Saturday, November 24, 2012

Would a SSIA scheme for debt repayment work?


In 2001 the then Irish minister of finance introduced a scheme to encourage regular savings by individuals :

For every amount saved in the scheme, the Exchequer will contribute to the individual saver’s account an additional 25% of that amount. This is equivalent to giving tax relief on savings at the standard rate of income tax. [link]

Would a similar scheme aimed at individual debt repayment work?

For every eur spent on servicing personal debt accrued before 2011 (we don't want people taking on additional debt to take advantage of the scheme) the government contributes an additional 25% through giving tax relief on income used to service existing debt. The scheme would run for 12-24 months.

The Money Lender [via]
People are drowning in short term debt on credit cards, medium term loans etc and banks are refusing to issue long term loans to aggregate debts into a single long term repayment. Such a scheme would offer an opportunity to dramatically reduce and shorten the amount of debt owned to banks.

Obviously it's expensive to the Irish state both in the lost tax revenue and in disposable income being redirected from the wider economy to the banks. But we can take the hit in the short term to reduce individual debt. It offers individuals the option of imposing personal short term austerity to remove the long term weight of debt that is dragging them and us down.

Against this:

-> Why should I pay to reduce the debt of somebody else who cannot manage their affairs correctly?

You are not directly paying because the scheme is done through tax relief.

-> So money will be taken out of social services to help those who cannot manage their own affairs?

Ideally the government would plead for breathing space in bond repayment for the length of the scheme. Even 75% repayment would help. More realistically, yes the fall in tax income and consumer spending must be covered through temporarily government cut backs or the postponement of infrastructure investment. But this will happen regardless. The scheme offers the possibly of a rise in consumer spending and tax income once short term debt is repaid.

-> People need money management skills. Not handouts.

The time for money management skills has been and gone. We allowed a culture to develop where banks put leaflets into letter boxes offering easy loans for luxury goods. We allowed a culture of imprudent consumption to develop through unchecked advertising, the promise of american fantasy lifestyles and a mismanagement of the macro-economy by the government.

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