Savings scheme set for review

THE Government has conceded for the first time that the special savings scheme could be reviewed in the face of stormy economic conditions.

Transport Minister Seamus Brennan said yesterday the five-year initiative, which will cost the State around 2.4 billion euro, could be reviewed if necessary. Finance Minister Charlie McCreevy has repeatedly ruled out any suggestion that the scheme that 1.27 million people have signed up could be stalled.

Mr Brennan said: “It can be reviewed as we go forward ... but a scheme with over a million savers isn’t one that you would tamper with lightly.”

His comments follow the publication of a secret government memo which outlines planned spending cuts of up to 900m next year.

Some Opposition parties have claimed that the Government cannot afford to maintain the five-year scheme as the Government faces into borrowing of around 3bn euro next year.

Labour leader Ruairí Quinn said yesterday the scheme was benefiting the well-off and was costing far more than was originally intended.

Political observers are agreed that it would be politically disastrous if the Government pulled the plug on a scheme which is benefiting over one million people.

But some economists have argued that there is no need for the Special Savings Investment Accounts (SSIA) which was originally introduced to help prevent the economy from overheating.

Dan McGloughlin said the need for people to save was much less of an imperative as inflation remained at 4.5% rather than the 6.5%-7% mark at the time when the scheme was established.

Pulling the plug on the scheme could also pose major legal problems as depositors effectively have contracts with the banks or financial institutions managing their investments.

Cutting the scheme short would also mean that equity-based SSIA holders, some of whom have lost money , would need to have their investments topped-up by the Government.

Already the Government has forked out around 900m under the scheme.

Under the initiative, the Government is committed to give depositors and investors 1 for every 4 they put into the special savings accounts.

Mr McCreevy was warned against establishing the savings scheme in November 2000 by his Department.

A memo said: “The provision of tax relief for capital investment in medium-term savings schemes is not recommended.” However, Minister McCreevy chose to press ahead in the face of pressure from Brussels to deal with Ireland’s overheating economy.