The Sunday Times - Money Comment 05/07/09

Posted by Jill Kerby on July 05 2009 @ 21:14


Unlike the households of Ireland, the government believes there is no urgency in cutting its cloth to suit its measure:  according to the Taoiseach, the long awaited An Bord Snip Nua report is only going to be considered by the Cabinet ‘sometime later this month and then debated by the Dail when they get back from their long summer holiday next September.


Families everywhere have been slashing their budgets since our economic tsunami hit last autumn.  Now, despite all the uncertainty about unemployment, higher income taxes and the dreaded property tax in the next budget, we’ve been given the entire summer as well over which to fret about what might be in the An Bord Snip Nua report. 


One cut that is likely, and will affect every family with children, will be the universal child benefit, currently paid to 600,000 – mainly – mothers at a total cost of €2.5 billion. 


The first two children (via the parent) receives €166 a month and the third and subsequent child, €203. The parent with three children therefore receives €535 a month or €6,420 a year, tax-free.  If they earned this money gross and were in the tax net – a possible recommendation -  they’d be paying either €107 a month or €1,284 at the standard 20% rate, or €219.35 a month or €2,633.20 per annum at the marginal, 41% tax rate.  


In a tiny country like Ireland, means testing or taxing child benefit should have been in place from the start. But politicians love to be loved, and a universal child benefit is a way to look like you’re doing something for the children of the nation, even if what you are really doing is trying to buy their parent’s vote. (Especially if you increase the benefit by 266% between 2000 and 2009.)  


A €6,420 untaxed child benefit for a parent of three is a pretty substantial bribe, whether you’re  living entirely on social welfare benefits or earning a typical middle class income of €50,000 or €60,000.  The only constituency that didn’t benefit at all of course, were the childless, who I expect are watching to see An Bord Snip’s comments about CB with great interest. 


If they recommend taxing the benefit at either the standard 20% rate for all, which would return it to 2004 levels, or at the parent’s highest rate (41%), it’s going to be a major administrative headache for the overstretched staff of the DSFA who will have to identify those parents who qualify and those who are exempt and for employers and the Revenue who will have to collect and implement the tax.  


Ditto for means testing: at what income does a parent – mother only or both parents – not qualify for the payment? Is it gross or net income?  Does the number of children in the family influence the income threshold?  What about the size of a mortgage or rent and other outgoings?


Had the snippers asked me, I would have told them to recommend abolishing CB altogether and redirect the appropriate €2.9 billion to the growing number of parents who are not in a position to properly feed, clothe and educate their children and hand back the rest to everyone on the tax-rolls up to last year and who are in a far better position to spend their refund more wisely than this government (that wants to keep giving billions to insolvent banks and property developers.) 


Too simple?  Perhaps.  Brutal?  Yes, that too.  But this is an economic depression we’re caught in, not some typical business-cycle recession that can be tweaked away with a little monetary adjustment here and a bit of token cutting there.  Nor do I believe the vast majority of working parents, who know too well what trouble we are in, would dump their children on the side of the M50 if their universal benefit was abolished. 


Dumping the politicians, on the other hand, who still don’t get it, is another matter. 





If last week’s heated debate on RTE’s Liveline about the application of the token €200 second home tax to mobile holiday homes is anything to go by, the battle-lines are already being drawn up over the introduction of the wider property tax next December.

Callers were furious that their modest, impermanent, summer dwellings, on which they already pay fees to the site owners where they are lodged, attract the tax. Many described it as a disproportionate tax for holidaying at home. Given that the airport travel tax is just €10, they have a point. 


But what was also upsetting a number of them, is the thought that their mobile homes, if they are lumped in with all holiday homes, will get caught up in the new property tax.


Most countries with a property tax don’t differentiate between family homes and holiday homes; both use local services and both attract the marketable rate or tax.  Usually, because it may be smaller and outside the expensive urban area, the holiday home attracts a lower tax rate, but when the starting point is just €200 a year to begin with, these mobile home owners may have very good reason to worry. 




Life insurance sales are up by 20% this year, say Citadel, a financial services network and coverage now averages €300,000.


I’m surprised that the amount is that high – so many people underestimate how much money their families would need to replace a bread-winner’s earnings – but the higher sales, says Citadel reflects not just how people become more conservative about their finances during a recession but also how they often use a recession as a reason to review their financial position.  


Life insurance is often a benefit that disappears when you lose your job.  Another reason to make sure you have some affordable cover right now. 


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