International Monetary Fund told the conference that those states in the US that have a record for quickly foreclosing on mortgages in arrears are recovering more quickly from the housing crisis.

Michael Moore, speaking in a personal capacity to a conference called How to Fix Distressed Property Markets, held in Dublin yesterday, said the figures supported the view that faster foreclosures contributed to the quicker resolution of housing and mortgage crises.

Another speaker, economist Anthony Murphy of the Federal Reserve Bank of Dallas, said the lack of repossession of houses in Ireland by the banks was “crazy and really strange”. A former academic with UCD, Mr Murphy said that while the level of foreclosures in the US might be too high, the level in Ireland – zero – was too low.

Mr Moore said the rules in the US force banks to recognise deteriorating loans promptly and to take them off their books. This keeps the level of non-performing loans on the banks’ books at very low levels.

It would be very unusual for the type of high levels seen in Ireland to exist in a US bank, he said. He said that one of the advantages of prompt repossession was that it removed the option of strategic default.

Household distress 

In his opening remarks to the conference, the governor of the Central Bank, Prof Patrick Honohan, said household financial distress was at unprecedented levels in Ireland. This was evidenced by the extraordinary rate of arrears on household mortgages.

He said that early on in the crisis, because of the danger that some creditors might pursue distressed debtors in an aggressive manner, a code of conduct on mortgage arrears was introduced.

He said the Central Bank was “ramping up” its engagement with the banks as they seemed to be behind the curve in addressing the arrears problem on a sustainable basis.

The Irish Examiner reports that thousands of jobs and a significant addition to the country’s wealth should come from a EU-US trade agreement, offering opportunities to Irish SMEs as well as multi-national business, according to Enterprise, Trade and Innovation Minister Richard Bruton.

The EU and the US announced they had after 18 months of talks agreed to start negotiations on what will be the world’s biggest ever free trade agreement, eliminating barriers between the two blocs that between them account for almost half the world’s trade.

But almost as soon as the announcement was made, the first cracks appeared in the discussions with the EU saying that issues like genetically modified organism s and hormone beef would not be part of the package, and the Americans saying everything was on the table.

Ireland will have a pivotal role to play in the opening stages of the talks with Mr Bruton chairing the trade council of ministers. The first job will be to set out the details of the mandate which will then be handed to the European Commission that will conduct the negotiations.

It would also be worth at least €100 million a year to Ireland in reduced tariffs on exports to the US and is a “top priority” for the Irish presidency, according to Mr Bruton.

The Government hopes that an informal EU Council meeting of trade ministers in Dublin in April will give the go ahead for talks to get formally underway.

“I do not underestimate the difficulties in either getting this underway or completed but if we are to anchor the transatlantic economic and political relationship we have to rise to the challenge,” Mr Bruton said.

It comes after US President Barack Obama used his state of the nation address on Tuesday night to announce his intention to begin talks.

The minister pointed out that 115,000 people in Ireland are directly employed in over 700 US firms while Irish companies employ about 120,000 in the US. It accounts for almost a quarter of Ireland’s exports. Reducing barriers to trade will help more SMEs export as just 13% of the EU’s SMEs export outside the EU, the minister said.

He estimated that an ambitious trade deal could lead to a 2% increase in growth and create more than 2 million jobs or an additional 1% of the EU’s total workforce. Other reports say it could boost the EU’s GDP by €86 bn a year and that of the US by €65bn.

“This will reinvigorate the transatlantic economy, adding worthwhile jobs and economic growth to struggling economies,” he said adding that it will involve the broadest spectrum of interests and stakeholders and present many challenges for both sides.

Foreign news reviews and more comprehensive coverage of Irish news is available in our Daily News Digest in the Global category on Finfacts Premium.

Check out our subscription service, Finfacts Premium , at a low annual charge of €25 - - if you are a regular user of Finfacts, 50 euro cent a week is hardly a huge ask to support the service.

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