THE Government is formulating plans to encourage savers to dip into their reserves and help the country spend its way to recovery.
As part of its plans to shape the December budget the Cabinet met for a full day session at Farmleigh yesterday to discuss the source of €3 billion in spending cuts.
But a prominent theme in the discussions was the need for measures to encourage people to stop hoarding cash and start putting money into the economy. No specific proposals have been circulated. However, the notion of schemes to stimulate spending has been agreed.
Taoiseach Brian Cowen said a variety of options would be considered to encourage consumers to return to the shops.
“I think it is important to point out that domestic consumer spending is an important part of generating growth in the economy.
“I think people increasingly are recognising that the confidence building we are bringing forward... is a crucial part of the recovery of the economy, so obviously we will... in preparations for budgets and preparing for the autumn term be looking at various initiatives in that area,” he said
The Department of Finance said the information guiding this philosophy was the economy’s savings ratio, which has shown people with money are preferring to hold on to it rather than spend it. This ratio is expected to double by 2012, relative to pre-recession habits.
Justice Minister Dermot Ahern said this was a resource which needed to be tapped. “What we really need to do is try and get those people who are saving their money to spend their money in the economy.”
Previously, the Government had pointed to its capital spending programme as its preferred choice stimulus package. However, this will be cut by €1bn next year to contribute to the overall target of €3bn in savings.
Last year, Finance Minister Brian Lenihan introduced a car scrappage scheme, which has boosted sales. It has not been proved whether this was spending brought forward from future years or if it stimulated unintended purchases.
Ministers will meet again on Monday for their last gathering before the August break. In September they will begin focused department-to-department meetings to hone the proposed budgetary measures.
The Government would not be drawn on the type of cuts discussed or potential new taxes or levies, but said all areas of spending were on the agenda and the Cabinet was eager to get the private sector active as a means to create jobs. “We must find a way of trying to loosen the purse strings and get out and start spending money,” said a spokesman.
Fine Gael finance spokesman Michael Noonan said the Government needed to be more imaginative and look at ways to restructure the public sector to deliver the most savings.
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