Posted by Jill Kerby on January 01 2008 @ 21:44
Lenin once said the surest way “to crush the bourgeoisie is to grind them between the millstones of taxation and inflation."
Comrade Vladimir was clearly never the owner of a high carbon-spewing SUV or he would have also added driving one to those petrol guzzlers to his list, but he certainly knew a thing or two about the soul-grinding business.
So if you’re thinking of making any resolutions this New Year, they really should include this one: finding a safe route between the inflation virus that is going to sap your income and savings of its spending power and the government’s determination to squeeze as much direct and indirect taxation out of you.
I know a few people who’ve already jumped on a plane for overheated tax-havens like Dubai and Panama. Or you can stay here, stop throwing your over-taxed money around like an eejit and discover that it really doesn’t take a genius to ride out an economic downturn. You might even make some money.
ASK FOR A LADDER
But first, if you are in the proverbial hole, ask someone for a ladder.
If you’ve never had someone review your taxes, assess your debts and assets or picked out a decent pension fund for you, 2008 should be your ‘Year of the Advisor’.
The rich didn’t get that way through sheer hard work; they had help. Since most of us are basically just good at our own jobs and not at other peoples’ as well, you should pay money to consult someone who knows about maximising earnings, minimising tax and creating genuine wealth.
If you don’t have the name of a fee-based, independent financial advisor (ask friends and family for a referral) contact the Financial Regulator at 1890 200 469 and get them to check their register to see if there is one listed in your area. Expect to pay in the region of €150 an hour for the advisor’s service and expertise but don’t waste their time or your own money – go prepared with a concise list of all your financial accounts, contracts and policies so that these can be easily accessed and reviewed.
Then take their advice.
BE A TAX TIGHTWAD
The Government has just admitted to being down about €1.6 billion in tax at the start of this year. This doesn’t auger well for those of us who not only pay income tax, but VAT, CAT, CGT, and all the other little ‘Ts’.
With no obvious tax fraud campaigns on the horizon, the Exchequer will be counting on the Revenue to bring in every tax penny from the tax compliant as well as the evaders.
If you don’t get a professional tax check, at least take the time to claim all your legitimate tax reliefs and allowances in 2008. Go onto the Revenue website www.revenue.ie where they have provided a helpful list of these deductions. The most obvious ones that are overlooked (to the tune of over a billion euro a year) are for health and dental expenses, private rent payments, bin charges, trade union fees, etc. Mad as it sounds, there are still stay-at-home mums with small kids who don’t claim the €900 annual per child tax credit to which they are entitled.
The official inflation rate is 5% at last count, but anyone who eats and drinks, pays a mortgage or rent, travels via public or private transport, pays for health insurance or alas, has an expensive shoe habit, knows it is much, much higher.
So here’s a novel thought: spend less and save/invest more this year.
Spend less by buying fewer shoes …or cappacino’s, takeaways, dvds, alcohol, cigarettes, electronic gadgets, widescreen tv’s, weekend breaks. Eat the groceries you buy, rather than throw a third of them away due to spoilage and waste (that’s over €4,000 for the average family). Drive a smaller, fuel-efficient car and save thousands in tax, petrol, insurance and maintenance costs (especially after July when new VRT rules come in.)
On the savings front, open the highest yielding demand and savings accounts you can find (you might want to start on this site) for short-term interest and access. But realise that inflation and DIRT – just as Vladimir predicted - are going to reduce your nest egg by at least 6% a year if you spend your interest. In just five years a €10,000 stake earning 5% will only have the spending power of about €7,400, a 25% loss in wealth.
Instead, you need to start investing in the stuff that is so in demand, and so short on (and in) the ground - such as oil and gas, metals, water, foodstuffs and the machinery that extracts and produces all these goods and commodities.
Set aside a portion of your salary every month to buy into these sectors through individual shares or funds of shares; ETFs and the RaboDirect investment suite of global commodities are worth a look.
Precious metals like gold, platinum and silver have also surged in price, not just because they’re useful to wear and put into catalytic converters, but because an increasing number of people are concerned not just about getting a return on our money, but of our money.
If you can wind these funds into a tax-efficient pension, all the better.
Without the benefit of a crystal ball, I’ve no idea if the optimists who say that everything will be wonderful again in Ireland Inc in 2009 are right or not. I look across the pond to America and I have my doubts.
All I know, dear comrades, is that bracing yourself for a bumpy ride sounds like a better option than standing in front of what might turn out to be a runaway train.