The Government has been warned that there is no economic justification for introducing a successor to the Special Savings Incentive Account (SSIA) scheme when 1.13 million accounts mature in 2006 and 2007, writes Una McCaffrey.
The Economic and Social Research Institute (ESRI) says the Government should hold back from introducing a follow-up to the SSIA scheme even if the objective is to raise pensions coverage.
"The Government should not be using such a blunt instrument to target 1.13 million people," said ESRI senior economist Mr Danny McCoy.
The institute, which has never been in favour of SSIAs, makes its comments in its Quarterly Economic Comment, published today.
The commentary provides an upbeat assessment of the economy's prospects. The ESRI has raised its forecasts for growth in gross national product (GNP) for this year from 4.3 to 4.8 per cent on the basis of more favourable international conditions and continued strength in the domestic economy.
This level of expansion, which brings the economy back to its potential growth level, can be maintained into 2005 if risks such as an oil shock can be avoided, according to the analysis.
The institute also expresses some concern over the high contribution housebuilding makes to the economy. It points out that the construction of 80,000 houses this year will account for one-fifth of economic growth.
A decline in this level of activity, which the ESRI says is almost certain, would therefore eat into growth in the future. The institute points out, however, that other forms of investment, such as infrastructural spending, would probably step up to fill the shortfall.
He also acknowledged that the scale of the SSIA scheme - which will release some €14.5 billion into the economy when it expires - could have a "significant" economic impact over coming years.
The extent of this impact can only be established through more surveys on what account-holders intend to do with their "wall of money", he said.
Any Government response to the scheme would have to come on the basis of such detailed information, according to the ESRI.
The institute sees the general economic strength feeding through into the public finances, which are expected to remain robust into next year.
The institute is expecting an Exchequer borrowing requirement of €705 million this year, with this rising to €1.09 billion in 2005. On Budget Day last December, the Department of Finance was predicting an Exchequer deficit of €2.8 billion.
There is ample space, according to the ESRI, for the new Minister for Finance to lighten the load on taxpayers in the forthcoming Budget. It urged the Government to limit growth in public spending to between 6 and 8 per cent next year. Mr McCoy was strongly critical of the Government's decision earlier this month to drop carbon tax as a means of raising revenue to meet environmental needs.