Jill Kerby

WILL EVENTS OVERTAKE THE TECHNOCRATS IN 2012?

Phew!  Thank goodness 2011 is over. 

It was surely one of the toughest years financially since the bad old recession days of the 1980s and has taken its toll on incomes and personal wealth, especially the paper wealth so many of us believed we had tied up in our homes and pensions, and in our confidence in the future.

The austerity measures imposed by our new pay masters in Europe and at the Washington-based International Monetary Fund have been difficult to adjust to, with estimates of the monthly loss of spending power being put as high as €1,200 since 2008 when the economy first collapsed.  This coming year, it has been estimated that the new taxes (like Vat, excise, carbon and property), higher costs (for example, health insurance, public transport) and cutbacks in social welfare payments will reduce average family monthly incomes by a further €60-€100.

Will we look back on 2011 as the last year when the Irish people – were, for the most part, able to stoically suck up the austerity (compared to the frequent, public, noisy demonstrations and protests in Greece, Italy and Spain) or will we see these past 12 months as a turning point?  Will next year’s austerity measures be angrily resisted as the cost of living rises and public services fall, along with employment numbers, house prices and wages?

Much will probably depend on whether or not the Croke Park Agreement survives or not. As the only heavily unionised group of workers left in the country, the cutting back of civil and public sector workers’ pay and pensions - if it happens  (the CPA is not due to expire until 2014) - will undoubtedly rally the union bosses to organise widespread labour stoppages and strikes.  Such action will no doubt attract support from anti-government protestors, such as community groups whose budgets have been cut, third level students, groups opposing the introduction of the property tax, the political parties defending social welfare entitlements who also favour of the introduction of wealth taxes.  2012 could be a volatile year indeed.

Immigration is the great pressure valve that has also helped the government push through the EU/IMF dictat for higher taxes and lower spending here:  without it 75,000 young people would not only be adding to the still growing social welfare bill of over €21 billion, but joining the burgeoning protest groups.

Their access to jobs in other countries is unlikely to end in 2012, though as the world economy slows, there may be fewer opportunities for them to leave Ireland in the future. The greatest irony of our situation in 2011 is that many high tech companies had to offer jobs to emigrants, as home-born skilled workers decided to take their chances in finding similar jobs with better long term earning prospects in countries where taxes are not rocketing and the standard of living is not falling.

For most of us, 2011 was the year in which we self-imposed levels of austerity that economists say fits the classic ‘paradox of thrift’ – where consumer demand falls, weakening the economy further, even as people accumulate more savings because they are worried that they won’t have enough savings to meet their future needs.

The average savings rate here is now at approximately 12% of disposable income, one of the highest rates in the western world, though obviously not spread evenly amongst the population. (The largest group of savers are middle and older people.) 

Instead of more discretionary spending, there has been less as we cut back on holidays, entertainment, club memberships, second car ownership and even, unfortunately, charitable giving.

The majority of the ordinary people of Ireland did a prodigious job of reducing their personal debts and borrowings and adjusted their budgets to ensure that food is on the table, that the rent/mortgage is paid (even at adjusted rates), that there is heat and light in their homes, petrol in the car or money for bus fares for the children.  High unemployment and the growing cost of healthcare and health insurance in 2011 however, meant that another c70,000 people are expected to have dropped their private cover this year – 70,000 more people who will be dependent on the private health service in 2012.

However, 2011 was also the year that the volume of savings held in financial institutions dropped dramatically to c€86 billion (from over €100 billion two years earlier) as many more savers drew down money to meet their day to day costs, to shift into other assets that they regard as safer than paper and ink euro, or moved out of the country altogether to avoid what they believe could be the end of the use of the euro here.

This fear only grew as the year progressed and the wider troika of technocrats, central bankers and politicians continue failed to agree credible policies to save the euro – and pay off the trillions in sovereign debt.

 So will 2012 be the ‘make or break’ year for Ireland and the eurozone?  Let’s hope so.

What everyone seems to want is certainty and clarity, no matter how difficult the repercussions. As events overtake the inept, 2012 may be a very good and Happy New Year indeed.

THOSE THREE WISE MEN HAD THE RIGHT IDEA ABOUT GIVING GOLD

There’s a very good reason why the Three Wise Men brought the baby Jesus gold when they visited him in that manger:  aside from being precious – and a suitable gift for a king – gold was a form of money and a medium of exchange. It was a very suitable gift for a family that was soon to be on the run from a very angry King Herod, who was determined to eliminate what he believed was competition for his worldly throne.

Last week, after the euro price of gold had fallen by about 5% or c€75 from its price at the beginning of December (it may or may not be down further – or back up - today) a neighbour asked me, “Are you one of those gold bugs?”  (Someone who believes in owning gold over all other assets. A ‘gold bull’ believes the future price is up; gold bears that it is going to go down.)

 “No,” I answered her. “I’ve no idea where the price of gold is going. But I do  believes that the paper and ink money we all use are going to turn into wallpaper some day, unlike real gold or silver.” 

I pointed out to her that the value of the euro – funnily enough - had also fallen by 5% against the US dollar and sterling since early December. “It’s not implausible that the euro could disappear altogether. These are very uncertain times and all asset prices have been falling.” I said. “But any gold you own is yours alone, and if you store it carefully, it’ll never disappear.  No central banker can devalue or debase it by printing millions of new bits of gold as they do with paper currencies.”

Gold, I added, tends to hold its spending value, even as the price goes up and down. Over the last 10 years its price movement has looked like a mini-rollercoaster – up and down and up and down, but still on an upward trajectory year on year. You can see this clearly in the historic price charts at www.goldprice.org.   Meanwhile, this is the exact reverse of the price performance of the major fiat currencies and even some of the major stock exchanges.

So why did gold fall so sharply last week? Partly because stock markets were tanking after the latest euro summit deal started to unwind (again). Experts explain that traders with margin calls needed to liquidate some of their gold, which is up 14.5% in US dollars over the past year (and 12.5% in euro) to cover negative positions, especially on the bets they’d put on the futures market in derivatives, that great ‘financial weapon of mass destruction’ that Warren Buffet warned us all about long before the 2007-08 crash.

As we know too well in Ireland, the value of assets like property, stocks and shares (held mainly in pension funds), wages and of course, jobs themselves and consumer confidence, have been going down steadily since the crisis began. Yet the sales of, and confidence in, precious metals has only increased since then.  In the past five years the price of gold is up by nearly 155%; over 10 years, its annualised increase is over 19% going from c$300 to $1,590 an ounce last Friday. It briefly hit $1,900 this August.

Is this it? Is the price of gold returning to $300 an ounce again? I’ve no idea. Gold certainly isn’t as cheap as it was when I first started writing about it in 2005, when it was about $475 an ounce, but developing countries like China and India and Indonesia are the biggest buyers of gold now, worried that the billions and even trillions of dollars and euro they’ve lent the indebted countries of the west (or that they hold in their own banks as the consequence of their favourable trade balances with the west) may not be paid back. Or, if they do get those dollars and euro repaid, our debased currency won’t be able to buy them as much as it did when they first lent it to us (as sovereign bond loans.)

Funny how no one these days – not just foreign governments - trusts what we in the west are doing with our money. 

The US Federal Reserve is still pumping money out to ‘stimulate’ its failing economy and financial system, but even at ludicrously low interest repayment rates investment and retail banks are not being overwhelmed with loan requests and those who do apply for loans – just like here - are turned down as bad risks.

Ordinary people aren’t queuing up to borrow either; they already have too much debt and their jobs aren’t particularly safe.  Anyone with savings and no debt is hoarding their money – to pay for austerity measures that are being imposed.

None of this is good for the integrity of our paper money but only people who are comfortable with the roller-coaster ride that is the gold/silver price should get aboard.  That said, no matter what happens to the price of gold in the short term, none of the features that have inspired the buying of it over the past 10 years have changed for the better in recent weeks. 

Many commentators are now saying that 2012 is the crunch year for the euro.  We’ll see.  Until then, it’s going to be quite a ride whether you’re a gold bug, bull or bear. 

May I wish all my readers and their families a very Happy Christmas and good news in the New Year.

Another rise in health insurance levy is just a sick joke

Late in the afternoon of New Year’s Eve, when many of us are just starting to prepare for a night out with friends and family, the Health Insurance Authority usually announces another hike in the subsidy that every private health insurance member must pays to the VHI, the loss-making state-owned insurance provider.  Last year the private health insurance levy was increased by €20 per adult to €205 and €11 per child member to €66. It started out at €160 and €53 in 2008.

This year’s increase will be on top of the insurer’s usual double digit premium increases for 2012, some already announced but with more to come as the progresses. 

Will the multi-million levy save the VHI in 2012 and turn it into a vibrant, efficient, value for money, cost effective insurance company, also finally complying with all the usual reserve requirements demanded by the EU of the other insurers?

Of course not.

The VHI will remain the sick child of its disfunctional parent – the Department of Health, and it will continue to be one of the significant threats to the entire health sector, both public and private and especially to the notion of community rating of premium payments. 

As I have written many times before, the VHI should have been broken up, privatised and sold off when the decision was taken in 1996 to end its 40 year monopoly.  Now, as we enter the fourth year of the Great Irish Depression, and membership numbers are haemorrhaging, what corporate investor would ever buy the VHI – even broken up and privatised?

To make matters worse, Dr James Reilly, the Health Minister proposes all sorts of mad treatments for both his sick child and the private insurance sector including that the loss-making VHI, still by far the largest insurer buy Quinn Health, which is up for sale.

Do we even still have a competition authority anymore to question such a proposal? Remind me to ask Ajai Chopra the next time he’s in town.

Dr O’Reilly is also proposing that, in spite of the extra charge that the private ensures will have to pay – again – for private beds in public hospitals, the insurers will have to pay for any public beds or trolleys that their members occupy because all the private ones are full, if they happen to find themselves involuntarily checking into a public hospital, say after being hit by a car, or having a heart attack. 

So much for everyone in the state having access to public hospital beds and other services through the taxes they pay into a state system in which 60,000 people are on waiting lists, some for as long as 30 months.

The consequence of this ‘reform’, if it happens, will be even higher premiums for private health insurance, and more people dropping their membership, say brokers who specialise in providing health insurance advice.  Over 50,000 have already done to the end of September and the brokers expect that figure to rise to at least 70,000 cancellations by the end of this year.

The economic collapse means that Ireland’s intertwined two-tiered health system is no longer sustainable. These kinds of unilateral double charges, on top of the huge medical inflation costs the insurers say they must pass on, suggests to me that in the relatively near future only the very well-off will be able to afford private medical care.

Until Minister O’Reilly’s dream of universal health care becomes a reality, and I doubt if it will happen for a very long time, the existing, shrinking public health service and hospitals will be swamped by ex-health insurance members joining those horrific queues.

Last Christmas

Does the fact that we are the second highest spenders at Christmas reflect our natural generosity and our long standing tradition of living beyond our means – at least until the credit card bills arrive – or just the fact that some people still have a great deal of savings and will be dipping into them again this year?

According to last week’s Economist magazine, we will come third only after Luxembourg and the United States for the amount we will spend on Christmas presents this year – about $690 (€531) compared to their approximately $780 (€601) and $720 (€555) respectively. 

Compared to the huge Christmas spending in the past, that €531 looks pretty modest, to be honest but the Economist believes we are “big givers,” compared to our “PIGS companions: Portugal, Greece and Spain”. Only the Spanish will spend more than $500 (€385).

The Dutch are the most parsimonious present givers, coming in at under $200 (€154); even our German grinchmeister’s spend more - about $350 (€270). 

Doesn’t sound like there’s much ‘ho ho ho’ in their holidays, does it?  Given how German we’re all going to have to become in 2012, let’s enjoy our last all-Irish one for whatever it’s worth.

Golden opportunity

I don’t have a crystal ball, but I keep getting asked if I think the price of gold is in a bubble and about to collapse, or if its price will keep rising, as it has every year since 1999. (See the charts at www.goldprice.org)

I don’t think gold is in a bubble, but I do think its price will go up and down and repeat that sequence until the global debt crisis is over, governments stop debasing their currencies and start balancing their budgets, unemployment starts reversing, economic recovery is genuine and ordinary Irish people are hopeful about the future again.

Buy on the dips. 

DETERMINED FIRST TIME BUYERS GET BUDGET BOOST

There was, unfortunately, very little good news in last week’s Budget.  

Families with more than two children will lose some of their child benefit, perhaps some back-to-school payment and those with older, third level goers, will pay another €250 towards their annual fee contribution and 3% of the annual grant. The reductions for single parent families will be particularly difficult.

All homeowners, except those in receipt of mortgage interest supplement or living on ghost estates will have to find €100 for the new household charge (aka property tax) and more carbon tax on home-fuel.

Pensioners did not see a reduction in their old age pension rate, but parts of the household benefits package was already cut back last September and now those who had qualified for the 32 week fuel allowance will see that payment reduced to 26 weeks.

The list of stealth taxes and cutbacks goes on an on, with the 2% increase in VAT and the higher motoring costs likely to make the biggest dent in already tight household budgets.

A big fear, that won’t be realised until renewal dates is how much higher private health insurance premiums will go as a result of the government raising (again) the cost of private beds in the public hospitals.  The VHI claims it will increase their premiums by 50%, but even the Minister for Health dismissed that figure as exaggerated.  Whatever the increase, anyone who is approaching their renewal should review their policy and at the very least switch to the equivalent corporate plan which should provide some savings on the existing plan. (Check out www.healthinsurancesavings.ie for arranging the review.)

There is a glint of good news in the Budget; the Minister for Finance did not begin reducing the higher income tax relief on private pension and AVC contributions, as expected. From next year until 2014, the pension relief for higher taxpayers was to be reduced over the three years to the standard rate of 20%, ending the tax incentive for anyone earning over €32,800 to save in a qualifying pension fund. (Without the tax relief such people would be paying higher rate tax on contributions and on their retirement income.)

The relief may still be reduced in the 2013 Budget, but for the next year at least, it remains.

The other good news is the changes to first time buyers mortgage interest relief.

In an effort to help new buyers afford a home, and for the 214,000 people who already bought their home between 2004 and 2008, the Minister announced that additional tax relief will be available.

Existing first time buyers, including those who buy this year, currently get 25% mortgage interest relief for the first and second tax year in which you pay mortgage interest up to a limit of €20,000.  The relief is therefore no more than €5,000.

As a result of the budget the rate of interest that they can claim rises to 30% for those who bought between 2004-2008 and for new buyers from now until the end of December 2012. All mortgage interest relief runs out in 2017.  The extra relief for a couple can amount to up to a maximum of €900 a year for an individual and €1,800 a year for a couple.

Buying anything – whether pension or property – just because of a tax break is never a good idea. But for someone who has found a great bargain property and is sure that it will be their family home for many years, and they can secure a well-priced mortgage, 2012 could be their last chance to bag the enhanced mortgage tax break.

Not everyone is impressed by this latest move by the government to artificially boost what is still, after all, a falling price market.

Some mortgage brokers have noted that this tax relief measure does absolutely nothing about the huge and growing problem of homeowners in arrears or negative equity. There was absolutely no provision in the Budget for the funding of the bankruptcy and insolvency system that is supposed to be introduced by next March.

Any 2004-2008 buyers who are not even in negative equity will receive a benefit they don’t need, says Kevin McNerney, a mortgage broker with Trusted Advisor Group, adding, “Just because someone is in negative equity doesn't mean they can't afford to pay their mortgage.”  An extra €200 in their case, he said, “will probably just get spent.”

“And when this relief expires in 2017 as is proposed, most of these people will still owe the same amount on their mortgage as they would had they not got the relief. It just means that their monthly repayments during this period would have been lower.  For this initiative to have the desired effect the Government should insist that people continue to pay their current repayments and that the additional relief is paid directly off their mortgage every month”.

No such conditions attach to this relief. Nevertheless, the new terms will be welcomed by thousands of homeowners. 

And who is in a position to look any gift horse in the mouth these days?

We’ve all been mugged and Minister Noonan knows it

Well, thank goodness that’s over for another year.

The 2012 austerity Budget has been delivered - and perhaps even amended by now in the case of the controversial cutting of the young claimant’s disability allowance. Your bottom line income has been left untouched, the Finance Minister Mr Noonan with assured the nation. 

By the end of his speech last Tuesday, he certainly looked pleased with himself.

Anyone who looks at their bank balance a few days after they get paid may not agree.  A motorist who bought petrol on Wednesday morning wouldn’t even have to wait for payday: the 2% increase on VAT would have been applied to his purchase.  By 1 January, his car and carbon tax will also cut into his bottom line.

If the driver has more than two children, the family income will fall by at least €228 in 2012 as a result in the cuts in Child Benefit for third, fourth and subsequent children under age 18.  If he lives in a rural area and the children rely on the school transport scheme, he’ll have to find another €100 per child out of is income to meet that cost or perhaps drive them to and from school himself.

Since many older children from rural areas must live away from home to go to college, the rural family may also have to find the extra 3% that has been cut from the capitation grant their child may have received on top of the extra €250 contribution fee that every third level student will have to pay.

Everyone with private health insurance will also have to find more income (or savings) to cover the higher government charge for private beds in a public hospital this coming year. 

The idea behind this announcement was, incredibly, to raise more income for the state hospitals.  Perhaps someone should have reminded the civil servant in the Department of Health who came up with this budget wheeze that thousands of people dropped their private health cover last year after the same beds were surcharged in last year’s budget.

The more insured people who return to the public health system, the greater the cost to the public system, and to the taxpayers who fund it.

Nobody I have spoken too, except the Minister for Finance and his colleagues, believes this budget is income neutral.

 The €100 household charge is going to have to be paid out of earned income, savings or social welfare benefits.

Pensioners who already spend every penny of their old age pension will have to dip even deeper into their savings (if they have any) to pay this charge. With only those homeowners in receipt of Mortgage Interest Supplement or living on unfinished ghost housing estates exempt, even householders who are in negative equity will have to find €100 from their already inadequate incomes to pay this tax.

What happens in 2014 when the household charge is replaced by the property tax that the coalition has promised the troika it will introduce once a proper valuation survey of properties and sites is done? 

If thousands of householders struggle to pay a mere €100, how likely are they to find the income to pay a tax based on the market valuation of their property?  Especially if that valuation is anything like the sort of property tax people in most other western jurisdictions pay, which can often account for 0.5% to 0.75% of its market value.

The Minister may have convinced himself that he protected the incomes of the citizenry last Tuesday, but an old bruiser like Michael Noonan should know that if it looks like a mugging and feels like a mugging, then it is a mugging.

Political Capital

The increase in capital taxes in the Budget was well-flagged before Tuesday’s announcement.

The Minister has settled on 30% as the new standard capital tax with the capital gains and capital acquisition or inheritance/gift tax-free rates going up from 25% to 30% and the CAT threshold being further reduced to €250,000, less than half what it was in 2008. 

Raising these taxes isn’t going to result in any huge windfall for the government since there isn’t much profit in selling assets these days, but no one has much sympathy either for people who inherit or benefit from unearned income.

However, the new 30% deposit interest retention tax will hit certainly savers who should also expect interest rates to come down in the near future if the ECB does what so many expect them to, and follow up last month’s 0.25% reduction with another one or two in the early new year.

The only consolation for them is that the Minister didn’t impose PRSI and USC on these non PAYE earnings (or rental income) as had been expected.

An age-old problem

If we still have our own Finance Minister next year – and not a clever German one assigned to us by the European Union - chances are that his 2013 Austerity Budget may finally have to address the elephants that were ignored in this one: the huge state pension bill and the still growing cost of social welfare benefits, the latter alone being worth €21 billion, or two thirds of the entire tax take of the state.

Reducing the guaranteed 50% of final pay that public servants retire on isn’t something that any politician would choose to do, since he’s one of them.  The finance minister will also no doubt try to cut other expenditure before he takes on old age pensioners.

It’s hard to work out where else the next four billion euro that must be cut from the 2013 budget will come from if the pensions and welfare bills are not reduced. (The Croke Park pay deal must remain until 2014).

Meanwhile, one of the only good things that came out of this year’s budget is that private pension savers did not lose their top rate pension contribution tax relief.  It may only be a one year reprieve until the threat to bring it down to the standard rate begins, but it’s something. 

The savings the government set out to make by cutting back on pension incentives has already been exceeded – between the €457million taken from existing pension savings by the 0.6% levy, and the other €250 million or so achieved by the new funding limits introduced last year, and the lower level of overall pension contributions this year, the pressure to cut the tax relief was avoided.

“It’s the only good news I’ll be sending my clients,” one pension advisor told me last Wednesday. “They have another year to maximise their pension contributions, assuming they have any spare money to save.”

CHRISTMAS JOY REALLY IS IN THE GIVING, NOT THE SPENDING

It’s less than three weeks to Christmas and no matter how dismal the economic scene, it is still a holiday that most people enjoy and will celebrate, no matter how tight their budgets.  The average spend this year is expected to be about €630.

Coming one day after the delivery of the 2012 austerity Budget, it may feel counter-intuitive to load up your wallet and hit the shops, even if it is Christmas. But those of us lucky enough to still be employed and to have some disposable income are being counted on not to ruin the holiday – let alone the businesses – of our local shopkeepers and merchants.

Making a list, setting a spending limit per gift, not taking anything but cash or a debit card with your to the shops and not both, should help you stick to your own Christmas budget. Giving yourself plenty of time and not being rushed is another way to keep control.  Try to avoid borrowing more than you can afford to repay in the new year. Where possible, the credit union is a far, far better alternative to borrowing from a moneylender who can charge up to 188% interest for their short term loans.

The best of Irish crafts and food have been on display at The Great Craft Fair at the RDS in Dublin for the last five days and this is my 30th year attending. Craft show are being held all over the country right now and should be added to your shopping destinations, along with the local bookstore, florist, jeweller and sweet and wine shop. If Joe Duffy’s Liveline programme is correct, ‘fiver Friday’ events are also happening in shops near you between now and Christmas – watch out for them.

There are reams of gift ideas at this modest price and sometimes buying ‘themed’ gifts is a great way to control your spending while delivering something that is really thoughtful.

For example, for €5 (or not very much more), you can stock up on sweets and chocolates that can be rewrapped in your own bright paper and a ribbon; sweet smelling soaps (especially Irish made ones), kitchen accessories for cookery fans, scented candles and small picture frames, filled with an old family photo can be given to everyone on your list.

Books, film dvds and music cds are always welcome gift, especially if you take care to choose one that matches the beneficiary’s personal interest or hobby.

Of course for many people, budgets can only stretch to the Christmas feast and tree and something from Santa for the children. Their other gifts have to be, literally, priceLESS.

One of the consequences of the Celtic Tiger years is the huge volume of ‘stuff’ that many of us accumulated. Over the years writing this Christmas column I’ve suggested inexpensive or no-cost ways to fill stockings and to put under the Christmas tree.  These are still my favourite, and everyone I speak to who gives and receives any of them says they remain the ones they most enjoy and have the most meaning:

 PriceLESS Presents this Christmas:

-       Christmas baking is always welcome. A little plate or box of Home made biscuits, decorated shortbread, cakes, puddings and sweets are so special. Include the recipe in the accompanying Christmas card.

-       Mini hampers of sweet or savoury or a selection of both. Use an old bread basket if that’s all you have.

-       A small stack of ‘themed’ dvds, cds can be matched to your loved one’s interests:  action movies for the kickboxers in the family; romantic chickflix for the soft hearted; comedies and documentaries suit most everyone.  You can give away little music collections the same way (and let everyone download to their own MP3 players.)

-       Old photos: Find an old photo (from babyhood, even) and use an old picture frame or make one yourself. Use photos to make extra special hand-made Christmas cards to keep forever.

-       Precious Exchange. You choose a personal item you cherish and give it to someone you love who has admired it, or who you know would also cherish it.

-       Presents of Time: Give your gift recipients your time for Christmas.  You can offer a gardener hours of spade and digging time. Parents with young children can escape overnight or for a weekend if you take care of their children. An older person can be given a monthly outing, or you can offer a ‘carer’ some respite hours for themselves. Do you have a skill to teach or give?  A few hours of baking or cookery lessons? Dog grooming or walking?  Piano or other music lessons?  Leaving Cert grinds? Help with tax returns or car maintenance? 

Whatever you give – give it with love and some care. Newspaper, red wool or twine and a piece of fresh holly or ivy is the (nearly) expense-free way to wrap every present you give. There’s no need to spend even a little fortune on wrappings that end up in the bin.

Finally, if you can – as a family or individually – try to give to your favourite charity.  Every charity has been experiencing a sharp fall in donations since the great recession began.  Everyone I know who has sent a beehive, let alone a goat (via Bothar, Goal, Concern, etc) to a need family in the developing world has remembered that cost and gesture.

The school children who fill shoeboxes of little presents for other needy children can’t wait to do it again the next year as do every Christmas volunteer at our great national and local charities for the poor and homeless here at home.

Who says all the joy has disappeared from Christmas? 

When the squeeze comes we’re gonna party like it’s 1990

There is absolutely nothing any of us can do to prevent the spending cutbacks and tax increases that will be announced tomorrow and Tuesday.

How you endure them is another matter and I think the government believes there’s still plenty of ‘give’ in the incomes, savings accounts, pension funds and the other wealth assets of the Irish people.

We’ll keep giving, they believe…until we can’t, and since this is just the first of four austerity budgets the government has agreed to impose on behalf of their EU/ECB and IMF paymasters, the endurance game only ends in 2015.   

We’ll see. 

I think these technocrats may get their walking papers much sooner than 2015 if they can’t work out a way to prop up Europe’s insolvent banks and countries and “save” the euro.  In that case, we’ll be imposing austerity budgets of our own and paying our taxes with a new Irish punt.

In the meantime, if the Irish Taxation Institute’s recent figures are correct, the average Irish family is already €600 a month worse off from budget changes since 2008. If another €12.4 billion is extracted from the economy, the loss of monthly disposable income could double to €1,200 or €14,400 annually by 2015.

Welcome back to circa 1990, the year when a single family car – if you even had a car – was the norm, and few of them were brand new models.

Child benefit payments were just under €20 a month, not €140 and higher rates were only paid for the sixth and subsequent children instead of the third.

Mobile phones were still a novelty in 1990.There certainly wasn’t a smart phone for every member of the family. If you were lucky, ‘the pipe’ picked up the BBC and ITV but not 700 satellite stations along plus the internet and broadband.  

Package holidays were still in the Costas and Paris was where crooked politicians went to buy their shirts. Buy-to-let property was what professional landlords and moonlighting Gardai owned.

If you’re wondering how the government could possibly expect the struggling middle classes to afford any more tax, do the math. This is the post 1990 spending they expect you to sacrifice to pay back the bondholders and technocrats.

Safe deposits

Nearly every other letter or email I receive these days is from a worried reader who wants to know what they should do with their savings, just in case Ireland has to leave the euro, or the entire eurozone breaks up.

For all of you waiting for a reply, this is the same one I have been giving for the past year:

Keep your hard earned cash in a solvent financial institution, preferably in a solvent country.  At the very least, don’t leave more than €100,000 of your money – the deposit guarantee rate - in any bank or institution if you have any doubts about its solvency.

Be aware of the risks you take leaving all your wealth in any single asset – like cash or even in a single currency, especially the fragile euro. However, by shifting euro into other currency, you take on exchange value risk and the new currency could fall in value as well as rise.

Even if you do exchange euro for what you believe to be a better currency and hold it in a non-euro deposit account in your Irish-based bank, you need to make sure that the bank, whether Irish or foreign owned, will honour the foreign currency, even if we revert to the Irish punt.  The only way to safeguard against this risk is to move your money outside the Irish jurisdiction and perhaps outside the eurozone.

Commentators disagree on many aspects of the euro crisis, but they tend to agree that if we leave the euro and revert to the punt, it will suffer a sharp devaluation and a large part of the spending power of your savings could be wiped out, especially as the cost of imports soar. 

Finally, consider the risks you take leaving all your wealth in any paper and ink currency, backed by nothing but the faith and promise of their often hugely indebted state or states.

If you shift some of your paper money for real money like gold, which has a long tradition of at holding its spending value, especially during times of economic and political crisis, you may offset the terrible devaluation risk inherent in holding fiat currency.

Time would no longer appear to be on the ordinary saver’s side.  Anyone with large amounts of savings, whether in cash or tied up in pension funds, should consult and use the services of a good, fee-based advisor… sooner than later.

Up in smoke

Have you ever had a chimney fire?  They can cause considerable smoke damage - and worse - if the fire brigade doesn’t arrive promptly.

From next year, if you live in Dublin, a chimney fire callout will cost you €610 for the first hour. The first hour fee for a domestic fire will be €500 and the council will also charge €610 for the first hour cost of sending out emergency services to a motor traffic accident.

“Virtually every house insurance policy will cover the cost of fires,” Sean O’Connell of the Insurance Shop in Fairview told me last week, “though you want to make sure to ask for the chimney fire brigade – they do a lot less damage than the normal fire brigade team.”

Having the chimney’s cleaned is the obvious solution. But what you most certainly want to double check, says O’Connell, is the size of the cover your motor insurer allows for the cost of ambulance and fire brigade callouts if you have a serious motor accident.

“I had a client who nearly totalled their car one frosty morning down the country,” he recalled. “Both passengers miraculously survived with barely a scratch but it took so long for the tenders to cut them out and get them to hospital that the bill was over €3.000.”