The escalating costs of servicing the Special Savings Incentive Scheme could be partly curtailed by the rigorous policing of the rules. One declaration, signed by the 1.17 million investors, undertook to subscribe to the account from their resources "without recourse to borrowings, or the deferral of repayment (whether in respect of capital or interest) of sums already borrowed".

And those in breach of the declarations are guilty of an offence and liable, on conviction, to a fine or imprisonment of up to six months, or both. That should stir investors into total compliance. But will it?

So far, according to the financial institutions contacted, no breaches have occurred. One banker, nevertheless, concedes that it can be difficult to deduce if the deposit was paid out of an authorised overdraft.

Authorised overdrafts, of course, have to be in credit for a period to maintain their status and, with an average monthly deposit of some €148, against an allowed maximum of €254, the average punter appears to be saving what he/she can afford. But as the scheme runs its five-year course (for the investor), it becomes considerably more attractive to top up to the full permissible amount in the fourth and fifth year.

The 25 per cent tax credit in the first year, in effect, represents 5 per cent per annum but in the last year it is the full 25 per cent. Clearly, it is incumbent on investors to go for the full amount in the latter years if they can afford it, but it could also result in investors breaching the required non-use of borrowings and overdraft facilities.

Some institutions say it is up to the investors to ensure they are not using borrowings to make the payments. Yes, in the first instance it is. But the Statutory Instrument, setting up the savings scheme, makes it clear that the policing of that scheme is in the hands of the financial institutions. It says where a "qualifying savings manager has reasonable grounds to suspect" that borrowings, or a deferral of repayment, are used to pay the monthly investment, he/she has to inform the Revenue Commissioners.

The timing of the payment could be crucial. If, for example, it is at the beginning of the month, after the lodgment of a person's salary, then many account holders should be OK. But what happens if that standing order is at the end of the month, before the salary comes in, and when overdraft facilities are being used? Some banks may feel the odd infringement may not trigger a report to the Revenue, whereas an obvious abuse of banking facilities would, but that is clearly a technical breach and, particularly after the DIRT fiasco, should not be tolerated. But are we going to have more Irish-style unacceptable "squeegees"? I hope not.

A spokesman for the Revenue said the use of borrowings is not allowed and that it is policed. He also said there would be audits.

So what happens if any of the conditions are not being complied with? First, all rights under the scheme are lost. Second, 23 per cent tax will be paid on the full account - the amount saved , plus the Government top-up, plus any interest or any gain on the equity accounts. Incidentally, if there are any withdrawals before the five-year period, tax is payable on the full amount withdrawn, and that should be a disincentive to abandon the scheme.

The deposit accounts accounting for the bulk of the investment (the equity accounts represent about one quarter of the total in the major banks) have been exceptionally attractive. AIB did a study to find out what rate of gross interest would have had to be paid to match the scheme's return (the tax credit and annual interest rate, currently 4 per cent on fixed rate deposit); the conclusion was a whopping 14.29 per cent!

That, and the accompanying media exultation (later turned to loud criticism of the scheme), led to massive take-up, substantially in excess of expectations.

Initial figures from the Department of Finance in 2001 estimated the cost at €127 million per annum. That Department now estimates the cost at €429 million in 2002, €517 million in each of the years 2003 to 2005, €446 million in 2006 and €89 million in 2007, bringing the total cost to €2.5 billion. And if there is a big take-up in the last two years it could be considerably more.

For the Government, it is, in effect, a six-year scheme. Accounts could be opened any time between May 1st, 2001 and April 30th, 2002, so redemptions will be between May 2006 and May 2007.

Despite the mounting pressure on the Exchequer, exacerbated by the enormous costs of the scheme, the Minister for Finance, Mr McCreevy, said "54 times over the past year" that the scheme was not going to be scrapped. Scrapping it was always a non-runner as it would make future State savings schemes very questionable indeed. It could be modified - tax the tax credit, for example - but that would be a retrograde step.

Cancellations, voluntary, or due to breaches, could reduce the costs to the Exchequer. Reductions in contributions would also help. However, so far there is little evidence of this happening. AIB has detected an infinitesimal amount of account closures - some 50 to 60 a month, by students unable to keep up with commitments.

Christmas could be a pointer to the future. However, Bank of Ireland did a mail shot of its SSIA customers who had passed the first anniversary and, so far, some 20 per cent agreed to increase their monthly amounts. Isn't that an ominous pointer for the Exchequer?

So is there no silver lining? Yes, the scheme was designed to increase savings. At this stage it is difficult to quantify but banks, in general, say they detected a number of new savers. Also, it has a finite life. It is five years for the punter, but contrary to many commentators, it has a six-year cycle for the Exchequer. Some of the equity-based ones will undoubtedly go onto another basis, but the many billions from the deposit accounts will swirl into the system seeking new homes.

A new awakening? Some are destined for designed targets, for example, education for children, but undoubtedly, the financial institutions which have made a bonanza from operating this scheme, will be queuing up, to coax investors into other schemes.