The Cabinet has saved several hundred million euro of public money by abandoning the Bertie Bowl. The next step should be the termination of the savings incentive scheme, which costs over €500 million a year, argues Patrick Honohan.
With the prospect of budgetary red ink looming, all options are being considered to prevent sizeable Government deficits in the years ahead.
Tax increases and spending cuts seem equally unpalatable, so it will be no surprise if attention begins to focus on one or other of two apparently painless ways forward - either suspending the annual contribution to the National Pensions Reserve Fund or cancelling the Special Savings Incentive Accounts (SSIA) scheme, where the Government adds one euro for every four that you save.
Either of these steps would release hundreds of million of euros per annum, but is either desirable?
The answer seems clear. From the start, the SSIA scheme was mainly intended to be a temporary measure to meet a transitory need, namely to dampen down national spending at a time of rapid economic growth and overheating.
But that particular tide ebbed sooner than expected, leaving the SSIA scheme like a huge stranded whale.
Easily affordable when introduced, the scheme is now an unwarranted burden, one whose cost in the coming year has been officially estimated at a staggering €517 million, or over 1.5 per cent of total projected tax revenue, and much more than was originally expected.
While there are other areas of government spending that should be reined in, early termination of this scheme must rank among the most painless of all the possible cutbacks. It can cause little hardship to participants.
Only those with spare income were participating: borrowing to fund participation was not allowed. And the way in which its benefits, though capped, were undoubtedly skewed towards the better-off was always a socially unattractive feature of the scheme.
To be sure, it is really important to have consistency and predictability in budgetary policy.
For that reason, abandoning any announced multi-year scheme in mid-stream is not something to be done lightly.
But, given the unexpectedly sharp deterioration in budgetary conditions, early termination of the savings incentive could hardly be considered a betrayal of good faith. Nor would it damage Ireland's reputation in financial markets, sensitive though these are to policy changes. On the contrary, it would be welcomed as a decisive act of flexible responsiveness to the rapidly-changing circumstances.
In contrast, there is much less to be said in favour of suspending the annual contribution to the National Pensions Reserve Fund.
Admittedly, the amounts involved here are even larger - about twice as much as the SSIA scheme.
But the economic downturn has not made the pension fund redundant, unlike the SSIA. We are going to need that fund when it matures in a quarter-century whatever happens, with the inevitable ups and downs of the budgetary cycle. Not to speak of the inevitable ups and downs of investment returns.
And, unlike the savings incentive scheme, the pension fund does not act to worsen income distribution. Besides, contributions to the pension fund have no effect one way or another on our compliance with the rules of the EMU's Stability and Growth Pact.
Nor do they affect the General Government Balance, which is now much more widely used as a good measure of the Government's surplus or deficit - and rightly so, inasmuch as they are a form of budgetary saving: neither spending nor hand-out.
By staying the course with the pension fund, but terminating the savings incentive scheme, the Minister for Finance, Charlie McCreevy, could display a wise combination of persistence and flexibility.
He could make some room for maintaining needed spending even without increasing tax rates while continuing to make prudent budgetary provision for long-term national needs.
Patrick Honohan is an economist