SAVINGS SCHEME: The Exchequer faces a rise of up to 40 per cent in funding the Special Saving Incentive Account scheme unless the Minister for Finance amends its terms in the Budget. If everyone increased their current savings to the €254 per month limit - admittedly a highly unlikely scenario - it would cost the Government €892 million per annum.
Mr McCreevy reaffirmed yesterday that the scheme, which has attracted savings from almost 1.2 million people, would not be axed in an effort to balance the Exchequer books following the clampdown on spending in the Estimates. However, he left open the possibility that the rules might be adjusted to limit the State's exposure.
The Minister is coming under growing pressure to cap his exposure under the scheme which will cost the Government almost €460 million in the current year, rising to €525 million in 2003.
The Government estimate makes no provision for savers increasing the amount put aside each month. At the moment, the average monthly contribution to SSIAs is €151, a figure which has the potential to rise to €254.
AIB economist Mr John Beggs says there appear to be three options open to Mr McCreevy. He could:
• put a cap on the amount of money payable into the scheme, preventing savers from increasing their monthly contributions;
• reduce the level of savings on which the Government would pay the 25 per cent bonus. People could continue to save what they want but the Government would only pay the bonus on amounts up to a certain limit;
• cut the level of bonus from the current €1 for every €4 invested;
• ease the rules for people to leave the scheme, thereby lowering the State's exposure.
Legal sources say any of these might have legal implications that would have to be weighed carefully.
The institutions, too, would have to examine what any changes would mean for the contracts into which they have entered with customers - particularly those with fixed rate or equity accounts.
Mr Beggs said the total exposure of the Minister far exceeded the bonus payments. "This scheme is taking money out of the economy, money that consumers might otherwise spend, bringing in indirect taxes."
He said the total loss to the Exchequer was closer to €1 billion per annum.
