Ireland's New Savings Product: Key Questions Remain Before October Budget
Ireland's Minister for Finance, Simon Harris, is introducing a new household savings product in October's budget. Key details like annual limits, tax incentives, and investment scope remain undecided. The scheme aims to channel savings into the economy, but concerns exist about attracting new money versus reallocating existing investments and the breadth of investment choices.
Ireland's Minister for Finance, Simon Harris, plans to introduce a new savings product for Irish households in October's budget. This initiative has generated significant speculation and debate, with key details still unconfirmed after a consultation period.
Unanswered questions include the annual savings limit, which banks and the Central Bank may lobby to keep prudent to avoid financial instability from large deposit outflows. The UK's ISA accounts have a £20,000 (over €23,000) annual limit. The tax incentive is also unclear; while UK and Canadian schemes offer exemptions from capital gains and income tax, Harris previously hinted at a Swedish-type arrangement with an annual charge. Economists like TCD's Barra Roantree warn that such a scheme might primarily attract existing investments rather than new money, potentially boosting the exchequer once-off as investors incur capital gains selling old holdings.
Investment options are another point of contention. While the plan aligns with an EU drive to channel savings into European businesses, the Banking and Payments Federation Ireland (BPFI) advocates for a broad choice of international investments, arguing that mandated allocations to EU or Irish assets would add complexity, limit choice, and potentially increase risk or lower returns. Investors generally need to commit funds for at least seven years for optimal returns, and charges must be reasonable.
Estimates for scheme uptake vary. The €170 billion national savings pot includes SME and charity funds, not just households. CSO figures show average household savings are below €9,000. The BPFI suggests €20-€30 billion of household savings are «addressable» in year one, with €2-€7 billion potentially invested. This could grow to €50-€115 billion over a decade. The scheme will likely apply to collective investments like ETFs, potentially exempting them from Ireland's eight-year «deemed disposal» rule for capital gains tax. Investors are expected to have easy access to funds and not face complex tax returns, as providers would handle tax issues. Banks are unlikely to lose out, as major banks own stockbroking firms that could manage these investments.