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State Savings Schemes

Dáil Éireann Debate, Thursday - 26 November 2020

Thursday, 26 November 2020

Questions (65, 77)

Eoghan Murphy

Question:

65. Deputy Eoghan Murphy asked the Minister for Finance if there has been an increase in the purchase of State bonds or savings certificates administered issued by the National Treasury Management Agency, NTMA, or State prize bonds in the past 12 months; if so, the increase and current amounts invested in these bonds and products; and his views on the matter. [36722/20]

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Eoghan Murphy

Question:

77. Deputy Eoghan Murphy asked the Minister for Finance if he is considering a new State-backed investment scheme via a bond, certificate or savings account. [36723/20]

View answer

Oral answers (6 contributions)

I ask the Minister to update the House with regard to information on or an increase in the purchase of State bonds, savings certificates or prize bonds by citizens in recent months. My second and related question asks whether he is considering any new savings schemes. That is not a reference to a potential new special savings incentive account, SSIA, but, rather, to a new saving certificate or something in that vein.

I propose to take Questions Nos. 65 and 77 together.

The introduction of any new State-supported savings measures would normally be considered as part of the annual budgetary and finance Bill processes.

Given that precautionary saving is likely to have increased as a result of the pandemic, the need for the State to encourage further saving or introduce any State-backed investment scheme is not clearly established at this time. Regarding the existing State savings offering, the NTMA, through State savings projects, offers a wide range of tax-free savings products to the public, including prize bonds and fixed-rate savings bonds and certificates. Both short-term and long-term fixed-rate products are offered, with maturities from three to ten years.

The low level of return from normal savings vehicles is a product of the low interest rate environment generally. As such, interest rates on offer via State savings products are competitive and provide good value for their holders. The return rewards savers who hold products to maturity. Early redemption is possible, although at the loss of most, if not all, of the return. There has been an increase in the purchase of State savings products in the past 12 months. This growth in deposits is consistent across the financial services sector in Ireland. State savings balances at the end of October 2019 were €21.1 billion, while the end-October 2020 balances totalled €22.4 billion. In the intervening 12-month period, therefore, customer inflows were approximately €1.3 billion. This increase comprised changes in the deposit account of €400 million, prize bonds of €400 million and other products, including national solidarity bonds, savings certificates and savings bonds of €500 million.

These data confirm that there has been an increase in savings going into State-backed products. That is really welcome. The NTMA and I keep under review the suitability of products, which includes looking at how they are performing. The increase in savings we have seen via the products that are currently available shows their attractiveness. That attractiveness is enhanced in the context of very low interest rates across a whole variety of products.

I thank the Minister for his reply. The information he provided confirms what we are seeing throughout the country and in every lending institution. There is a dramatic increase in savings happening at this time. Earlier in the year, I read that €1 in every €3 earned was being saved, compared with a more usual savings rate of €1 in every €6 or €7. That dramatic increase is also happening in the case of State bonds.

The Minister made the apt point that if one is saving with a traditional lending institution, one is probably losing money because of the fees one is paying, the very low interest rates and inflation. The State offering is far more attractive. The reason I asked for this information is that there is a series of questions we need to ask ourselves as we look to next year and consider what will happen to these savings and all this pent-up demand. The first question is what it will mean for inflation when all this money is released into the economy. What happens if that pent-up demand in savings cannot be released into the local economy because of continuing restrictions? What might be the impact of those private savings being released into the economy at the same time as we see a massive increase in public spending? What will all of this mean for the economy in peaks and troughs and negative impacts such as inflation and everything else that comes with it?

The Deputy has raised an incredibly important point. The reason we have had a higher level of public spending in place is to coincide exactly with the huge reduction in private spending, consumption and investment which has, in turn, been mirrored by the increase in savings to which he referred. When we get into a situation where those savings begin to be released into our economy, we will then have decisions to make about what is the appropriate level of public spending that will be needed. The public spending we have had this year and our plans for public spending for next year are absolutely appropriate in the context of the collapse, and potential collapse, of private sector demand, income and employment. We probably were successful in staving off even worse outcomes in all of this by way of the level of public spending we have implemented. However, the Deputy is correct that the consequences of how those savings are used in our economy will be a huge factor in how we decide the right economic policies for our country for the years to come. I hope that decision is driven by what will be the great development of the availability of a vaccine and a corresponding improvement in public health. That would be a wonderful point to get to.

I thank the Minister for his response. There is time to plan ahead and make sure we find a balance between the increase we hope to see in private spending and the increase in public spending arising out of decisions that have been made. We want people to go out and spend money again but we need to make sure it is happening in the local economy and is supporting local businesses to get back on their feet. We do not want it to be counterproductive by leading to hyperinflation in the domestic economy, which would undo some of the gains that might have been made through public sector investments and the spending of private money.

The Tánaiste launched a very important initiative yesterday, the Look for Local campaign, which encourages consumers to be aware of the opportunities to spend with local business. The Deputy made the important point that in a open economy such as ours, it is possible that when people start spending again, the money may be spent to the benefit of businesses other than those involved in providing employment and creating income in our country. There is a flip side to that argument, which is that the same high level of savings is evident throughout the EU and in many other developed parts of the world at this time. As those savings are spent, we need to be in a place where our exports are competitively priced and accessible to avail of the demand that is likely to develop in the economies to which we export. As an exporter, we have a stake in the continued openness of economies and those economies being structured in a way that values the sale of goods and services into them. However, I take the Deputy's broad point that we need to ensure that our budgetary and credit policies are consistent with what may happen around the potential reduction in savings in the latter part of next year and beyond.

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