The Government is steadily running out of money. Meanwhile, the pace of savings by those people who are still earning is going up. It looks like something – or someone – will have to give.
Tax returns may be down €575 million for July, but Irish people are saving at rates unseen since the early 1990s say the banks with as much as 10 to 12 per cent of disposable earning being put away for that rainy day – or worse still – the threat of unemployment.
Last week, the Postbank quarterly savings index showed that four out of the five adults surveyed are saving on a regular basis.
Three percent more men have begun saving than in the last quarterly report; 22 per cent of people are saving lump sums; 40 per cent saving regularly and 19 per cent saving both lump sums and a regular amount.
More women (41 per cent) than men (38 per cent) are regular savers. There has also been a dramatic 13 percent rise in the number of farmers who are saving, a reflection of the difficulty farmers have experienced (REPS, falling mile prices, etc) over the past year.
The amount that we save, says Postbank is still between €100 and €250 a month, not unlike the amounts that were typically saved during the five year SSIA scheme.
An ominous development, however, is that nearly half of all savers (45 per cent) believe that they will have to dip into their savings by October.
This too surely reflects the economic reality of our times: taxes are expected to go up and employment will continue to fall as the autumn and winter approaches.
Most respondents, (49 per cent) are still concerned about the safety of their money over the amount of interest they receive (23 per cent) or easy access to their funds (23 per cent).
But the number of people who say they are confident or more confident about where their money is deposited has increase by six per cent to 75 per cent and is certainly much higher than it was at the end of last year when confidence in the banking sector was at its very lowest.
The security issue, while waning slightly, will remain an issue as taxpayers and earners discover how much of the €90 billion debt that Nama ends up taking on to save the banks and their property developer customers.
There is no guarantee that Nama will work, that is, prevent the fragile banks from being nationalised or going under, or even result in the easing up of credit conditions for small businesses and individual borrowers.
In light of this, savers need to continue to weigh up the return they are being offered against the security and solvency of their deposit taker (and this should also include the solvency of credit unions.)
The least indebted deposit takers operating here include the likes of An Post, Postbank, RaboDirect (RaboBank), Nationwide UK, Leeds and NIB (DanskeBank), the latter three have their deposits guaranteed by the Dutch, British and Danish deposit protection schemes.
An Post and Postbank come under the 100 per cent Irish deposit guarantee. None of these institutions are recipients of government loans or bail-outs.
That said, every extra penny in interest is better in your pocket is better than in the banks’ or the tax-man’s, yet it is beginning to look as if deposit rates are on their way down, rather than up over the short term.
Even lenders in receipt of government bail-outs have been suggesting in recent weeks that they must shore up their still negative balance sheets by increasing the rate of interest they charge borrowers, while tightening up deposit rates. You need to review your rate regularly if you are to maximise your return.
If some Keynesian economists had their way (and some very prominent ones are now making these suggestions in the US), savings would be taxed even higher than they are and banks would charge a negative interest rate for the privilege of leaving your money with them.
This, they suggest, would incentivise people to spend their money and to even borrow money again; in turn this spending would help their struggling economy to recover.
Keynesians believe when consumers will not or cannot spend any more, the government should do so on projects that create jobs using.
As daft ideas go, making savers pay for the pleasure of leaving their money in a bank pretty much tops the list.
If our savings are ever targeted in such a way, I doubt if anyone will simply allow their hard earned cash to be confiscated this way.
Instead, I expect even more people will resort to hoarding and stuffing cash into their mattresses, will send it off-shore and resort to trading in the black economy.
They may even end up buying assets are not so easy to tax or devalue (through higher state spending) – gold, silver and other scarce or precious asset.
Higher savings is going to be one of the most important components of our national and global economic recovery.
It’s just a shame that central bankers and politicians, not to mention the high street banks, still haven’t grasped the fact that the only thing that happens to a society that has resorted to too much borrowing and spending …is to make it poorer.
Jill Kerby welcomes reader’s letters. Please write to her at Money Times, The Munster Express, 37, The Quay, Waterford or via email at firstname.lastname@example.org