The Government-sponsored Special Savings Incentive Scheme will drain more than €500 million from the public finances during each year of its operation, it has emerged, writes Una McCaffrey.
The Minister for Finance, Mr McCreevy, told the Dáil that the scheme's projected cost would be €429 million this year and €517 million for a full year. This would leave the scheme consuming more than €2.5 billion from income-tax receipts over its lifetime.
This cost is significantly higher than the €300 million annual charge estimated by Mr McCreevy just before the scheme closed at the end of April and is far removed from a tentative annual costing of €127 million made by his Department before the savings incentive was announced in 2001.
Mr McCreevy's estimates are based on all investors remaining in the scheme until its conclusion and do not allow for a variation in the amount invested every month. If a significant number of investors decide to raise the amount they invest on a monthly basis at any point, the annual cost to the Exchequer could easily rise above the €517 million mark.
A total of 1,170,208 accounts had been opened by the time the scheme closed at the end of April.
The Labour Party's finance spokesman, Mr Brendan Howlin, described the latest rise in the projected cost of the scheme as a "damning reflection on the Minister's competence", suggesting that it raised "serious questions as to whether Mr McCreevy misled the Dáil on the issue of how much the scheme would cost". Mr Howlin called on the Minister to publish immediately the basis of his original €127 million estimate.
In a year when income-tax receipts have already slumped by 15 per cent and the Exchequer is committed to contributing 1 per cent of Gross National Product - probably close to €1 billion - to the National Pension Reserve Fund, yesterday's revelation was greeted coolly by economists.
"They should have scrapped that thing when they had a chance," said Mr Alan McQuaid, economist at Bloxham Stockbrokers, of the savings scheme. "At the time, it was seen as an anti-inflationary measure, but the economy slowed down by itself."
Mr McQuaid said that the Government was now faced with two options if it wanted to pull the public finances back to a healthy state: raise taxes or reduce contributions to the Pension Reserve Fund.
Dr Dan McLaughlin, chief economist at Bank of Ireland Treasury, also questioned the Exchequer's ability to support two such significant drags on finances at once. "If the economy grows at a sub-trend level for a number of years, it'll be a much bigger draw," he said.
Mr McCreevy's statement came in response to a Dáil question. It revealed that Exchequer contributions to the scheme have been growing steadily since an initial payment of €2 million in May 2001. By April 2002, the monthly figure had risen to €43.1 million.