Sunday Times -MoneyComment - September 18, 2011

Posted by Jill Kerby on September 18 2011 @ 09:00

Middle classes strain under burden of financial recovery


The government is reveling in all the praise Ireland is getting from our fiscal overlords in the EU, ECB and IMF for the way we’re complying with our receivership; but is anyone asking how far the compliant Irish taxpayer can be pushed around before they start fighting back?

Last week we found out that the cost of bailing out Quinn Insurance was to be a 2% levy on every non-life insurance contract for at least the next five years. This is certainly the high end of the 1% - 2% estimate of last April when it was decided that instead of bankruptcy, Quinn Insurance’s (mainly overseas) losses would be socialized, just like the Irish banks’.

 The €320 million is now our debt, that is anyone who is legally obliged as a driver or mortgage holder to insurer their car or home, along with anyone else who buys travel insurance, payment protection cover and of course all important public liability if you’re a business owner.

Aside from dropping the non-essential insurance contracts – which many are forced to do – there’s not much you can do to register much of a protest about this latest levy.

The government is counting on the middle classes to ‘put up and shut up’ when it comes to levies, which is why they are their favourite way to raise extra revenue without officially raising tax rates.

 They may want to be careful how far they go before they cause the cash cows to resist any further milking: they already pay 3% worth of insurance levies dating back to the collapse of the PMPA in 1982; a 1% levy on life assurance policies; a 0.6% private pension fund levy that will result in €2.4 billion in losses in the next four years plus the private health insurance levy of €205 per adult and €66 per child to subside the VHI, the Department of Health’s otherwise loss-making sick child.

 You also have to wonder just how tempted the government will be to increase the hated USC by another percentage point or two?  It would be the last staw for many who believe they have already paid enough for the failings of others.


Electrical charge


The introduction of a new property tax in Greece is the latest austerity measure that is causing unrest there. Calculated at between 50 cent and €10 per every square meter of home floor space depending on the value and location, this tax will set back the owner of a typical, modest 150 square meter home, at €4 per square meter, €600 in the coming year.

The tax will be collected via the homeowner’s electricity bill, on which existing local authority tax and the Greek equivalent of the RTE license fee are already included. 

Tax collection remains a significant problem for the Greek government and now the electricity worker’s union says it will sabotage the collection of the new tax on the grounds that the electricity company should not be turned into a tax collection agency.

No doubt the Irish Minister for the Environment Phil Hogan will be watching how this latest Greek tax farce develops; he has already flagged a new water charge and preliminary property tax that some anti-austerity groups say they will oppose.

At just €100, the temporary property-cum-household charge probably isn’t, by itself, going to drive crowds of protestors onto the streets, but it’s a miserable enough little tax and will put up homeowner’s hackles. There’s a real risk of non-payment unless the Minister tack it onto something like a utility bill that so many of us pay by direct debit. 

I wonder how that would go down with our powerful, well paid state electricity workers, who are already smarting at the suggestion by their own union leader that they’re ‘spoiled’ ?


Credit waiting


When 70,000 people joined their local credit union in the past year, most of them presumably did so with the idea that it would be a source of borrowing.

Now that the Central Bank has informed seven out of 10 credit unions around the country to curtail their lending, thousands of these new and existing customers will either have to curtail their spending plans or look harder to find a source of credit. 

It also means that economic recovery is even further away than most ordinary people believe it to be, notwithstanding the spin the government keeps putting on how well we are complying with the troika’s austerity terms.

The credit unions do have a huge capital base – about €14 billion in savings, and only about half that amount in outstanding loans -  but with 14% of repayments already in arrears the signs are worrying about future losses.  Also, there is a tradition in too many credit unions for loans to simply be renewed if the borrower’s repayment record was unblemished and now reports abound of how those records were maintained only because the new loans were being used to pay off the old ones.

The Credit Union movement isn’t immune to the great Irish recession. Reduced lending probably means further reduced dividend payments, which could result in CU savers shifting their money to the Irish banks, which they perceive to be ‘safer’ now that that they’ve been recapitalized and that pay artificially high deposit interest rates.

In light of this latest intervention, loyal credit union members who are determined to keep their CU open should be more proactive and ensure that their executive committee is controlling its costs, imposing best lending standards and is doing everything to reward savers, but not at the expense of borrowers.

This country hasn’t got a hope of getting through this recession anytime soon if every lender sits on its capital. 

It would nice to think the credit unions are leading from the front, but that can only happen if they get the all-clear from the Central Bank. 

And that doesn’t look like it’s going to happen anytime soon. 

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