Chapter 1: What is the main topic discussed in this episode?
The Clare Byrne Show on Newstalk. With Aviva Insurance.
Well, much has been made of Tawnish to Simon Harris's plans for a new savings scheme. But how do we make sure that everyone can avail of it and everybody reaps the benefits? Well, I'm joined by Dan O'Brien now, Chief Economist at the Institute of International and European Affairs. Dan, thank you for being with us.
I understand you've just stepped off the stage at an event where your organisation was launching your response to all of this. So is it fair to say that you welcome the concept firstly?
Oh, absolutely, Claire.
Chapter 2: What is the new savings scheme proposed by Simon Harris?
And thanks for having me on. Look, just to put this in context, Claire, 2021 to 2023, we had the first serious bout of inflation in 40 years. The cost of living went up by 25% in less than two years. Now, because we have 170 billion sitting in bank accounts, earning little or no interest, what happened? We had a quarter of all of that money effectively being incinerated.
That is tens of billions of people's savings went up in smoke. That is the biggest episode of wealth destruction we've seen in this country since the property crash. And it's probably the second biggest episode of wealth destruction we've ever seen in the history of this country.
So it's really important that people have options other than sticking their money in savings deposits so that they can protect their money and see it grow.
But who... Who owns this money? Because the central bank figures show us that 60% of bank deposits are held by the wealthiest 20%. Not everybody, and a lot of people listening to this programme, have the capacity to save.
Well, that's true, but an awful lot of people do. And more people would probably save if they thought their money wasn't at risk of being eroded by inflation. So if you had a simple, straightforward product that every man and woman on the street can understand, people will be more likely to say for the future,
And that is good for people because not only does it allow them to build up their wealth, but it also gives people more of a cushion for those periods in life when, you know, you have difficulties and you need to fall back into rainy days.
If you exempt returns and profits made on these investments from capital gains tax, Dan, that is at a cost to the taxpayers and that is money that is not going into the pot.
Well, we're certainly not advocating that there will be no tax at all. But, you know, I think there's a strong case to say that for those smaller savings. that you would give some tax incentive to the smaller people.
Obviously, you wouldn't make it open-ended because that means people would move, people with loads of money would move their money out of whatever their investments now where they pay capital gains into these. That's not the purpose of this.
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Chapter 3: How can individuals protect their savings from inflation?
But as we know, stock markets go up and down. you could find that six months after you invested, stock market's gone down and you've actually less money, but over the longer term. But a lot of this is about sort of looking at this for what timeframe you want to invest.
If you're investing for your child, for example, and they're not going to be needing this money for maybe 20 years when they're looking for a deposit for a house, then it's much a better idea to put into higher return Because it doesn't really matter if the stock market moves up and down for the next 10, 15, 20 years.
It's only at the time that the child will need the money that you'd be concerned about.
John Fitzgerald has been writing about this recently in the Irish Times. He says it's tax cuts for the rich paid for by everybody else.
No, I don't agree with that. I think depending on how you design it. And I think countries like Sweden, for example, have been leaders in this. Now, Sweden's about as social democratic a country as you can find. And they have this for more than 10 years. I think about a quarter of Swedes have one of these investment accounts. It's been a huge success in Sweden.
It's given people, no matter how much they're saving, better returns on their savings. And at the same time, more money has gone into the Swedish economy in terms of money flowing into productive investment within the Swedish economy.
Is that what we're saying should happen to the money invested in these schemes, that they would be pumped back into the Irish economy? Because a lot of the startups that we have now, they gravitate, don't they, to the United States when they need to scale up?
Well, this is just to put it in context here. This is very much the context of the EU trying to get more money staying in Europe, because in recent years, Europeans have been exporting their money to the United States to get in on the US stock market. And it would be better for all of us in Europe if the money stayed and was invested in companies and startups in Europe.
So I think part of the design of this product for the government will be, you know, investing in small startups is a very risky one. So you want to let people know that if you want your money to be invested in Irish startups, that is risky because most startups don't succeed, but the ones that do can often be spectacular.
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Chapter 4: Who benefits the most from current bank deposits?
Dan O'Brien there from the Institute of International and European Affairs.
The Clare Byrne Show with Aviva Insurance. Weekday mornings at 9 on Newstalk. Conversation that counts.