ESRI warns of SSIA inflation threat in pre-Budget report

THE Government should not extend the life of Special Savings Incentive Accounts (SSIAs) beyond 2007 because it is too expensive, the Economic and Social Research Institute (ESRI) warned yesterday.

The ESRI said it was “not sensible” to continue the “expensive scheme” as there is no certainty the economy can afford to continue contributing to the accounts.

The warning follows calls for the Government to allow SSIA holders to transfer their cash into pension funds with the State still making payments.

The ESRI estimates the annual Government contribution to the 1.13 million SSIA accounts is €540 million and there may be more pressing needs for the cash in the coming years.

The cost to the country of funding the Government’s share of the accounts is more than double what was forecast by Charlie McCreevy when the scheme was launched.

The respected think-tank also says the release of €14.5 billion in the SSIAs in 2006 and 2007 will have a significant effect on the Irish economy.

Many economists fear consumers will go on a spending spree and push up inflation. Surveys of the public’s spending plans for the cash hoard show property, cars and holidays are top of their shopping lists.

Such a boost to consumer spending could spark a housing bubble.

The ESRI made the comments as it launched its pre-Budget submission. The institute yesterday forecast that Finance Minister Brian Cowen could have up to €1bn to give away in tax cuts in December.

Although the institute says a “broadly neutral” budget would be advisable, there is room for widening the tax bands - something that has been denied to workers in the past two budgets.

This would reduce the number of people paying tax at the top rate of 42%.

ESRI senior economist Danny McCoy said the economy has grown strongly this year and this was reflected in the health of the public finances.

“The public finances have shown a marked improvement in the first nine months of 2004,” he said, with tax revenues 12% ahead of last year thanks to a €1.5bn haul from the Revenue Commissioners’ investigations into tax evasion schemes.

This extra cash will allow Mr Cowen room to increase spending on vital public services by 6%-8% next year.

Mr McCoy said come Budget time, Mr Cowen will be looking at an Exchequer deficit of around €700m, but this will be much better than the €2.8bn his predecessor had expected to borrow.

He added the economy will expand again next year by 5.4%, while unemployment will fall to 4.3%.