Government urged to extend SSIAs

THE Government should consider a successor to the Special Savings Incentive Account (SSIA) scheme, a conference will be told today.

Professor Philip Lane of Trinity College says Minister for Finance Charlie McCreevy should consider making a provision to extend the life of the SSIAs in the forthcoming budget.

In an address to Economic Social Research Institute’s (ESRI) Budget Perspectives conference, Prof Lane said the success of SSIAs, which saw 1.14 million accounts opened, can be repeated and a similar scheme should be put in place when the current scheme ends in 2006.

He says that instead of the money saved in SSIAs being withdrawn when the scheme ends, it should be put into pension funds or the Government-promoted Personal Retirement Savings Accounts (PRSAs). But he warns that the level of Government contribution, currently 25%, should be significantly reduced in any successor.

Prof Lane argues in the ESRI budget publication that the Government should continue to invest in the National Pension Reserve Fund and that none of the cash in the fund should be used for infrastructure projects.

He said calls by some commentators to suspend payments to the fund and divert the cash to public projects, such as roads, would be unwise and risks politicising the fund.

He will also say that many tax relief schemes should be eliminated in the December budget and he urges the taxation of child benefit payments, the introduction of a carbon tax and the re-introduction of property-based taxes.

Prof Lane added that the tax cuts of recent years may have to be rescinded, as the receipts from the present tax rates are “below a sustainable medium-term level”.

The ESRI says the 2004 budget is being constructed around a weak economic picture, with public finances strained by weak tax revenues. It says Government spending must be curtailed to bring the State coffers in line with the economic situation.

However, while a rising euro is hitting the competitiveness of Irish firms and the State finances are under pressure, the outlook for the economy is improving and growth next year could reach 3%.

The ESRI urges the minister for finance to deliver a “prudent” and neutral budget to position the “economy to take full advantage of any pick-up in the international economic climate”.

The ESRI will also question the use of tax cuts to spur employment growth. It says research has proven that, between 1987 and 2001, when the standard rate of income tax was reduced by 15%, the rise in the labour force was no more than 2-3% and the principle reason was investment in education and demographic changes.