Central Bank governor: ‘Bring back SSIAs to cool growth’

Under the old scheme, the government gave an incentive of €1 in taxpayers’ cash for every €4 that savers paid into their SSIA each month.

With enrolment starting in 2001 and ending in April 2002, the SSIAs started paying out on the €16bn of accumulated savings when their five-year lock-up periods started to end at the height of the boom in 2006 and 2007.

Mr Lane said any new SSIA scheme should be considered by the Government only if the economy were to continue to grow rapidly.

It would pull in savings and temper consumption, only paying out during an economic downturn.

Mr Lane said it could be designed to ensure savings built up during the good times would be released to help households in a recession.

The previous SSIA scheme was widely criticised for the costs borne by all taxpayers to subsidise the savings of those who could afford them.

Bolstered by government incentives, it unleashed €16bn in accumulated savings into the economy, only to fuel already rampant boom-time spending — the opposite of the purpose of such schemes introduced in other countries.

The SSIA scheme was devised at a time when consumer prices were surging by over 5.5% a year.

After the five-year lock up, many account holders could start to tap their huge savings without losing their huge government incentives from 2006, ahead of the election year of 2007. That gave rise to suspicions about one of the political purposes behind the scheme.

However, the scheme was hugely successful. About 1.1m savers — or 40% of the adult population — with the help of government incentives, saved €16bn, accounting for about a tenth of GDP at the time.

Many savers set aside money every month for five years, meaning the government topped up their savings by over €63 every month.

The monthly payments, the government incentive, and the interest earned, could only be tapped when the accounts matured after the five-year terms.

At the time, Goodbody Stockbrokers estimated that the average SSIA payout was over €13,670. A minority of account holders got as much as €20,000. And over 40% of accounts, or close to €6bn, matured just as the scheme closed in 2007.

Goodbody said the “bonanza” boosted consumption by at least €1.9bn in 2006 and by €3.5bn in 2007, with cars, holidays, and home improvements expected to be the main beneficiaries.

Surveys of consumers at the time showed savers spent at least some of their savings on luxury items such as handbags and cars. For others, it helped them secure mortgage loans just as the property market was set to crash.

Economist Jim Power said any new scheme could work but was not without its dangers. He said the Government could make a start in encouraging savers by eliminating the Dirt rate.

Brian Keegan, director of public policy and taxation at Chartered Accountants Ireland, said the old SSIA scheme “was spectacularly successful” but came as the Government gained from a change in the timing when companies paid their corporate tax bills.

“While it is very difficult to persuade people to save given the low-interest rates, it is not immediately apparent where the additional tax revenues would come from to support any new scheme,” said Mr Keegan.

Mr Lane said it was part of his job as a regulator to suggest to the Government and Oireachtas possible policy options to safeguard the economy against a wide range of risks that could hit Ireland in future years.