Jill Kerby

Good luck Enda. With our debts you will need it

Over the coming months we’ll all have a better picture of how much more belt-tightening will be necessary as the new administration discovers the true state of our national finances.

I wish Mr Kenny and his new cabinet the best of luck, but I’m keeping my personal expectations very low: all the good will in the world isn’t going to reverse our bad fortune or reduce our catastrophic debt burden to manageable levels.

The state is insolvent and not just because it took over billions worth of private bank debt.

Over many decades it made financial promises to all of us, but especially to a growing army of public sector workers and welfare recipients, which it cannot now keep. It also allowed a financial black hole to appear at the heart of the public health service. 

It will take decades to ‘reform’ these mistakes, when what is really needed is a wrecking ball and a blueprint of a scaled down version of state services that will be sustainable and appropriate to our new circumstances.

The Fine Gael and Labour health policy reforms, based as they are around universal health insurance, are just one case in point.

Everyone would carry health insurance, the service would be patient driven and access would be based solely on need. Labour, laughably, suggested these reforms would happen by 2014, including free GP access, but Fine Gael says it would get the process underway by 2016.

Reform of this magnitude would have been hugely complicated and monstrously expensive even during the Celtic Tiger years when there was plenty of cash sloshing around; today the state has to borrow just to meet the existing health service payroll.

Meanwhile, there is no incentive for the 300,000 health care workers to cooperate with the cutting of their jobs, pay and pensions and why would GPs, who still have control over the hours they work and the fees they charge in this bankrupt state willing become employees of the Department of Health? 

 Finally, while two million existing private health insurance customers may be deeply unhappy with the rising cost of their premiums, they are mainly satisfied with the service they get.  Would a state-run universal insurance system automatically deliver a better service at a cheaper cost? (I don’t think so.)

 Anyone who still thinks that the state should deliver all health services needs to take a good, hard look at how much the health service bosses pay themselves and then ask how many of them were ever held personally accountable for the terrible medical scandals that have occurred and the disgraceful but ongoing waste and inefficiency. 

Such people wouldn’t be allowed to run a dishwasher in the private sector, but you can bet that their biggest concern, if any of them are gently urged to consider voluntary redundancy (also a coalition policy) the unions’ biggest concern will be the size of their golden handshakes and pensions.

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No prizes here

 A reader from County Offaly has taken me up on my less than enthusiastic comments recently about Irish Prize Bonds. He discounts the inflation risk by saying that all deposits are vulnerable to inflation and that the overall return of 3.9% of the annual prize bond funds to bond holders is possibly even better than what a saver could expect, especially since prize funds are entirely tax free. 

 He’s correct about the inflation risk these days, particularly as the cost of living is going up as we import food and fuel inflation and wages and assets like our homes and pension funds keep falling.  But the prize bond return affects only a tiny number of holders, with even fewer enjoying a big payout.  Tens of thousands of small bondholders never see a penny return despite a lifetime of bond ownership; that simply isn’t case if you leave your money in a bank, even in this country.

 I’m not really anti-prize bond, except when the company insists on describing their product as an ‘investment’, which is clearly is not. Investments involve risk and reward; good ones pay a regular dividend and can produce a capital return.  Genuine investments create wealth and jobs and prosperity. 

 Prize bonds may be propping up our insolvent state, but they’re about as useful to our wider society as …money left under a mattress.

Finding a negative equity mortgage is improbable

JK writes from Dublin: I want to buy a bigger house but am in negative equity of €100k plus. My present mortgage provider has informed me that although I qualify for a new mortgage, they will not provide cover for the negative equity. Do you know of any provider that will include negative equity in a new mortgage? Do you have any advice for the lots of people who are in my position?
 

To my knowledge, no lenders will extend credit to owners of property in negative equity, especially in a market where property prices still haven’t bottomed out.

One financial advisor I spoke to said that KBC and Permanent TSB might consider, on a case by case basis, a mortgage application involving negative equity but the ideal applicant would most likely be a young professional with high future earning capacity, buying a property that the bank would consider to be very competitively priced indeed.

Fine Gael proposed in its election manifesto that it would introduce new banking provisions that would allow people with negative equity to trade down to a property with a lower market value than that which they originally bought. 

But this only locks in the losses, which is hardly an adequate solution if you are still stuck with a very sizeable loan that may be unpayable during a normal working lifetime.  Frankly, only debt forgiveness or hyperinflation will reduce the huge mortgage liabilities taken on by many thousands of buyers since c2003.

Anglo write-off

TC writes from Meath: I owned shares in Anglo Irish Bank when it was nationalised on the 21st of January 2009. Can I write this loss off against other gains I have made from investments? If so, how long do I have to enact this readjustment of finances?

Revenue has acknowledged that AngloIrish shares are worthless, allowing shareholders to use their losses to reduce capital gains tax. You can offset your share losses against capital gains from other assets – say, from other shares or the sale of a property that is not your principal private residence. There is no time limit for offsetting losses, so for example, if you lost €20,000 on your Anglo Irish shares, you can offset that loss against future gains for as long as it takes to make up the €20,000.

Smart moves

TG writes from Co. Mayo: On my retirement, my wife and I investment in a portfolio in Bank of Ireland Life Smart Funds.  With all the talk going on regarding the viability of Irish banks, we are getting concerned about our investment. What is the situation if the Bank of Ireland gets into deep trouble? Since, the funds are only managed by the Bank and the investments are external to the bank do they survive?

Your money is a liability on the balance sheet of Bank of Ireland Life so it could be at risk in a catastrophe. Ireland has no protection schemes for investors in insurance funds, unlike bank deposits.

The good news is insurance companies are in much better financial health that banks. Bank of Ireland will not be shackled to the bank for much longer because European commission has decided that the division must be sold as a condition of the state aid given to Bank of Ireland.  The hope is that Bank of Ireland Life will be bought by a strong international insurance company.

If you are concerned about the value of your investment or how it is managed (as opposed to Bank of Ireland’s future) you should have your Smart Fund reviewed by an independent, fee-based advisor who will report on its performance and explain what costs or penalties you may incur by encashing your fund or switching it to a different provider. 

A safe place

My son, who is a college student, has received a lump sum as a result of an accident. I would like to get advice as to where to invest the money. He intends to finish his education overseas in two/ three years time and would need access to funds at that stage. I would appreciate your suggestions.

If your son needs access to his money by 2013-14 then it probably makes sense to simply find a good deposit home for it – ideally in a secure, solvent institution that offers the best possible interest rate.  The Irish banks are not the most secure financial institutions in the state, and may end up being merged, sold or closed eventually but until then all deposits up €100,000 are guaranteed by the state.

Since it might be best for him not to have immediate access to these funds if they are earmarked for education purposes, you son should be considering a fixed deposit account. The best one year fixed rates range from 3.5% to 3.62% gross from Ulster Bank and KBC and Permanent TSB respectively, but require a deposit of at least €10,000.  If ECB rates go up, as many commentators expect they will by the end of this year, then hopefully the next one year fixed rate he locks into will yield an even better return.  By year three he can then spend a portion of his savings and roll over the rest into another one year deposit term. Finally, as a believer in ‘real money’ and not just fiat, paper currency, I’d encourage him – if he was my son - to exchange at least 10% of his settlement into gold or silver.  The further debasement of the euro is inevitable as the ECB increases eurozone debt and we are already seeing how prices are rising, partly due to the huge increase in the supply of money and credit to insolvent eurozone countries. 

LIFE INSURANCE PAYOUTS RISE…PLUS NUMBERS OF SMOKERS

 For many parents, especially, losing their job also means losing other employment benefits such as life insurance, disability cover (also known as permanent health or income protection) which could pay up to 75% of salary until retirement age in the case of a particularly devastating illness or condition, as well as contributions towards health insurance and a pension. (Many private health insurance contracts will be honoured until the renewal date.)

Redundancy payments, where applicable, are often used to keep up some insurance payments, at least for a while, and are most usually kept up by people who are confident of getting another job quickly.

However, this great recession is proving to be quite different than previous ones, with more people experiencing longer periods of unemployment.  This is why it’s so important to prioritise your insurance payments. 

For a younger, single person, the choice is easier since they’ve no dependents and probably don’t have life insurance anyway. Health insurance is another contract they may not have; pension funding tends to begin in one’s 30s or later.

Once you have a family though, things are very different. A parent needs to take their children’s security into consideration as well as their own and while the longer term unemployed may be able to apply for a medical card eventually, these are means tested and workers with savings, redundancy funds or a spouse still working will not qualify. 

Eliminating health insurance altogether is a drastic decision (though one that may have to be taken) especially if anyone in the family has an existing medical condition; after about 13 weeks of cancellation, a waiting period will apply once a policy is re-instated if you do get another job (even one that may include the insurance as a job benefit.)  Can you afford to switch to a lower cost plan?  Can you at least afford to keep cover for the family member with a medical condition?  Would a hospital cash plan (such as HSF) be worth considering to help pay outpatient costs?

I think every parent needs life insurance, and the best way to be able to afford this important expenditure is to buy it immediately when you get married or form a permanent relationship (since many couples delay having children) and/or when you actually have the children.  Straight-forward, term life cover is still relatively cheap if you are in your 20s or 30s and over a 25 year period will seem even cheaper as your income inevitably rises. (I know one very prudent family on a very modest income that allocated their child benefit for life insurance payments.)

A fortnight ago Irish Life produced its latest figures on the amount they paid out in life cover, serious illness and income protection claims in 2010 -  €230 million to almost 8,000 families, 1,256 of which were death claims.

Malignant cancer (45%) and heart complaints (19%) remain the biggest cause of all claims, say the company, with one in ten claims made by people before they reach retirement. Breast cancer is single biggest cause of specified illness cover claims with one in three of all such claims made to people under age 40.  Meanwhile one in 10 of all deaths were due to accidents or unintended deaths (caused by someone else.)  An undisclosed number of deaths due to suicide were also paid, though policies had to be in force for at least a year.

Claims are increasing – mainly due to higher coverage – but the average size of the life insurance benefit is still worryingly low at just €65,000, especially if there are dependents. A good financial advisor can help you work out how much cover you really need:  the younger (and larger) your family the higher the sum needed, though other assets/insurance (like mortgage protection) must be taken into account. 

Another worrying development are recent findings by Aviva Health regarding the amount Irish people are smoking and how it is affecting life expectancy.

According to the company, nearly 25% of all health insurance applicants are smokers with more women (24%) smoking than men (22%), with women smoking twice as many cigarettes (23) a day than men, up from just 13 cigarettes reported last year.

While smoking does not affect the cost of health insurance premiums (which are community rates), it can, in some cases, double the cost for life insurance and reduces life expectancy by 15 to 20 years, says Aviva.  The risk of developing lung cancer for women is expected to rise by 136% by 2020 for men and by 59% for men, according to the National Cancer Registry.

These are very worrying statistics and a sign of our difficult times.  The largest concentration of smokers are in County Longford, which also has one of the highest unemployment rates.  Yet by giving up cigarettes the heavy smoker will not only improve their health (and save up to €3,500 a year) but also sharply reduce their life and protection insurance costs.

Nevertheless smokers still need to speak to a good financial advisor about the most competitive insurance rates for them, but they should then do themselves – and their loved ones – an even bigger favour by checking out the Irish Cancer Society quit smoking website (http://www.cancer.ie/quitting/tips.php) or by joining their nearest  support group. 

Negative Equity Promises Not Worth the Politician’s Paper They’re Written On

Fine Gael’s promise to rescue mortgage holders in negative equity by extending more mortgage interest relief to them should make me despair more than I do already about the future of this country.

However, since Michael Noonan’s absurd idea, which also includes mortgage interest price controls is just that – an empty promise – it isn’t worth getting too annoyed or indignant. 

Nor should anyone in serious negative equity actually pin their hopes on the likes of Noonan – or any other elected politician – to solve their mortgage woes.  The mortgage problem is past solving with more tax tweaks or twirls and now that we no longer really have a say in how the finances of this country – or its insolvent banks are run – there will be no capping of interest rates, as Noonan proposes. (The foreign owned lenders like NIB and Ulster Bank, who will also be raising rates, will quite rightly tell him to get stuffed.)

Noonan says it will cost €120 million to extend mortgage interest relief but he really hasn’t a clue. Since about 300,000 new homes were sold during that period and house prices have returned to at least 2002 levels I’d suggest nearly every house purchased with less than a 25% down payment over that period is in neg equity.  Throw in every house sold since 2008 without a substantial down payment and all those second hand homes – or second properties – bought since 2004 with tiny down payments, and this is a multi-tens-of-billion-euro problem that the government cannot solve, even with loans from ‘the Fed’, the US Federal Reserve, as Noonan also suggested in his mad banking manifesto a fortnight ago that he would seek.

So long as you keep your job, have a tracker mortgage and are happy enough to stay in the house you bought, negative equity shouldn’t be keeping you awake at night. However, you must start budgeting to take account that ECB rates may go up at some stage, probably by 0.25% or more.  Every extra 1% interest adds between €60 and €70 a month onto every €100,000 you owe (depending on the lender).  If you have a €200,000 mortgage it could go up by €180 or €2,160 a year. Work out now where you can save or earn this sum.

If you are in negative equity and are struggling to pay your mortgage (especially if you are on a variable rate) and think you may fall into arrears because of a rate rise, it’s time to act.  Read the new mortgage arrears protocol that has been agreed with the banks and the Financial Regulator. (http://www.helpinghomeowners.ie/pdfs/Mortgage_repayments_guide_Feb10.pdf

Then, with or without the assistance of MABS, for example, do a budget listing all your income and outgoings, indicate where you have reduced discretionary spending – such as switching to cheaper insurance and utililities, by cutting down on the booze, cigarettes, food (by now shopping in Aldi or Lidl).  Bring this financial statement to your lender and explain that you cannot pay the higher interest repayment and that you can’t even realistically keep paying the previous one.  Tell them how much you can realistically pay each month.

If they decline to accommodate your repayment adjustment  because you have not fallen into arrears yet (despite the protocol allowing for early intervention), contact the Financial Regulator and complain.  Or, you could go into arrears by simply missing a mortgage payment, which will certainly get the bank’s undivided attention, though this could affect your credit rating. (Which may already be compromised.)

What you most definitely do not want to do is to  get into a panic or depression about your mortgage repayment. This is no longer just your problem – this is a national problem and the last thing the banks want is mass foreclosure. Once you are shown to be cooperating with your lender in trying to find a credible payment compromise the participating bank cannot institute any legal proceedings against you for 12-24 months depending on the form of engagement.

 The protocol provides something more important to struggling mortgage holders than an empty promise from a politician – time.  You can use those two years to make plans: to find another or a better paying job; to retrain; to house share or arrange a family loan (in exchange for a share of the ownership); to immigrate or even – the worse scenario perhaps - to accept that you may never be able to repay the loan, especially if it’s very large, and that it is in your best interests to no longer remain the owner. In that case voluntary insolvency may be the only way to eventually be able to unfetter yourself from this huge debt.

Interestingly, Bank of Scotland Ireland has now said it will be writing off some of the debt of some of their borrowers. It’s a very realistic attitude on their part, but you may not want to count on the Irish owned banks following suit too soon as they will have to stiff the taxpayer for the write-off. 

Nevertheless it’s another sign that real solutions are in the offing. 

THE BIG MONEY QUESTIONS FOR RELUCTANT CANVASSERS  

I’m very lucky that I live on a busy street – election canvassers seem to prefer suburban neighbourhoods with family saloons and kid’s bikes parked in the driveway to the faceless inner city terraces where half the houses seem to be occupied by flats and the others by owners who barely greet their next door neighbour, let alone a canvasser who’s interrupting Fair City or the latest football scores.

I’m quite friendly with my inner city neighbours, and would positively welcome the chance to grill a politician seeking election in my Dublin South Central constituency.  But in the nearly 18 years I’ve lived on this street, not a single candidate has appeared at my door though a few supporters have knocked or dropped leaflets.

It doesn’t really matter. I’m only going to mark my ballot paper against one name, the Fine Gael incumbent, Catherine Byrne TD, not because I’m a party member or supporter – I’m not – but because she’s a decent, hardworking woman who has been a very good local representative, first on the city council and more recently in the Dail.

Catherine Byrne is modest, genuinely concerned representative and we certainly need more of those qualities in the Dail.  I think she’d be uncomfortable with the ludicrous trappings of office and extravagant pay, expenses and pensions that we bestow on ministers and junior ministers in this country.  She wouldn’t need reminding that this country is smaller than many English cities but runs deficits that rival those of far bigger countries.

If any candidates, or even canvassers dare to knock on my door during this election – including Catherine Byrne, who already knows she has my vote – I will at least go through the motions of asking them a few of the following questions that are relevant to the future of my family, but whose answers I doubt that I’ll find very enlightening:

• Will your party honour the IMF/EU loan agreement or will it admit that Ireland cannot pay this national/bank debt and should declare bankruptcy?
• What is your party doing to prepare for bankruptcy?  Does it have a plan about how it will deal with the inevitable high (but hopefully short term) job losses and inflation that will occur? Will we remain in the euro and eurozone? How will we pay the state’s bills? Is there a Plan B,C,D or E?
• Will your party fast track the personal insolvency and bankruptcy recommendations of the Law Commission so that indebted homeowners will have some hope of a life after debt?
• Ireland spends €52 billion but only raises €34 billion in tax and other revenue.  How will you find the €18 billion budget shortfall? Do you believe the country should live within its means?
• Does your party accept that 1.8 million earners cannot continue to support the unaffordable social and pay promises that have been made by too many governments over too many years to too many people?
• How much bureaucracy does a country the size of Manchester need? Does more or less of it help or hinder education and training, the treating and curing of the sick, or in the creation of wealth and employment?
• Will your party end ‘universal’ and untaxed social benefits and replace them with proper means testing to identify those members of society who are most in need of the few resources we do have?
• Does your party support wealth taxes – such as a property tax or on businesses to pay for the budget deficit?  Who pays?  Who is exempt?  How much will your government allow people earn before you further tax those earnings and distribute it to the people who you decide are ‘entitled’ to this money?
• Will you break up and privatise the VHI, which is owned by the Department of Health and cannot survive without the levy/subsidy, so that the private health insurance industry can operate on a level playing field? What is your party’s view about universal health insurance?
• Will your party stop over-paying and over-pensioning politicians and higher civil servants? Will Irish taxpayers keep paying for guaranteed, final salary pensions for the public service when such pensions are no longer available to the vast majority of other workers?

The canvassers job is to make their candidate appear sympathetic and caring - and indignant on your behalf - about all the bad things the outgoing government did.

Since every decision a politician makes has to be paid out of someone’s pocket, and that someone is nearly everyone under age 65 now that the Universal Social Charge has become Ireland’s lowest tax rate, you might want to put together a list of your own questions. 

Once it gets around, however, that you won’t take their platitudes for an answer, expect just the usual leaflets with the smiling faces and lots of promises, to be pushed through your letterbox.

If there’s one thing that really annoys a canvasser, (especially one with a candidate in tow), it’s a thinking voter who knows when the old game’s up.

Devil is in the detail of any bank insurance offer

SC writes from Dublin: I have two private cars and one private residence and three rental properties and it is costing me a lot of money to insure all of them.  I would like to have a package and know exactly where I stand weekly or monthly or yearly in this regard. Do you know of someone who would give me a good deal for my business?

I’m afraid there are no regular ‘three for two’ special offers in the insurance business as there in the grocery trade, or your favourite bookstore, though the likes of both Aviva and Quinn have been known to offer special rates if you buy your home, car and health insurance with them. Sean O’Connell of The Insurance Shop in Fairview told me that on-line brokers like 123.ie may be able to get better discount rates for your cars and properties – he admitted it wouldn’t pay for him to take on such business at those premiums – but you need to examine the contracts very carefully for small print and exemptions and excesses that might apply. He also warned that house insurance terms and conditions are being very strictly enforced, especially regarding water and flood damage and especially for rental properties.

Unfair state charge

KP writes from Navan:  Referring to your comment last week about the anomalies in the way the USC is applied, I have discovered an anomaly within an anomaly!  The Irish state contributory pension for a single person is €11,976.  I retired here in 2002 and have a full contributory UK pension (as well as a modest UK occupational pension).  My UK pension for 2010 totalled €7,012 which is exempt from the USC as 'a similar type payment'.  However, this means that a pensioner in receipt of the Irish state pension but with the same total pension income to me will pay a lower USC since less of their remaining income becomes liable after the €11,976 exemption (compared to my €7,000 exemption. I cannot follow either the fairness or the logic which requires someone whose pension income is not Irish sourced is liable to pay a higher USC than someone whose income is Irish sourced. Exemptions seem to be a minefield!

Tax advisors are not impressed by the construction of the new universal social charge. Two tax advisors I spoke to about your case both told me they were not “in the least surprised” to hear about the USC anomaly that you have raised, though it was the first time it was brought to their attention.  “Here’s another pensioner USC anomaly,” said one. “There are two pensioners, both 71, and both considered well off with annual incomes of €50,000 that includes their state pension of €11,976. One earns the balance of their income, €38,024 from a private pension. He pays income tax at the marginal rate on the €50,000 plus 4% USC on the €38,024 - the state pension being USC exempt. The other person earns their income balance of €38,024 entirely from interest returns from Savings Certificates which are tax and DIRT free as well as being exempt from USC. This pensioner pays absolutely no tax or USC on the entire €50,000.”

You’re right. It isn’t fair that only self-employed people who earn over €100,000 are being targeted for a 10% USC when all other earners with that income pay 7%, it isn’t fair that between two pensioners, each earning the same income, one ends up completely USC exempt.

Redundancy deal

PK writes from Dublin: My company announced just before Christmas that it was going to see voluntary redundancies early this year. This wasn’t unexpected and if they offer a redundancy package that is anything like one offered in 2008 I could expect to get about a year’s salary or around €65,000.  Just wondering what sort of tax I could expect to pay on that and would I still have to pay all that tax if I used the money to start my own business?

Ex gratia payments over and above statutory redundancy payment of two weeks pay for each year of continuous employment, plus a bonus week, subject to a ceiling of €600 per week, is taxable.  However, there are three different exemptions options available which reduce the liability plus the possibility of ‘top slicing relief’ which can also reduces the rate of tax you will pay.

The basic exemption is €10,160 plus €765 for every complete year of service. If you have five years service, for example, the amount exempted from tax from your estimated €65,000 payoff will be €13,985.  This basic exemption can be increased by another €10,000 to a maximum of €20,160 plus the €765 for every year of service if a) you haven’t made a claim for the increased exemption at any time in the previous 10 years and b) the increased exemption of €10,000 is reduced by any tax-free lump sum you may be immediately entitled to as part of an occupational pension or the present day value of such a tax-free lump sum which you may receive some day from the pension scheme.

The third exemption option is the Standard Capital Superannuation Benefit (SCSB) which involves calculating your annual yearly remuneration for the last 36 months multiplied by your years of service that can also take into account tax-free lump sums, though according to tax expert Sandra Gannon of TAB Taxation Services in Dublin, “The SCSB is more appropriate for people with longer service and higher earnings.”

If you don’t have a pension tax-free lump sum coming that would have to be deducted from the increased exemption of €10,000, based on exemption option two, your total redundancy tax free payment (assuming you have five years service) would be €24,985. (€10,160 plus €3,825 (€765 x 5) plus €10,000.)  This leaves a balance of €41,015 which is subject to marginal income tax of 41% or €16,406 and the universal social charge of €2,120, leaving you with a total, net redundancy payment of €47,474.

According to Gannon, top slicing relief, which is available to claim at the end of the tax year in which you receive your redundancy might be available as it takes into account your average rate of tax for the previous three years and might result in a refund if this is less than the amount of tax you paid on your lump sum.

Finally, seed capital tax relief is available if you were willing to invest your entire lump sum, plus, in the form of a refund, tax you paid in the previous five years into a group of qualifying new manufacturing and service enterprises.  The Revenue has produced a leaflet: The Seed Capital Scheme: Tax Refunds for New Enterprises - IT 15 that you can download at www.revenue.ie

Don’t be driven to despair when seeking car finance

As anyone who needs a line of credit knows, Irish banks are keeping their cash drawers closed, especially as depositors keep emptying their accounts for safer destinations.  

The drying up of normal credit hasn’t gone unnoticed by the finance banks operated by the big car manufacturers like Volkswagon and BMW, who now extend, via their dealers, much of the credit to buy these cars that are selling due to the car scrappage scheme.

Now the SIMI, the society of the Irish motor industry has decided that something has to be done for their members who sell used cars; their business continues to contract as the scrappage scheme hoovers up much of the buyers.

In conjunction with the country’s credit unions, they’ve launched a funding scheme that allows buyers direct access to credit unions (DACU), even if the buyer is not yet a member of a credit union. To avail of any loan offer from a credit union in their ‘common bond’ area – their geographic community or employment that has a credit union - the car buyer will then have to join that credit union.

With credit union loans as cheap as 6% or 7% this is pretty good offer both parties, by-passing for the dealers the credit freeze that has paralyzed the banks and for the credit unions, the shrinking of lending (and members) because of he downturn of the economy and the propensity for everyone these days to save, not spend.

Since the banking crisis began, many credit unions have unwittingly turned themselves into savings banks, not lenders. This was never their primary purpose; credit unions are there to extend modest amounts of affordable credit to ordinary people.   A good selling point of this arrangement is that the credit union member gets a straightforward loan with interest payable only on the diminishing balance and not the usual, hire-purchase terms that constitute typical car dealer finance packages.

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A hunger for change

The Egyptian uprising that, like in Tunisia, was sparked by rising food costs among other problems. In a country where the average person will spend half their daily wages on food, it doesn’t take much price inflation to light the revolutionary fuse.

Here in the West an adult will typically spend between 10% and 15% of their income on food. Historically, the ratio has never been so favourable. Tell that to someone who is out of work and trying to feed himself on €188 unemployment benefit, not to mention the pay the rent or mortgage, electricity and fuel bills, insurance and all the other trappings of a once comfortable western lifestyle.

Fifteen percent of a €30,000 gross income for food works out at €87 a week, but just €28 a week on a jobseeker’s gross annual benefit of €9,776.  Spending a modest €87 a week for groceries now represents 45% of his weekly income.

It is any wonder that there are now families in Ireland, in which parents are unemployed (or underemployed), where eating three square meals a day can only happen if you skip paying the rent, heat and light bills regularly?

The price of staple food is rising here, just like it is in Cairo and Tunis.  It may be some time before food price inflation means we can no long absorb the higher cost or adjust our meal plans, but there’s no room for complacency.

If Cairo’s revolution was trigged by higher food prices because there simply was no more give in their meagre budgets.  How high do food and fuel prices have to go before 450,000 in Ireland with no work and subsistence incomes, decide it’s time to at least express their displeasure?

The general election is a sort of circuit breaker after months of high tension, but whoever wins the poisoned chalice in three weeks time had better come up with some immediate, practical policies to deal with the hardship of rising prices here, as well as all their lofty fiscal and political reforms.  

Maybe we have more in common with Egyptians than we think.

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Tax evasion

Meanwhile, I can’t wait to grill a few canvassers.  None of them really have a clue about the big issues, so I’ve decided to amuse myself by having at least one minor question that they might think they can answer.  This week it is, “Your party’s long term property tax policy is…?”

The consensus seems to be that we will get a property tax of some kind.

The National Recovery Plan, that masterpiece of fiction for the benefit of our friends in the IMF, claims that the interim charge will be just €100 in 2012 and €200 in 2013, but let’s stop kidding ourselves: property/ poll/ council tax in every bloated, socialised western economy inevitably comes with three zeros after the first digit. 

The prospect of a party canvasser – any canvasser - spending a few minutes vehemently insisting that no such tax will ever happen on their watch, is definitely be worth answering the door for. 

Politicians should prepare for Universal Social Charge anger

Here’s something to ask the next politician who comes seeking your vote in the upcoming general election: what are they going to do about the detested Universal Social Charge?

Everyone is reeling from the drop in their incomes.  After last week’s Finance Bill amendment medical card holders may be a little happier, their rate came down to 4%, but it has gone up to 10% for self-employed people whose businesses generate more than €100,000.

So what is the universal social charge?  First, it is neither universal nor a ‘social’ charge.  It doesn’t apply to all income and it is not earmarked for any existing or additional social benefit. The USC is just another tax, but because the government insisted it would not raise income tax rates in the four year National Recovery Plan or the 2011 budget, that was got around by replacing – and extending the reach of the health and income levies of 2010 by this new ‘charge’.

Zero rated income below €4,004 it starts at 2% on income up to €10,036; 4% on income between €10,037 and €16,015 and 7% on income over €16,016. The USC, in effect, is the new income tax rate for people who were once outside the income tax net.

Whatever about the ‘fairness’ of the USC, it is in keeping with the general inconsistency, complexity and sheer stupidity of the Irish tax system, and is rife with anomalies.

It exempts entirely or in part many different groups of people or different sources of incomes – mostly paid by the state as pensions, expenses and allowances.  The income or benefits of the low paid is now caught by USC, but income that is paid in the form of expenses or allowances to some very high earners, like the Judiciary and Foreign Service, is USC exempt. (For example, allowances like private school fees paid by the taxpayer for the children of Irish embassy staff is USC exempt. In some case these fees are over €20,000 per year, per child.)

All over 70s, for example, are automatically entitled to the lower 4% USC rate, regardless of their total income. After last week’s amendment, all 1.6 million medical card holders will only pay 4%. This group already include over 70s with individual earnings up to €36,400 or €72,800 for a married couple – one of the most striking anomalies of the medical card system.

When you eliminate one anomaly another inevitably pops up. 

The people who must pay the €80 million USC revenue lost because medical card holders’ were given a concession, are the self-employed with earnings over €100,000. They will now pay a 3% surcharge on top of the 7% rate on all their earnings in excess of €16,016, while all other people with such earnings (including politicians) will pay only the 7% rate.

The arbitrariness of this decision is shocking. If everyone earning over €100,000 were forced to share that €80 million shortfall, instead of just the self-employed,  the surcharge may have only had to rise fractionally.

Readers who hold the inexplicable view (in my opinion) that anyone who earns over €100,000 is a despicable capitalist-running-dog should at least keep in mind that the money that a self employed person generates from their work or trade pays their income tax, PRSI and 10% USC liability, as well as all their business expenses AND finally, their personal expenses. 

Depending on what work they do, the personal reward for most self employed people in this country is not particularly extravagant. There’s no paid overtime or holidays and no entitlement, despite paying 4% PRSI contributions, to state unemployment benefits, invalidity or carer’s benefits or any free dental/optical treatments. (The self-employed are entitled to the state pension and, if female, maternity benefit.)

Most people know the extent of the USC damage by now.  Many have discovered the charge applies to all income paid from January 1st, 2011 even if it was earned in December. Unfortunately, this also means that commissions or bonuses that were earned in 2010 but still not paid, will now be liable to the charge.

Sandra Gannon, my co-author of the TAB Guide to Money Pensions & Tax in the Recession 2011, and a tax advisor, says that anyone who is unsure of the amount of USC that has been deducted from their wages should have it double checked. 

“Mistakes can be made. PRSI is also now payable on all income and not just income up to €75,000, and you may be confusing that increase as USC.  Because income tax credits and bands have changed from January 1, you should have those checked too.”

You can also check your general tax deductions on the following on-line 2011 Budget calculator: http://www.thejournal.ie/budget-calculator-2011/#basic-calculator .  It won’t necessarily account for all deductions (like health insurance if it comes off your salary directly) but it does break down income, PRSI and USC liabilities.

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Meanwhile, Aviva Healthcare members need to review their policies before March 1st when their premiums will rise by 14%.  You should do what VHI members hopefully did last month: cancel existing policies and renew immediately on the cheaper, but equivalent corporate plan at the pre-rise price.

Before you do anything, shop around. You can check Quinn and VHI’s prices at www.bonkers.ie and www.compare4me.ie and the Health Insurance Authority website, www.hia.ie. Or contact the fee-based health advisor Dermot Goode at www.healthinsurancesavings.ie .