The Department of Finance’s Doomed Savings Scheme

The State should stop punishing ordinary investment and calling the workaround reform

Barra Roantree and others have already made the economic case against Simon Harris’s proposed savings scheme. Their objections are relatively straightforward and well-founded: the scheme is being presented as a measure for the “squeezed middle”, but the benefits are likely to accrue disproportionately to those who already have meaningful savings to rearrange. 

Tax breaks for savings, as Barra points out, often do little to increase the total amount saved. They tend instead to change the form in which existing savings are held. That is a serious critique. Though there is a deeper one.

The problem with the proposed savings scheme is not merely that it may be poorly targeted, or that it may create another distortion, or that it may benefit those least in need of assistance. 

The more fundamental problem is that it reflects one of the more unattractive instincts in Irish public life: the belief that ordinary responsibility must be administered by those who consider themselves uniquely qualified to administer it. Irish citizens do not require a government-designed savings pathway. 

They do not need Simon Harris, the Department of Finance, or some future approved provider to instruct them in the moral and financial virtues of prudency. They need the State to stop making normal investments so unnecessarily difficult.

Ireland’s treatment of ordinary retail investment is absurd. The taxation of ETFs, in particular, seems less designed to raise revenue efficiently but rather to discourage citizens from ever developing the habit of long-term investment in the first place. Deemed disposal is comic in its intrusiveness. A person may buy a diversified fund, hold it prudently, sell nothing, realise no gain, and still find the State arriving at an artificial interval to demand tax on a fictional disposal. This is not the taxation of recklessness or speculation or even wealth creation. It is nonsense.

Believe it or not, it need not be done this way. In the United States, citizens can buy shares and ETFs through ordinary brokerage accounts, receive dividends, hold their investments for as long as they wish, and pay capital gains tax when they actually sell. In Switzerland, the treatment is more liberal again: dividends are taxed, assets are declared, but ordinary private capital gains are generally left alone. Neither country is operating in some lawless financial wilderness. Both tax investment income. Both regulate markets. Both understand that wealth creation may be reasonably taxed without treating the mere act of autonomous long-term investment as something suspicious. Both countries, like many others, treat ordinary citizens like adults and allow them to research, judge risk, and allocate their own money as they see fit.

Against that backdrop, it is clear that Ireland has not discovered some unavoidable technical problem in how citizens save and invest. It has created an artificial one. Having made ordinary investment unattractive, the State now proposes to solve the problem through a new scheme. This is the logic of the Irish government in miniature. A normal activity is made needlessly complicated by bad policy and punitive taxation. Citizens respond rationally to the incentives placed before them, and that response is then treated as a further problem requiring another State initiative. In other words, the State obstructs, observes the consequences of its obstruction, and then presents itself as the necessary guide out of the maze it has constructed.

There is a deep arrogance in this, and beneath it a quieter condescension. Not the crude contempt of open sneering, but the more familiar bureaucratic variety: paternalism laundered through concern. It arrives in soft language, financial literacy, inclusion, prudence, long-term planning, and, inevitably, “the public interest”, that most nebulous of phrases.

But the premise remains the same: ordinary people cannot be left to make ordinary decisions without a structure designed by their betters. They may save, but the State must improve the savings. They may invest, but the State must define the acceptable route. They may act responsibly, but responsibility itself must first be translated into an official product.

Ireland does not need a savings scheme. It needs a political class with the humility to understand the limits of its own wisdom. The State should set fair rules, protect against fraud, remove nonsensical taxes, and then allow ordinary citizens to invest and save as they see fit. It should not presume that the millions of people who make up this country are waiting to be instructed into saving more intelligently by those who happen, for the moment, to occupy office.