June 28, 2012
The title of this blog post asks a very simple question, but one that I feel needs asking in the present circumstances.
In many countries, the interest earned on savings in a bank account are liable for some form of taxation. Usually it is taxed as earned income at the same rates as any other earned income. Governments want their share of everything and this falls within that criteria…
However, in a world where individuals save precious little and banks and governments have faced – and are facing – repeated liquidity problems, it seems as though encouraging people to save ought to be a very high priority. Considering just how low interest rates on cash are these days, the interest being earned is not great and the taxable income is even lower. Is there really that much to lose by trying?
Similarly, with a demographic crisis looming on the horizon, better incentives to save into pensions would be useful. They would also have the added benefit of bringing in more cash to markets. Since many managed pension funds invest in “safe” government bonds, this appears like a possible way to increase liquidity into the bond market.
I admit fully that I do not have the available information or the analytical powers to assess just how well such measures may – or may not – work. But in a world where every idea from eurozone leaders seems to have failed to be the solution, improving the incentives of almost 500 million people to save might be one way forward.financialguy