Savings bonanza - SSIA scheme a feather in McCreevy cap

FEW initiatives taken by a Finance Minister have impacted so dramatically on the fortunes of Irish people than the Government-backed Special Savings Incentive Accounts (SSIA) scheme introduced by Charlie McCreevy.

Much criticised by economists at the time, it has proved remarkably successful.

Ultimately expected to cost the State €2.65 billion, the scheme pays €1 for every €4 saved.

Not surprisingly, base politics underlay the altruistic attempt to imbue a culture of saving in a population with one of the worst records in the European league.

By coincidence, the savings will mature just in time for the next general election.

Given its vote-buying tendencies, we can be sure the Government will not be backward in claiming credit for putting so much money in punters’ pockets.

Ironically, the scheme has worked so well it is likely to cause an economic headache for the next Government. According to yesterday’s aptly named “roll out the barrel” report from Goodbody stockbrokers, it will inject a whopping €14 billion into the economy overnight.

This avalanche of money will have a major impact when it flows into the economy, boosting economic growth by 2%, with all the inflationary implications that implies.

An intriguing question being posed is what will people who have never had the saving habit do with their newfound riches?

The upbeat forecast is that families and individuals who never saved a penny in their lives, mainly because they never had enough to save, will reap an average windfall of just over €13,600.

With ready cash in their pockets for the first time, they will undoubtedly go on a spending spree, splashing out on cars, home improvements, holidays in the sun and on luxury consumer goods.

According to economists, the economy will take on a boom-like feel from the summer of 2006 onwards. In April 2007 alone, a staggering 42% of accounts, running to over €6 billion, will suddenly be injected into the economy.

Predictably, the main inflationary impact will be felt in the construction industry, with small builders having a bonanza doing up the homes of savers. But the money will also help first-time house-buyers get a welcome footing on the property ladder.

Naturally, there is always a risk a few people will blow their savings on the party of a lifetime. That is where local credit unions and community organisations should be prepared to play an important role by encouraging people to keep up the saving habit. With this in mind, there is an obvious need to devise attractive and imaginative follow-up measures, such as a pension scheme, aimed at keeping punters in the saving groove.

Thanks to Mr McCreevy, the ratio of savings in the economy has improved dramatically. Given his penchant for gambling, the scheme is a sure-fire winner and will be seen as a feather in his cap when he joins his fellow commissioners in the EU power game.

The fact that 45% of SSIA accounts are held by investors on low incomes - people who earn less than €20,000 a year - is in itself a major achievement.

As a measure of its success, one economist who initially opposed the scheme was asked yesterday if he had invested and he replied: “I might have opposed it philosophically - but I’m not stupid.”

Nor, it seems are the 1,500,000 other Irish people who are investing in the Government’s SSIA giveaway.