By Andrew Bushe
DUBLIN — After a huge last-minute rush to sign up for the government’s “free money” savings deal that involves a giveaway of one euro for every four saved, the program is set to cost the Exchequer more than euro 2.5 billon over five years.
When the Special Savings Incentive Accounts closed for applications on April 30, 1,170,208 people had opened one, which means that it will drain euro 517 million from the government coffers every year.
When the program was announced last year, it was estimated it might cost about euro 127 million a year.
There had been a slow build-up of people cashing in on the program, according to new figures given by Finance Minister Charlie McCreevy in answer to a written Dail question.
There were 390,000 accounts opened up until the end of last year, but the figure shot up this year. Eventually, more than one in three adults decided the free money offer was too good to miss.
Sign up to The Irish Echo Newsletter
Many waited until the last minute to make the arrangements with the 336 qualified savings managers who offered variations of the savings deal ranging from the state post office, to credit unions and investment managers.
The program is expected to result in a huge spending spree when the accounts mature in five years time. Those putting in the maximum amount will end up with a nest egg of about euro 21,500 after tax.
When the SSIAs were announced it was designed as an anti-inflationary measure, to encourage thrift and to cool down the then booming economy.
But the popularity of the program, the international downturn and the substantial drop in tax income being experienced by the government means the SSIAs will now be a big burden on already strained public finances.
People have had since May 1, 2001 to sign up and start putting away monthly savings of a minimum of euro 12.70 and a maximum of euro 253.95 for five years.
The SSIAs have to remain “locked up” for the five years to benefit. People who take out cash early will have to pay 23 percent tax on the total value of the account, including the savings, the free government top-up, and any income or interest gains.
Those who stay in for the five years will only be taxed at 23 percent on the interest or investment income earned on the money. There will be no tax clawback on the money saved or the government’s 25 percent giveaway.