The purchasing power of people’s savings is declining, and the Government has made the situation “worse” by taxing bank interest, a Fianna Fáil TD has claimed.
In a social media video posted this week, Limerick City TD Willie O’Dea said that Irish people are currently “losing money every year” on their deposits.
The Fianna Fáil representative said that with low bank interest rates, inflation is easily outpacing the returns savers are getting on their money.
Opening his video, O’Dea outlined the scale of the deposits held by Irish people and the poor returns they are receiving.
“Irish people are reputed to have about €170 billion in savings accounts throughout the country,” O’Dea said.
“They’re getting a very, very low rate of interest from the banks on this. It means that, you know, if inflation is higher than the interest rate they’re getting from the banks, which it is, it means that they’re actually losing money every year. Their purchasing power is diminishing every year.”
He went on to say that the State’s taxation policies were only adding to the financial burden on citizens.
“The government have made that worse by charging them tax on the interest,” he continued.
“33% if you’re in the lower rate of tax. 40% if you’re in the higher rate of tax.”
The TD then turned his attention to a new investment scheme set to be announced in the upcoming budget by Finance Minister Simon Harris, which aims to give people a better return on their savings.
“Now the Minister for Finance has come up with a new scheme, which he’ll be announcing in the budget, to first of all get this money out from deposit accounts and into supporting the Irish economy,” he said.
“And secondly, to give the people who own that money a better return on their savings. Now I can see a number of difficulties with the scheme if it goes ahead as proposed.”
O’Dea argued that the proposal would not benefit ordinary workers.
“Firstly, it will disproportionately favour people who are better off,” he remarked.
“They will be the people who have the money to deposit. The squeezed middle, whom it’s supposed to help – they don’t have very much spare capacity. They are literally living from week to week. So they will have little or no money to deposit. So the wealthier you are, the more you stand to gain.”
He also cast doubt on whether the public would actually want to engage with the new accounts due to the lack of capital protection.
“Secondly, and probably even more importantly, will the proposed scheme get the desired result?” he questioned.
“In other words, will people switch from depositing in the banks to depositing in these new investment accounts? I would contend that, from what I hear at the moment, they probably won’t, because there is a risk attached to them. It seems to me that there isn’t much emphasis, or very little emphasis, on de-risking these accounts.”
The Limerick TD noted that people currently accept low value yields in exchange for security.
“People leave their money in the banks even though they’re losing value,” he said.
“Because at least they regard the basic capital has been safe when it’s in the bank. If there’s any element of risk in these proposed investments, it won’t encourage people to withdraw their money from the banks.”
He further warned that the structure of the scheme could fail to stimulate domestic economic growth as intended.
“And insofar as the people who do withdraw their money from the banks, you know, the way the thing has been structured at the moment, as I understand it, is that the result will be that money which is lying presently unused in Irish banks, doing nothing for the benefit of the economy, will simply become money lying in foreign banks, that will still be doing nothing for the Irish economy,” he said.
Comparing the new proposal to past initiatives, O’Dea said that guaranteed returns were a necessary component to encourage investment.
“This scheme is radically different to the scheme introduced by Charlie McCreevy years ago – you know, where people were guaranteed their capital back and actually guaranteed a return,” he stated.
“They seem to favour the rich. But more importantly, as I say, they introduce an element of risk.”
He added that a lack of familiarity with brokers and investment avenues is not the main reason people keep money in the bank.
“And the reason why Irish people leave their money in the banks. – it’s not sometimes they just don’t know how to go about investing it otherwise,” he said.
“They’re not used to brokers and etcetera, etcetera. But the principal reason they leave it there is because they don’t want it to be at risk. And if you bring in any scheme where there’s an element of risk involved, I am not convinced that people are going to avail of that.”
He noted that clarity on economic benefits was also required if the programme was going to be rolled out.
“And secondly, even for those who do avail of it, the government have to explain how the money is going to go in a direction which will benefit the Irish economy moving forward,” he remarked.
The new Irish plan comes amid a broader initiative by the European Commission to encourage EU member states to pursue tax incentives that encourage members of the public to invest their money.
The proposed initiative is set to be announced later this year, with the Government looking at Sweden and the UK models for their inspiration.