Posted by Jill Kerby on November 30 2011 @ 01:21
BUDGET AUSTERITY REQUIRES SOME DRASTIC EARNING ACTION
By this day next week we’ll all know how much poorer we are, care of the €3.8 billion Budget 2012 cuts in public spending – services that will have to be paid for individually from now on – and the tax rises, many of which will disproportionately hit the spending power of those on low and fixed incomes.
The stealth taxes alone – VAT, excise, the carbon tax and even DIRT, it is estimated could cost the typical family as much as €600 next year, but the rumoured cuts in social welfare benefits, health and education (the three biggest spending departments) along with the introduction of the household charge of €100, could double that amount.
Finding another €1200 a year will be very difficult for any family that is already struggling with PRSI and USC tax increases from last year, plus an average 18.1% change in mortgage interest in the last 12 months; a 13.4% increase in energy products; the 8.4% increase in utilities and local charges, the c20% increase in health care costs and the 4.1% increase in a wide range of other services (according to the latest consumer price index figures from the CSO. Astonishingly, they say that overall inflation is only running at 2.8% this year.)
The government insists that stealth taxes are less harmful to employment than direct income tax hikes. But few people in the retail industry, whose businesses will share the pain of the VAT hike as discretionary spending falls even further, believe this. Austerity is the order of the day so long as the government accepts that the foreign bondholders and bankers are the only winners from the 2012 budget.
Anyone with savings, a pension fund or any other kind of taxable or easily confiscated wealth should just remember that there are three more of these high austerity budgets to follow this one, though many doubt now whether the eurozone, or our membership of the euro will last that long.
Even if this country leaves the euro, serious cuts in state spending will be necessary: there is an €18 billion gap between what we spend and the amount of tax we raise. Taxing “the rich”, no matter how attractive this idea is to some, will not fill that gap, not even if there is outright confiscation of their income and assets.
Already the top 5% of earners pay over 40% of all income tax and with the exception of the small number of super rich (who mainly live overseas), high earners here who work in the professions or are represented in the civil service, including all those bust builders earning €200,000 a year on the NAMA payroll are disproportionately dependent on state employment contracts. All these bloated contracts are unlikely to survive if we leave the euro.
So how will you be cope with the new austerity?
Since you have no choice but to pay the taxman – especially for something like the household charge, higher VAT and carbon tax - you will either have to cut even further back on your spending or find new ways to earn more money. (Borrowing to pay for higher taxes and cost of living expenses is only realistic if you have a generous family member or friend willing to forego interest or repayments; otherwise it is the road to hell, even if you can find a bank or credit union to lend to you.)
First, anyone already struggling to meet the cost of mortgages or other debts should make an appointment to see a MABS councillor in your area and then contact your creditors to arrange more liberal repayment schedule to free up cashflow. This is money that can then be redirected to pay the higher taxes or service costs you cannot forsake (like health or education expenditure.)
Next, go through your family budget with another fine toothed financial comb. Eliminate all food waste – a huge expense for most of us.
Do a cost review of your other big ticket items – insurance, utilities, transport. Telecoms – mobile phones, TV and internet – now account for a large part of this expenditure and can be cut back. I believe health insurance is not a luxury as the health service downgrades. Shop around for a cheaper plan before you consider cancelling altogether. A good broker should be able to help lower the cost of all your motor/home insurance.
Aside from slashing your costs, the only other realistic way to get through this Great Austerity will be to also earn more. An audit of all the skills, talents and abilities in the family should reveal all sorts of ways to make extra money, no matter how small the amount.
Older teenagers are more than able to earn their own and become contributors and not just net cash recipients of their parents. Ideal jobs for them are babysitting, cutting grass/garden clearing, snow shovelling, doing local deliveries, packing shelves at local shops, pet walking/washing/minding, busking and giving computer lessons.
Any and all entrepreneurial tendencies – especially any natural ability to buy and sell - should be encouraged.
I know one clever family whose three teenage girls age 14-19 now teach piano and swimming lessons (having achieved their own grade qualifications) to neighbourhood children for all their own spending money for the past two years. This, their parents estimate, has saved them over €3000 a year in weekly allowances alone.
Just as well, since that’s now the taxman’s money.