I welcome the Minister of State, Deputy Noel Ahern, to the House. It is my first opportunity to do so and to formally congratulate him on his recent appointment as Minister of State. I have worked with Deputy Ahern in the past and I wish him well in his difficult job as Minister of State with responsibility for housing over the next four to five years.
Last week and this week we heard the latest round of bad news concerning the economy. At 3 o'clock today when the Estimates are published I suppose we will hear even more bad news. Yet another month has gone by when Government predictions on tax receipts have gone spectacularly wrong. While this situation has to be addressed in the upcoming budget, the problems that exist in the Irish economy are more long term. Corrective action has to be taken by the Minister for Finance to get spending under control and to boost tax yields from various sources.
I would like to give some advice to the Minister this afternoon as to how he can defuse the financial time bomb that is expected in five years when the Government must meet in full the financial liability that is the special savings scheme.
The scheme was first thought up in 2001 when particular inflationary difficulties took hold within the economy. In effect, too much cash was chasing too few goods and services. Clearly people were not saving additional disposable income that was available to them and the Government rightly deduced that by taking money out of the economy through savings, a number of issues could be addressed. The idea behind this scheme was a clever one. However, the over-generous nature of the scheme, devised at a time when the economy was in overdrive, could potentially provide the conditions of near bankruptcy for our economy in 2007.
To say that the Minister for Finance grossly underestimated the uptake and cost of the scheme is not an exaggeration. The Government is now legally obliged to give €1 per €4 saved, up to a maximum personal contribution of €254 per month. For every person maximising his or her contribution, it is a cost to the Exchequer of €64 per month or €762 in a full year. The more you save, the more you gain. For hundreds of thousands of account holders this scheme is literally a licence to print money.
The Minister should consider the following proposal. He should permit savings account holders to leave the scheme without the imposition of a 23% tax penalty. This penalty was established at the start of the scheme to ensure that account holders would not break their monthly savings over the five year period. If the Minister changes the rules as I propose, it will save the Government millions of euro in the long term while also giving some people a way out when the economy has changed and their personal circumstances may also have changed.
By allowing savers to get out of the scheme for a six month period, say, from January to June 2003, account holders would have access to the funds that have accumulated to date. It would equally have the effect of freeing up the cost of savings to the State that could then be ring-fenced for important infrastructural needs or national priorities such as the health service or education.
One of the dangers of the scheme has been to defer inflationary pressures for five years, as the scheme will only mature in 2007. This opt-out provision may release these pressures incrementally before that time as against the big bang effect that may occur in 2007 when literally billions of euro available for expenditure will come into the economy.
I am not suggesting for a moment there would be a mass exodus from the scheme if an opt-out clause was provided at his stage, but it must surely make economic sense to do everything in our power to reduce the total liability to which the State will be exposed in 2007. I am suggesting that some people may decide to take their money and run and that this would be in the interests of all concerned. Even a 10% reduction in the overall cost of the scheme, by implementing this proposal, would free up tens of millions for more worthwhile projects between now and 2007.
It is not too late to change the rules of the scheme. Giving people a chance to get out of the scheme provides the State and the individual account holder with a policy option that is to everyone's advantage. The longer the scheme continues in its present form the more expensive the final bill will be. Now is the time to consider a change of direction.
