IS NATIONAL BOND A CAPITAL IDEA? - From early in the new year investors will be offered the chance to invest in a National Solidarity Bond. The idea is that those with money - and the level of savings in Ireland has soared in the last two years - can lend to the Government for some sort of return.
Finance Minister Brian Lenihan said the investment commitment would be over the medium term and the money pulled in would be used to fund capital investment, stimulate economic recovery and create employment.
Rossa White, chief economist at Davy, said that if this were to raise the level of savings, that would damage consumer spending further. On the other hand, if the bond did not affect the level of savings, but diverted money from bank deposits, this may not be good for the banking system. He said he was 'not quite so sure' about the timing of the move.
In his Budget speech, Mr Lenihan said the detail of the National Solidarity Bond was still being worked out between the Department of Finance and the National Treasury Management Agency.
Sunday Times personal finance correspondent Jill Kirby said the bond would probably appeal to very cautious investors if the rate offered were attractive, but she pointed out that people were already helping the Government, with the level of An Post savings at historically high levels.
Ms Kirby said such the proposed bond would be a risky option for some people due to the state of the public finances. She said a 10-year Irish Government bond was selling for 4.77% on the international markets, and a national bond wold have to offer a similar rate. An Post already offers around 3.45% tax free.
She said some of the important questions included how the interest on the bond would grow and whether it would be taxable?
Ms Kirby said a national bond could distort the market by pulling money out of banks, credit unions and building societies.
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