Tuesday, January 11, 2011

Government 'Policy' in Savings/Investment Market

It would appear, to me, that the Irish Government is systematically distorting the savings market. It seems to be a case of ‘We’ve blown ours and now, we need yours’. They are running out of road in terms of the options they have, to deal with the Exchequer Deficit ie raise taxes, cut spending, growth, default/restructure and now enforced buying of Government Debt.

You may have been prudent enough to save for your family’s future but the last two budgets have provided us with an insight into how desperate the Government have become in trying to relieve you of your hard saved cash.

It’s being dressed up as a sense of ‘civic duty’ so that you don’t feel too bad about helping them out of a sticky situation.

Increases in DIRT & Exit Tax, introduction of a 1% Tax on Unit Linked Savings/Investments, Inflated Deposit Rates from Government controlled banks and building societies, Solidarity Bond MK 1 (with MK 2 on the way), and Sovereign Annuities.

These are all designed to force companies and individuals to buy Government Debt via savings/investment and pension products. It seems that the Government savings policy is that you should bet the house on Ireland Inc., with a total disregard for any sort of diversification.

The Solidarity Bond is being flogged on the basis that your investment will help with “stimulating economic recovery and assisting in the maintenance and creation of employment”. Of course there is no disclosure requirement, or annual update, on how the punters money is being spent. How many jobs were created from the €350m invested in 2010?

The Government also tell us, in relation to Sovereign Annuities, that “This type of investment in ourselves is vital to our national recovery” Not a ‘Wealth Warning’ in sight, it’s all good stuff because “...there is absolutely no risk of Ireland defaulting on its sovereign debt”.

Perhaps, if the Solidarity Bond and Sovereign Annuity products were regulated by the Central Bank, the Government would not be so bullish in their comments regarding security/guarantees and how fit these products are for purpose and how they distort competition.

1 comment:

David said...

Gerard,

Great article and I couldn't agree more with your analysis. 'Caveat emptor' never more apt. 100% secure? Don't think so. With Irish sovereign default ('restructuring') an inevitability at this point, I think investors should seek a safer home for their hard earned savings...

DK