The Government is to examine measures to deal with the economic aftermath of the Special Savings Incentive Scheme, with a new report expecting a €14 billion windfall to hit the economy when the scheme matures in 2006 and 2007.
An analysis of Special Savings Incentive Accounts (SSIAs) by Goodbody Stockbrokers has found that two-thirds of funds locked into the scheme will be released in the first four months of 2007. Some 42 per cent of accounts, or close to €6 billion, will mature just as the scheme closes in April, 2007.
Goodbody's chief economist Mr Colin Hunt, believes the economy will have a "bonanza" feel as the scheme matures. "We're never again going to see a windfall quite like it," said Mr Hunt.
The issue is already under consideration by senior Government ministers and advisers. In particular it is believed that the Government will look at ways to encourage savers to reinvest the money in pension products, at a time when the policy is to seek to get people to increase savings in this area.
Mr Hunt warned yesterday that a Government-sponsored successor to the scheme would be a mistake. He pointed out that the economic conditions that gave rise to the scheme - an Exchequer surplus and a threat of overheating - are no longer in existence.
The Government should not introduce another "aggressive" savings incentive, he added. Like many other economic commentators, however, Mr Hunt would encourage the Government to make it easier for people to roll their SSIA funds over into pension investments.
One way of doing this, Mr Hunt suggested, would be to allow people to inject their SSIA proceeds into their pension without disturbing their existing ability to make "additional voluntary contributions" (AVCs) for that year.
AVCs attract tax relief in the same way as regular pension contributions, provided the total a worker pays into their scheme in any given year does not exceed 15 per cent of their salary. Mr Hunt argued that such a policy would cost the Exchequer nothing but would be "very sensible" for its future sustainability.
He was cooler on the proposal floated by the Minister for Education, Mr Dempsey, earlier this month which would see account-holders investing their lump sum in Government bonds to fund school buildings.
The Government could compete with financial institutions for the lump sums if it chose, Mr Hunt said, adding, however, that this would only make sense if it cost less than the State would otherwise pay to borrow the funds. Thus, a scheme paying out any more than 2.5 per cent to investors would not be in the State's interest, he said.
Goodbody estimates that the average SSIA payout will be €13,673, with a minority of account holders getting as much as €20,000.
The broker is confident that at least 37 per cent of the funds, or €5 billion, will be spent as soon as possible after they mature. This will see consumption boosted by at least €1.9 billion in 2006 and by €3.5 billion in 2007, with cars, holidays and home improvements expected to be the main beneficiaries.
This will see a return to some of the negative consequences of the Celtic Tiger period such as lengthy waiting lists for new cars and problematic inflation among small contractors, Goodbody warns.
Taking account of the expected surge in consumption, Mr Hunt has raised his forecast for economic growth from 4.8 to 6.7 per cent in 2006, and from 4.7 per cent to 6.2 per cent in 2007. Growth is then expected to slow temporarily in 2008 as the effects of the scheme washes out of the economy.
A total of 1.17 million SSIAs were opened before the scheme closed in April 2002. Savers were drawn in by the Government's promise that it would top up savings by 25 per cent. Goodbody has estimated the total cost to the Exchequer at €1.5 billion. This takes account of the extra taxes that could be generated if consumption rises.
