ESRI's budget issues: The popularity of the Government's Special Savings Incentive Accounts (SSIA) has restricted budgetary options on public spending and tax, Trinity economist Prof Philip Lane will tell a pre-Budget conference in Dublin today.
The Government paid €460 million to 1.4 million savers under the scheme in 2002, and the figure is liable to climb between now and 2007 when the scheme concludes.
"The scheme is now a significant element in the overall budgetary picture," Prof Lane will tell the Budget Perspectives 2004 conference hosted by the Economic and Social Research Institute (ESRI).
However, he will urge the Government to provide incentives for savers to transfer their SSIA funds into longer-term savings, such as Personal Retirement Savings Accounts (PRSAs), on maturity to avoid a flood of cash into the economy, which would fuel consumer spending.
He will also propose a follow-on scheme, albeit with a lower Government contribution, possibly targeted at groups with a poorer record on savings, such as those on low incomes.
Prof Lane is addressing the medium-term fiscal strategy requirements facing the State and the Minister for Finance, Mr McCreevy.
"It is no exaggeration to say that Irish fiscal management is entering a crucial phase, in that hard choices have to be made if efficient public services are to be delivered while maintaining fiscal sustainability," he says.
He will tell delegates that, while the State has an acknowledged infrastructure deficit, it needs to assess the costs involved in addressing it. He blames the rapid acceleration of investment spending in infrastructure for creating bottlenecks and driving up both costs and margins.
He will also question whether legal, planning and project management systems are designed to deliver "cost-efficient public investment".
He concedes that tackling property rights might require a Constitutional amendment, but suggests a study to evaluate the full costs incurred "through compensation payments and delays generated by planning appeals and other legal objections to public works projects".
He also favours greater reliance on user fees, such as bin and water charges, though he acknowledges they need to be carefully designed so as not to be "socially regressive".
He will also advocate the broadening of the tax base, with the taxation of child benefit, property taxes, a carbon tax and the elimination of many tax-relief schemes.
Prof Lane takes issue with the ESRI's Medium-Term Review on suspending payments to the National Pension Reserve Fund (NPRF). He will argue strongly in favour of retaining the current system of payments, saying that the budgetary implications of an ageing population for pensions and healthcare "prudentially require some degree of pre-funding".
While there may be circumstances that would require reducing payments to the NPRF, he says "there is little reason to believe that the current fiscal situation would qualify as 'bad times'".
