Jill Kerby

Has the Anti-Household Charge Revealed the Power of the People?

Yesterday, a small, but good natured group of local people – with a smartly turned out Jack Russell terrier at their head - marched down the part of Dublin’s South Circular Road where I live to join the protest rally at the National Stadium.

It was a glorious day for a demo (and for gardening) and the boxing stadium attracted over 3,000 similarly inclined people from all across the country who had decided to take a stand over the €100 household charge.

But the real test of this national protest will be next Saturday, March 31stdeadline.

Will the bulk of the households of Ireland capitulate as the Minister for the Environment expect them to, cowed by his threats of unleashing other agencies of the state on them, including the courts if they fail to pay, or will the ‘We are the 80%’ hold firm and defy the minister?

First let me say that Phil Hogan seems to be is a nasty sort. Just another jumped up power monger who was elected by a miniscule number of local supporters but is utterly disdainful of the wider citizenry who continue to pay his inflated salary, pension and expenses.

He reminds me of Dick Cheney.  Enough said.

But his recent, brutish, threatening behaviour and that of the Fine Gael minions who were shoved in front of microphones after he was yanked off the national airwaves, seems to have put a little more steel in the backbones of the protest groups and many other folk (who may have been about to pay up) who dislike such blatant intimidation.

So will the majority register and pay the household charge by next Saturday?

Maybe.

It has been my experience that most people in this country are far more afraid of the State and its agents, like tax collectors and the courts, than the State is afraid of them. (Hasn’t it always been thus, even in so-called democracies?)

But this little protest has at least provided a tiny glimpse of what happens when folk are emboldened, if only for a brief moment, to threaten to cut off the state’s source of power – taxes.The politicians, whose very own livelihoods and source of power are personally threatened by this act of resistance, end up panicking.  They say the most extraordinary things (“you WILL pay, or else”) in the most menacing of tones. 

The ‘servant of the people’ mask slips and they reveal their true nature.

Since this economic depression began, the Phil Hogan’s in all the ruling parties have of course, been lucky. The USC (Universal Social Charge), a far more blunt and non-progressive tax instrument than the household charge has had a devastating impact on personal spending power and the domestic economy.  The higher VAT is further destabilising the retail trade.

Yet the USC (and 23% VAT rate) was passed, implemented and is being collected with barely a whimper because every employer also felt compelled, under fear of retribution, to hand over this money.

Self-assessment tax collections, by contrast, only work when the taxpayer themselves decide it is in their self-interest to do so. We’ll see next Saturday how many people collectively decide it is no longer in their interest or that of their families to pay this charge and instead to defy the will of the state.

I’m guessing that a large number of people who paid directly from the government payroll or whose income is mainly derived from the exchequer and therefore ripe for a little ‘withholding’ action, will pay the household charge by March 31st.

They and many others, despite their deep unhappiness with austerity and the repayment of private bank debts will also pay because they also reckon €100 isn’t worth fighting over and they always pay their bills at the last minute anyway.

That will leave the diehards. 

The property tax

But the entire chambolic event doesn’t auger well for the introduction of the property/site water usage taxed from next year, when real money is at stake.

If the state can’t convince the bulk of the private property owning citizenry to cheerfully and promptly pay a small charge that is clearly needed in 2012, at a time of desperate economic need by local authorities, how can it possibly imagine that the same people will agree to pay a multiple of €100 next year? 

Many people are not convinced any new money raised will improve services in their community; some believe the income tax and all the other levies allocated for local authorities is already being wasted.  

Saturday’s protest was organised by parties who are not just against bailing out the banks, but who also oppose any tax that is not progressive enough to exempt their followers as well as the unwaged/poor (who are already exempt.)

The bulk of all taxes, say the anti-household charge leaders, should always be paid for by “the rich” though they are divided on whether a property tax is ever justified, except for “the rich”. (Property tax is a tax on wealth, not labour.)

If a site tax is introduced there is certainly a risk that many anti-household tax supporters, living in modest dwellings but on valuable sites, will be required to pay more than than someone who owns a fine house on a low value site. Cue demands for average industrial wage income exemptions if that happens.

Ironically, the dwellers of the high moral ground share also share the same attributes with the Phil Hogan’s.

If they were in power they too would use threats and force to make whoever they deemed rich enough to pay for the services and entitlements they believe should be free to their followers.

If Ireland is ever going to get out of this deepening economic quagmire, the part of the anti-household charge campaign that has revealed that the people do have the ability to curb the rampant power of the government - needs to grow.

But the other side of the picture, the redrawing of the function and power of the state and its servants, in accordance of the real desire of the people, how much funding it requires (as opposed to how much it wants) and whether those funds are collected voluntarily or by force, hasn’t even begun.

Until then, we’re just a bunch of debt serfs who will be led by trumped up little dictators from either the left or right.

Ends

HAVING A BABY?  CHECK OUT THE BELLS AND WHISTLES AS WELL AS THE STANDARD COSTS

The decade-long baby boom shows little sign of waning, with the national maternity hospitals still reporting large numbers (nearly c8000 a year each) of deliveries and at the Coombe Hospital alone, up to 119,000 hospital attendances in 2011.

To celebrate Mother’s Day last week Aviva Insurance brought out Your Bump to Baby maternity guide in which just about everything you’ll ever want to know about having a baby is covered. (Free copies are available until March 31st.)

In an accompanying survey of mothers with health insurance (67%), Aviva, perhaps not surprisingly given that nearly half the population still have private health insurance, found that 80% of these women believe that health insurance is also important for their children.

All infants of mother’s who have private health cover are also automatically covered for free until the mother’s renewal date. This is reassuring but every baby born in Ireland is also entitled to free care from the state once they are born, and all mothers-to-be can opt for free delivery of their babies as well if they can’t afford private insurance.   

The attraction of private health insurance however, is that the pre and post-natal process is – at least in theory – more in the mother’s control than if she attends as a public patient.  The prospective mother with health-insurance can arrange appointments to suit her work schedule as well as the doctors’; she can choose her own doctor and she can at least request private or semi-private accommodation in the public or private maternity hospital (although this can be hit and miss in the public ones).

The Aviva guide, which includes articles and contributions from medical experts on all aspects of pregnancy, childbirth and baby-care “is extremely educational and there’s something really useful on every page,” says the specialist health insurance broker and mother of three Roisin Lyons of Lyons Financial Services.

The cost of Aviva’s maternity cover is also clearly spelled out, making it one less company’s prices/benefits “that you have to go searching for on the internet” she says. It also makes it easier to compare all three maternity offers once you do round up the VHI and Quinn Health’s price lists.

According to Lyons all three insurers offer “very similar” benefits, the most common one being the three days cover for private accommodation in all the public hospitals. They all offer grants of between about €3,400 and €4,500/€5,000 towards the entirely private service offered Mount Carmel Hospital, but depending on your policy you will also be entitled to grants towards private consultant’s fees and some other benefits.

Since any cover for private hospital care (as opposed to private accommodation or consultant care in the public hospitals) is unlikely to include the full cost of your pregnancy, it is very important to price and compare all the potential individual costs before you opt for any particular insurer or plan, including the corporate plans.

Maternity care (for health women) isn’t considered a medical treatment in the traditional sense, says Lyons. “The quality of medical treatment is standard whether you’re a private or public patient” she says meaning that no woman jumps the queue just because she’s pregnant – babies don’t wait and a woman in urgent need of treatment, gets it.

But this is also why maternity benefits include more than just nicer accommodation options and an opportunity to pick your own consultant. They also come with “bells and whistles”, in various shades of pink and blue.

Depending on the price of the plan, maximum limits and possible excess payments, you could enjoy extra benefits such as pre and post natal care that include an option from Quinn Health, for example, to take one night nursing care in hospital and two at home worth up to €1,200 and a Doula birth coach discount of €300 from Quinn plus a €300 benefit for postnatal help. Aviva offers two days worth of post-natal home help (worth up to €120) €600-€900 contribution towards stem cell cord preservation and 3D an 4D Scanning. VHI offers up to €300 worth of pre-post natal care and baby massage class benefits worth up to €100.

 Lyons, who has three young children, says she particularly liked the Aviva 4D scanning benefit that took wonderful in utero pictures of her baby, and the post-natal home help benefit which involved two helpers for two four hour visits. “They can pick up other children, do the groceries, tidy the house -  whatever you wish. This benefit is only available in Dublin, Cork and Galway, but outside those cities you get €120 cash,” she explains.

There is a 52 week waiting period before you can claim maternity benefits if you are a first time buyer of private health insurance, but a young woman who is buying it for the first time and is thinking of starting a family needs to be careful of entry level policies, for example, which may not offer very much extra by way of the three day private room in the public hospital, says Roisin Lyons.

 The new Aviva booklet, however, is a good ‘extra’ for all pregnant women, with or without insurance, because of the huge amount of information and advice about taking care of yourself and baby before and after the birth. “I think it’s a good solid read and a good reference guide for all new mums in particular.”

 You can pick up a copy from LyonsFinancial.ie or any good broker or order a copy here: http://www.avivahealth.ie/member-info/maternity-benefits-guide/bump-to-baby/

Sunday MoneyComment – March 18, 2012

Universal Health Insurance? Only if there’s a true – government-free - market

I was stopped by a man in my local supermarket yesterday who told me that he couldn’t afford private health insurance anymore for his family. It’s just got too expensive, he said, and he insisted he knew why.

“Let me tell you a story. I met a friend recently who told me how he’d had to go to Germany for specialist treatment for prostate cancer. The cost of the surgery and treatment was all picked up by VHI – though not the flight – and for the four nights and five days it cost €10,000.

“Two years ago,” he continued, “my young son had to have a relatively minor heart condition treated in Crumlin – it was done by keyhole surgery but he was also in hospital for four nights and five days and Aviva covered the bill, which cost nearly €30,000.

“That’s why I can’t afford private health insurance anymore for my family and why 60,000 people have dropped their cover.  My friend said his surgeon said that his bill in Ireland would have been two or three times more than was charged at the German hospital. Irish doctors and Irish hospitals are killing the golden goose.”  

He’s right at least about the health service now being caught in a nasty inflationary/deflationary spiral: the more people drop private health care, the more the insurers raise their premiums and the higher the cost to the state which increases its charges to the insurers… ad nauseum.

This man’s son and his friend, like the vast majority of the other two million people with private insurance here are mainly only treated by private consultants in public hospitals and their insurance plan covers the billing of both the operation/consultant and their semi-private or private room bed (or just an ordinary bed in the children’s ward) in the public hospitals. The cost has been going up sharply in recent years since it was decided that the true price of the use of the public hospital services hadn’t been passed on.

Meanwhile, only a minority pay for expensive plans that cover them entirely in the private hospitals.

It isn’t private health care that is to blame for the huge disparity between the cost of health treatments in Ireland and Germany. So what is doing so?

How about the fact that nearly 80% of the Irish health budget is spent on salaries and pensions, and these are set by the government and the public sector unions. The other 20% of the running costs – drugs, equipment, fittings, utilities, food,– are also the responsibility of government paid administrators, and with no personal ‘skin the game’ they’ve few qualms about spending taxpayer’s money either.

Is it any wonder then that the price, both public and private, to over two million health insurance members has been soaring for years?

James O’Reilly, the Health Minister seems to think that once universal health insurance is rolled out (starting with “free” GP care by 2016) we’ll have one, wonderful health care system that is fair, and accessible and world class.

There is only one way this will happen, regardless of how many golden eggs can be squeezed out of the poor, shrinking Irish goose:  the Department of Health and the Government must be reduced to a supervisory and regulatory role only and the health care market – patients, practitioners, hospitals, insurers – must be allowed to work out a genuine service that is affordable and deliverable, based on our available resources.

Let me put it another way:  if the Department of Agriculture had also been allowed to run the provision and delivery of food in this country, we’d have all starved long before anyone would have needed medical assistance.

This lack of empathy gets you nowhere

The Central Bank Governor Patrick Honohan must think it is helpful whenever he lobs another little hand grenade into the public debate about the dire state of our banking system.

He’s wrong. It just annoys ‘the little people’.   

You know, people not like him, not on a big fat Irish government salary of c€300,000, pension and perks, who didn’t get sucked into buying a huge mortgage on an overpriced property (for their own use or as an investment) during the biggest property boom in the western world that happened partly because the central bankers of the day were incompetent and asleep on the job.

Last week, Mr Honohan said it was high time the banks start putting the boot into owners of investment properties who cannot meet their repayments and are in arrears.

Why?

Because these defaulting loans are a threat to the survival of the banks – as are the c100,000 or so homeloans in arrears – but the investment ones are not subject to the same consumer protection codes and forbearance measures. He knows that if the entire problem is left to fester, it could bring down the Irish banks once and for all. By tackling the smaller c30,000 buy-to-let problem first, he must think it will give the banks a little breathing space before they’re forced to cope with the more lenient treatment that is expected to be afforded to distressed home owners when the new insolvency and bankruptcy law comes into force next year.

What the head of the Central Bank isn’t taking into account is that a lot of those 30,000 investment loans are backed by the equity in the borrower’s principal private residence. If one goes, they both go.

Or maybe the Governor does know this, but figures it’s going to be ugly whatever the outcome and the banks have to start somewhere.

It’s their survival, let us never forget, and not yours, that isn’t making this well-remunerated government servant lose any sleep.

FORGET THAT TROIKA:  YOU NEED YOUR OWN FAMILY UNION/ / FAMILY CENTRAL BANK/ FAMILY MONETARY FUND

Adjusting our expectations about money – how much we can afford to spend as opposed to how much we’d like to spend; how much we need to live on and how much we’d like to live on – is something that I don’t think has been properly thought out yet in post Celtic Tiger Ireland.

Everyone, from the politicians who are implementing the (possibly) fruitless austerity conditions imposed by our Troika paymasters in the EU/ECB/IMF, to big companies that are choosing to cut jobs first before cutting their own structural overheads or shareholder’s dividends, or those of us who cling on to unaffordable lifestyles are missing the reality of the profound changes that happened when the boom ended in 2007-8.

We all need to start coming to grips with the new reality:  that most of us are going to have to make do with less earnings, less credit and the opportunity to accumulate less new stuff for quite some time. That natural expectations for home ownership for all, advanced education for our children and first world health care for free just isn’t affordable right now.

If there is one lesson that is being forced upon us by the debt deleveraging deal that’s been made on our behalf by the government with our creditors, (culminating in a permanent EU Fiscal Treaty that we’ll just have to keep voting for until the EU gets the answer it wants), it is that Ireland Inc is also going to have to live not just within its means in the future, but below its means for quite a while too.

You can argue until the entire European herd of privileged and pampered cows comes home that the error in lending us too much money over the past decade was as much our German and French creditors’ as our own, but I expect that argument will only work once – for Greece.

I’m guessing that we’re going to need a huge debt-writedown too, but every tax hike and levy we pay, every cut in public services we tolerate, shows the Troika that we still have a considerable capacity to absorb the financial shocks of the ‘Great Deleveraging’. 

Our politicians and the technocrats believe there is no stomach here for Greek-style anti-austerity protests here for at least five reasons:

-       We’re literally, not hungry enough: €20 billion is still being paid out in social welfare benefits to ensure no one starves.

-       There are no mass property foreclosures or evictions because the government controls the main mortgage providers.

-       The return of mass emigration/continuing job opportunities in Australia, New Zealand and Canada.

-        Public sector pay and jobs continue to be protected by the Croke Park Agreement. In other words, that portion of the €18 billion still being borrowed from the EU to cover the annual budget shortfall is paying for industrial peace.

-       Three foreign export sectors – pharmaceuticals/medical devices, information technology and agriculture – keep providing well paid jobs.

-        There is still €88 billion under investment in private pensions and over €90 billion in household savings. This money is a last-resort source of debt repayment.

For the moment at least, what’s not to like about Ireland if you are one of her creditors?

However the domestic, non-government economy is paying for the bulk of the deleveraging and will do so until it can’t, or until good sense prevails in Dublin, Brussels, Berlin and Washington and proper debt restructuring/write-down plan is adopted.

In the meantime, our government is right that Ireland won’t get out of this vast financial hole without help. They’re just not getting the ‘right’ kind of help from our European partners and American friends.

So until they do, how about creating your own Family Stability Fund and Fiscal Treaty for your wider circle of family and loved ones (who may not have a family)?

-       First, produce an up to date family balance sheet and budget. Don’t be shy – put it all down: all the assets, income, debt, expenditure, savings and investments of every member of your household.

-       Consider widening the exercise to include other roots and branches of the family like siblings, parents and grandparents in order to assess the assets and liabilities of the wider ‘Family Union’ (to be referred to as the FU especially when dealing with unpleasant creditors). Take advantage of the negotiating strength that comes in numbers.

-       Create your own ‘Troika’ – a committee of financially solvent, clued-in family members from each generation:  grandparents/elders; parents and young adult children. The Troika can then try to come up with a strategy that can – temporarily - distribute surpluses, help to sell/rent assets to recapitalise the indebted; invest in existing or new business ventures that might prevent the insolvency, bankruptcy or forced emigration of family members/friends.

-       A job creation plan can be created too, using all the personal contacts, skills and resources of the FU to find, create or finance an Irish-based job for every FU member who needs one.

I’ve been describing this as a ‘Build an Ark’ process in recent months. We’ll come back to this subject soon. 

HIGHER STUDENT FEES COULD LEAD TO YET MORE FINANCIAL DISASTER …FOR STUDENTS

Last week’s revelation that there has been a surge in CSO applications for science and technology places in our universities is great news. The country needs more young people training for such sectors.  Consequently, and I speak from personal experience here as the mother of an 18 year old with his heart set on a science place at TCD, more young Leaving Cert heads are now engrossed in their schoolbooks this weekend as they scramble to achieve the higher points they’ll need from their June exams.

The less good news for these aspiring scholars is that there’s also been an increase in the number of students from Northern Ireland and the British mainland applying for college places here.  

They’re not doing so to fill our skills gap but because from next September their annual college fees go up to £4,000 and £9,000 respectively.  Unless they have rich parents, Irish registration fees of c€2,500 look a lot more affordable over four yeas than the prospect of years of slogging to pay off UK bank loans of £36,000  or more.

This isn’t just a simple tale of the consequences of changing government policy regarding the funding of third level education.  Fees are higher because all western governments are running huge deficits and they can’t get away with blatant universal freebies (like free university).

But unless they plan to reserve access to third level education only to the very wealthy – which is political suicide - they will have to find another way and state backed, student bank loans will be given a go until that money burns out.

The British have the Student Loans Company, which originally offered mortgage style finance to qualifying students and since 1999, future income-based loans – or graduate tax - for repayment purposes. The amounts the SLC award no longer cover the huge new fees and there are questions about how far the UK government can go to keep funding and guaranteeing these loans.

The Americans have similar schemes, but the money originates in private banks and is backed by the US government so that full cost of fees can always be covered and not just amounts set by the student loan company as happens in the UK.

The UK system is losing money, but the American one is an an unmitigated financial disaster. Could it also happen here?

Young buyer beware, especially in light of this anecdote.

A couple of weeks ago, the Federal Reserve Chairman, Ben Bernanke, made an extraordinary revelation to the House Finance Committee during his monthly report about the state of the US economy.

He said that his son, who is a medical student, now owes over $400,000 in (state-backed) student loan debt.

Tuition at an Ivy League medical school (where presumably Mr Bernanke’s son attends) costs at least $50,000 a year. Multiply that by seven or eight years (the young Bernanke also has living expenses) and that figure is credible. 

Or Incredible.

American doctors earn huge money but to be carrying $400,000 in debt before getting your first job or seeing your first patient seems a little excessive even by the US personal debt standards.

Bernanke junior’s story is an extreme example of what happens when government policy to support higher education with a state backed loan scheme goes out of control.

Government supported loan schemes really took off in the US in the 1970s, partly as a response to meet the education promises made to returning Vietnam War GI’s and to encourage higher third level education generally.

The size of the loans grew greater and greater in response to the inevitable raising of fees by the education sector which was acting in exactly the same way as all commercial recipients of cheap, easy-to-get finance react:  they raised their prices. 

(When an infinite amount of money meets a finite supply of goods, the goods ALWAYS get more expensive.)

The US student loan industry is now a racket. 

There is over $1 trillion in loans outstanding now and 27% of those loans are now in 30 days arrears.  Default is commonplace; so much so that bankruptcy laws were changed to exclude student loans. Unlike non-recourse mortgages, that debt now follows the ex-student indefinitely.

It isn’t just Ivy League and State universities that are the expected beneficiaries of taxpayer largesse. Every post secondary institution qualifies and there is now a new industry of for profit educational institutions in the US that was set up specifically to milk the government student loan schemes, aimed a sub-prime scholars.

No one with a beating pulse is turned away from so called third level education; if the student drops out or doesn’t get their qualification or degree, (and can’t repay their loan because they have no job), so what? The government picks up the tab, the fee part of which just keeps getting more expensive every year.

The US Economic Policy Institute recently produced a study that showed that the wages of young men aged 23-29 have fallen by 11%, adjusted for inflation over the past decade and by 7.6% for young women. 

The easy availability of higher education has not improved the employment or earnings prospects of all graduates in the United States and while the Ivy Leaguers with professional qualifications will undoubtedly early substantial incomes over their lifetimes, if their fees are not waived, even they will be burdened by inflated state-backed loans.

No one wants third level education restricted to only those who can pay the true and full cost. This is why colleges constantly seek (or should) donations, bequests and benefactors, and hire fund raisers and fund managers:  to offset the costs for gifted but poor scholars.

The politicians meanwhile have a political agenda, specifically to please middle class voters and to keep youth unemployment and dissent as low as possible.

For 15 years the cost of ‘free’ third level education was paid for through government borrowings and especially during the boom years, from abundant property taxes. (Where did you think that money was going when you paid €40k stamp duty on your new house?)

Now all this money is gone and university fees have to be reintroduced.

I don’t think we’re at risk – yet – of introducing calamitous state loan schemes on the American or even British models. That’s because we’re already bust.

But emigration isn’t going to keep the youth unemployment pressure cooker under control forever and it doesn’t buy very many votes from their parents either.

Give us enough time and financial assistance from the Troika or ECB and student loans will be part of the debt landscape here too with the same outcome: higher college fees and charges, even more ‘graduates’ than we already have with useless arts and social science degrees, a growing default rate as they can’t find adequate employment to repay their debt and, in the end, another great big bill for the Irish taxpayer.

Check the numbers before you sell Vodafone shares

PS writes from Dublin: I am left with about €3,000 worth of Vodafone shares from my – failed - original investment of €8,000 in the Eircom share flotation. Are they worth holding onto and what would the tax situation be if I sold them now? Your advice would be greatly appreciated.

Only you can decide if you have the time and inclination to hang onto your shares in the hope that they may someday reward you sufficiently. If you check Vodafone’s five year share performance on financial websites like Yahoo Finance, you will see that their price has ranged from about Stg137p to171p (as I write) with some huge highs and lows. Over the past 52 weeks alone the range has been between about 154p and 185p.

If you decide to sell your shares, you can offset any loss you’ve made on them against any other capital gains from other shares, less your personal capital gains tax allowance of €1,270.You can carry any remaining loss forward to the next year.

Working out exactly how much of a loss or gain has been made by Eircom/Vodafone shareholders is complicated, because of how a pat of he company was sold off (Eircell) and how bonus shares were also issued at a rate of one Vodaphone share for every two Telecom/Eircell shares held. 

Vast amounts of space have been dedicated to the formulas and calculations on Askaboutmoney.com and other consumer boards, but I suggest you hand over your query to an accountant or tax advisor and let them do hard lifting for you.

GK writes from Dublin: I have become a resident in Ireland for tax purposes.  I own a rental property overseas that has a tax year from April to March.  The tax year in Ireland runs from January to December.  Can you advise how I partition the rental income and expenses across differing tax years and apportion the credit for tax that has been paid in another country that has double taxation agreement with Ireland. Can you refer me to a document that I can use to understand my tax obligations with regard to rental income.

You also need to consult a good tax advisor about your overseas property, its tax treatment here and in the other country and whether your wider tax position also comes into play.

Meanwhile, the Irish Revenue Commissioners produces a useful leaflet, ‘A Revenue Guide to Rental Income – IT 70’ that you can download from its website here: http://www.revenue.ie/en/tax/it/leaflets/it70.html  It should provide everything you need to know about what expenses can be deducted, how profits and losses are calculated, when any tax is due and the records you need to keep. It even includes a section about foreign rents.

KC writes from Co Wicklow: Due to a period of unemployment, overspending and robbing Peter to pay Paul I have a credit card debt of €26,280.26. I have been paying the minimum payment up until November when it became impossible to service the €650 per month. I’m back in employment, as is my wife but we’re struggling with our bills having no money for food near the end of month. On top of a €6,500 overdraft, direct debits are bouncing every month, but we’re still paying the mortgage, though interest only for the past six months.

The credit card has been revoked after I asked the bank to freeze the interest last December. Now they are (finally) offering me three options: to get a loan to pay the balance; send in a budget plan of what I can afford and they will send it to their controllers or make them a settlement offer of 85% of the debt, but the balance will stay on my record as a bad debt for five years.

The credit union will approve a loan for €23,000 and I will then have to find the remaining €3,280. I would appreciate your opinion on these options.

Two financial advisors I spoke to about your debt problem both agree that because your credit record is probably already impaired you should not immediately take the third option and make your card provider the 85% settlement, but rather try to negotiate an even larger write off.

“Your reader stands to lose little by having a worse credit record than he already has,” suggested Karl Deeter of Advisors.ie . “The upcoming Debt Settlement Arrangement which will engage with lenders via a personal insolvency trustee may get him a better result, if he can wait it out until the DSA is in place, probably sometime next year.” 

Vincent Digby of Impartial.ie advisors, also believes the write down “is not a large enough carrot” but thinks you cannot possibly know the true extent of all your debts, arrears and any interest penalties and what you have left to live on every month “until you do a proper and realistic budget for monthly expenditure.”

Even though you are employed again, Digby isn’t convinced that a credit union/bank loan will be sufficient to restructure your credit card debt at affordable monthly repayments given how you are struggling to pay your interest only mortgage, the overdraft AND put food on the table.

“If the sums don’t add up then it may be time to call in MABS and/ or start negotiating with the Bank for a more substantial settlement.”

You should also make an appointment to see your mortgage lender about further forbearance measure for those payments. Good luck.

THOSE AIB WORKERS LOST THEIR JOBS FOUR YEARS AGO

Losing your job is always a difficult personal setback.

The 2,500 AIB workers who will lose theirs are no different from all the other hundreds of thousands of private sector employees who have been made unemployed in the last four years except, of course, that they’ve known for nearly all that time that their jobs were hanging by a thread.

The 2008 global financial crisis and the massive fall in Irish bank share prices the previous year signalled the perilous state of the Irish banks. Within months it was established that the Irish banks were bust and would have folded if the Irish state hadn’t unilaterally guaranteed all their debts and deposits.

Four years later and nationalisation, no profitable new business has been done in AIB.

The 13,000 workers have mostly spent their time servicing the on-going ordinary needs of customers like personal banking (which is not very profitable) or in coping with their arrears and debt problems - which is a huge loss-maker. 

There have been no severe or widespread cuts to their numbers, pay, perks or pensions.

No one knows exactly who will make up the 2,500 redundancies at AIB, but every single one of the 13,000 employees have had a three or four year stay of execution that no one else in the private sector has enjoyed. Non-Irish banking firms that experienced a 20%, 30%, 50% drop in business have long since slashed their labour costs and numbers, usually the single highest cost component of any service business.

AIB workers instead have shared the protected status of civil and public servants who have also been immune from the reality of the collapse of their business – the running of the Irish state.

Tens of thousands of state workers have also kept their jobs despite having less to do, or certainly less money with which to do it as the tax base of the state collapsed and a €25 billion a year shortfall appeared (now ‘just’ €18 billion).

Like the public and civil service, AIB (which only has more losses coming down the road) is now offering an incentive of three and a half weeks of pay per year of service to incentivise those 2,500 to take voluntary redundancy.  The state, of course, incentivised the early retirement of 9,000 of its staff to leave its employ but attracted mostly the wrong people by not identifying the 9,000 people whose jobs were actually redundant, and had little or not work, due to the Great Recession.

On a personal level I’m sorry that anyone employed by AIB with bills to pay and children to raise and hopes and dreams they wanted to fulfil, is losing their job.  I wish every one of the 2,500, which might include a beloved nephew, good luck in finding new work.

Yes, we’re all ‘victims’ of the dastardly bank bosses. But workers in the Irish owned banks have seen the writing grow larger on their walls since 2008 and they’ve enjoyed four years worth of wage/pension subsidies from the taxpayer to prepare them for the inevitable.

CREDIT CARD DEBT IS ONE OF THE HARDEST TO SHIFT

People who get themselves into credit card difficulties have my sympathy.  They never set out to miss payments or spend up to their limit so quickly, or to only pay the minimum 2.5% balance instead of the entire amount they owe.

Nearly everyone who gets their first credit card intends to use it sensibly, “just for petrol”, “only for holidays”, “for ordering on-line”; they certainly never imagine that they’ll have to use it to pay the ESB bill or groceries at the end of the month because it’s four days before payday and there, literally, isn’t a penny in their purse.

Credit cards, as many of your letters to this column have revealed over the years, are considered one of your most convenient forms of money exchange, but also one of your greatest curses.

According to the latest Central Bank money and banking statistics for January 2012, at 2,126,000 there were 10,000 fewer personal credit cards in circulation in January 2012 than the 2,137,000 a month earlier in December 2011. In January 2009, as the great recession started to really take its toll, there were 2,381,000 credit cards in use.

Nevertheless, we still owe €2.781 billion in outstanding credit on our cards, down just €71,000 on December and more significantly just €285,000 less (or less than 1% of the total) than in January 2009 when we had €3.128 billion of credit card debt.

The amount of ‘flexible friend’ debt isn’t getting much smaller lower for good reason: many still hold onto their cards for the simple reason that it remains an easy source of credit at a time when incomes are falling and the cost of living is going up.  For many it is their ONLY source of credit other than moneylenders.

Meanwhile the volume of debt is barely budging because credit card interest compounds at a monthly rate of on annual percentages of between nearly 14% and nearly 23%, depending on whether you have platinum or e-banking cards with all sorts of extras (like insurance and access to airport lounges) or just the ordinary plain vanilla ones that only charge extra for the government stamp duty.

The interest cost can be huge: according to credit card calculators, (see http://www.nca.ie/CreditCardReadyReckoner.aspx) if you owe €10,000, pay just a 2.5% minimum payment of €250 and make no more purchases, it will still take you six years and four months to pay off the balance at a total cost of €19,000, of which €9,000 is interest. 

If you could arrange a personal loan at say, 10% interest over the same term, it would ‘only’ cost you €178.14 a month and the total cost of the capital and interest would be €13,538.96 of which €3,538.96. 

(Cards that require just 2% minimum payment – such are available in the UK and USA - result in the same 10,000 dollar or pound balance, if charged at 22.7%, costing a whopping 32,000 dollars/pounds to clear over 13 years, of which 22,000 is interest.)

The ease with which we have accumulated credit card debt and the difficulty we have in paying it off means that hundreds of thousands of people are probably struggling to keep up their payments. 

The credit card companies are particularly aggressive in pursuing debts and while they are now limited in how often and at what times they can contact the debtor (under the revised Consumer Protection Code) before this happens you should contact them and explain your difficulty. Put everything in writing and keep a register of all calls and emails. Prepare a financial statement – MABS can help you do this if your debt is particularly serious – and from this you will hopefully come to an affordable repayment schedule after officially “renouncing” the card and putting it out of action.

For the majority of people who are keeping their credit cards – no matter what - perhaps a review of their use and the way they are paid off is in order.  Credit cards are useful and affordable but only under the following conditions:

• Ideally, the balance should be paid off every month to avoid paying any interest.
• The next best thing is to set up a standing order that pays off significant amount of the debt each month – say at least 25% of the monthly balance or a set amount that is well above the minimum payment.
• Try to use the card for specific, regular purposes only, like petrol and the weekly grocery shopping where the amount is nearly always the same and can be properly budgeted.  
• For all online purchases and holidays, consider using pre-filled Visa or Mastercard money cards that limit your purchases only to the amount on the card.
• If you don’t pay off your card in full or part every month, then shop around for the best interest rates and best switching rates. (MBNA Platinum card allows 10 months at 0% interest; PTSB Ice and Tesco’s card allows 6 months at 0% while the best rate cards are AIB Click (13.6%) and Bank of Ireland’s Clear(13.8%) cards and NIB’s Platinum card at 14.38%.
• Be very care of incurring late payment and other infractions – the penalties are steep and your credit record can also become impaired.

All card details on the Irish market can be compared on the National Consumer Authority’s website and their credit card repayment calculator can show you exactly how much interest you will pay to clear your balance over any time period. 

Negotiate before you fall into negative equity trap

CP writes from Westmeath: I wonder if you could help us get out of a mortgage with a sub prime lender?  We took out a €270,000 interest-only mortgage in the good times at a rate of 6.5%.  We are now unable to pay the full amount each month and, although we are not in negative equity at the moment, if we carry on being charged the interest on interest I fear we could get into negative equity.  Of course our credit rating is now bad.  Can you suggest any way out of this?  We are very happy to look at alternative types of mortgages.

You may not be in negative equity – yet - but it certainly sounds as if you are quickly moving in that direction as your arrears and interest penalties add up.

Unfortunately, lenders are not remortgaging properties with mortgage arrears and very few are doing so if the property is in negative equity, says Rachel Doyle, the head of mortgage services at PIBA, the Professional Insurance Brokers Association.

She strongly recommends that you write to your subprime lender and request a meeting with them so that you can try and work out an affordable mortgage payment schedule.  I suggest you also contact MABS, the free money advice and budgeting service that can help you evaluate your total debt position.  They may also be able to assist you in presenting a financial statement to your lender and other creditors.

AE writes from Dublin: We returned from England in 2005 to care for my elderly mother and bought a €600,000 house, borrowing €320,000. It is now worth, possibly, €350,000. Having lived through two recessions in England I knew at some time something would happen here, albeit not to such an extent.

My husband is 62 and will be 79 before the mortgage is paid off. I do not think this is feasible, least of all because he is freelance and I can't see him still being able to work at that stage. We are struggling as it is. It is unlikely that a carer’s allowance I have applied for will be successful.

Did PTSB act in an irresponsible manner by giving us such a large mortgage and do we have any redress in this matter? (I thought you could only issue a mortgage up to age 65?) At the time, my main concern was my mother and children and it was a year before the penny dropped as to the extent of our mortgage. I know neither of us will be capable of working so long and I'm constantly worried about what will happen to us.  

First, you do not say if you are in mortgage arrears, although your letter suggests that you don’t believe the mortgage is sustainable over the next 17 years.  Nor do you say what outcome you are seeking in questioning the legality of the approval of your mortgage application. Is it to have a portion of your debt written off or to have it nullified? By your own admission, you seem to have been aware of the impending financial difficulties here before you applied for the loan.

The Free Legal Aid Centre and New Beginning are two lobby groups acting on behalf of consumers who are facing repossession, who in many cases did not have suitable incomes and should never have been sold a mortgage and now do not have the means to defend themselves against a lender’s legal action. They prioritise cases where there is already a court date for the repossession order. 

You may or may not qualify for their help – yet. But if you believe you were missold this mortgage on age grounds, you could seek legal advice or take your case to the Financial Regulator. Good luck.

EOK writes from Dublin: I bought some shares many years ago in both Bula Resources and Waterford Wedgwood. Both companies are now gone and my money is lost but I do have some profits on some other shares and I want to offset the capital losses. However I can't find all the share certs and don’t know exactly how many shares I own in each company. The stockbroker I originally bought the shares from is no longer in existence and I am wondering if there a simple way I can find out for sure how many shares I own.

The best place to start looking for your lost share certificates is Computershare Investor Services (Tel 01 447 5566) or Capita Registrars (Tel 01 810 2400), two companies that may have your defunct and current certificates on file. You should contact them by telephone first. If they hold the certificates you will be sent out an ‘indemnity for lost certificate(s)’ form that will also need to be countersigned by a bank or insurance company or by Computershare itself. Both processes involve fees that vary according to the value of the shares. 

Recovering lost share certificates can be a costly and time-consuming event. All important documents, including pension and life insurance contracts, mortgage deeds, loan agreements, birth and marriage certificates, wills and passports should be kept in a file case or document box, where everything is properly labelled.  Let your next of kin know the location.

JC writes from Dublin:  I am considering how to leave my estate in the most tax efficient manner to my three children. I am aware that the tax threshold has been reduced in recent years.

I have a joint bank account with the children who were added onto the account some years ago. In the event of my death how would the Revenue deal with such an account? Would I be deemed to have a quarter share of this account and would the revenue compute a quarter of the account as the inheritance from it to one of my children?

Some financial assets are allowed to pass outside of a will or intestacy and so can be paid out right away.  These include the proceeds of joint bank accounts. However, a Revenue clearance certificate may be needed by the personal representative of the deceased person in order for the financial institution to release the funds to the other account-holders, or to the deceased person’s estate, where, as in your case a quarter of the money is yours.  The Revenue also note that in the absence of this letter of clearance, the financial institutions “are prohibited by law from releasing monies (other than current accounts) lodged or deposited in the joint names of the deceased and another person or persons” and where the total amount held in the joint account exceeds €50,000.”

You should discuss all of this with your solicitor when preparing your Will.

IS IT HIGH NOON FOR MORTGAGE LENDERS AND DEBTORS? 

Let us all wish Matthew Elderfield, the Deputy Governor of the Central Bank well in his efforts to get the banks to properly identify and own up to the great wall of bad mortgage debts that is about to crash down upon them.

The slow pace at which the insolvency and bankruptcy legislation is being finalised suggests it will probably be at least a year before the first debtors are processed through the new system.

The legislation is under construction right now, but after passing through the Houses of the Oireachtas, it will take considerable time before the proposed Insolvency Agency is set up and the recruitment, training and accreditation of the Insolvency Trustees.  

And time is running out.

At least that seems to be the view of the Deputy Governor last week in a speech to the Harvard Business School Alumni Club of Ireland. He doesn’t seem in the least bit happy about how long it’s taking the banks to identify the loans that are septic and need to be lanced and those that are downright untreatable, even with available forbearance measures such as interest only payments, extended terms, lower rates and mortgage holidays.

“The very limited or transitory relief provided by standard forbearance techniques could just be putting that person deeper in debt,” said Mr Elderfield. “The homeowner may be building up a bigger and bigger shortfall, for example through interest capitalization, which will eventually be owed when ownership of the home if ultimately lost. In other words, kicking the can down the road in the most difficult cases where families are borderline insolvent is unfair by adding to debt if there is in fact no realistic prospect that the standard forbearance is ultimately going to work.”

Sheriff Elderfield, who has cleared the worst of the desperadoes out of the town’s banks and stuffed their empty vaults with new capital borrowed from the ECB Sheriff’s Fund, knows that everyone from the schoolmarm, vicar, and town drunk borrowed too much when the place was booming. They know and he knows that the banks are never going to see billions of this money ever again.

It now looks as if the terrible mortgage arrears problem will start to be cleared long before our 21stcentury bankruptcy laws will be up and running and write downs and writeoffs will be happen - whether the banks’ like it or not.

 ‘High Noon’ has arrived and maybe genuine, widespread debt relief too, but it will interesting to see who’ll be left standing when the gunsmoke clears.

Ends

UNIVERSAL OAP BENEFITS NEXT FOR THE TROIKA CHOP?

Will old age pensioners take to the streets again if the Troika forces the government to withdraw or reduce their free travel passes, over-70s medical cards, electricity allowances and contributory old age pensions?

Maybe.

Judging by the crowds at the Over50s Show this weekend in Cork, (where I was giving “Build an Ark” seminars), most of the retirees I saw seemed more preoccupied by their planning their next holiday and spa weekends than in paying much interest in taking on the government.

They may be worried about the increasing cost of living, but don’t seem very convinced that they will be the next target for special austerity measures.

“They wouldn’t dare, not after the medical card demo” one woman told me after I suggested that means testing of all sort of pensioner benefits could be on the cards.

No one is suggesting that people who diligently paid their PRSI contributions, raised their families when personal income tax rates were at nosebleed levels and were prudent borrowers are not deserving of a decent state pension, currently c€12,000 a year and the other benefits.

But it just isn’t true that every pensioners is only getting back from the system what they paid in.

The value of the minimum required 260 PRSI contributions over 10 years that are required, up to this year, for a 65 year old to qualify for a contributory state pension (assuming they earn an average wage over that period of say, €30k) would never equate the value of the state pension should that person live another 10, 20 or 30 years.

Having paid in just €12,000 into the social insurance fund, and their employer another c10% or €30,000, is still a fraction of the €240,000 they would be paid over 20 years if they lived to be 85, assuming today’s payment remained the same.

Explaining this reality and reminding everyone that old age pensions continue to operate on a pay-as-you-go system (our taxes fund our pensions, not investment assets) doesn’t really cut much ice with retirees, but the sad truth is that the country is broke and the state pension system is unsustainable.

All the anger in the world won’t magic up the billions needed to keep this pyramid scheme from collapsing, but calls for a wealth tax are unlikely to go down very well with the prosperous ‘Over50s’ crowd either.

‘FATCA’  IS NOT JUST FOR FAT CATS

What an odd business page poll The Irish Times ran last week.

It asked readers if they believed the US Foreign Accounts Tax Compliance Act will have a detrimental effect on Irish financial institutions. The majority of respondents said it would, but judging from the accompanying comments, nobody seemed to really understand what FATCA is – most seemed to think it has something to do with our low corporation tax that so attracts American companies here.

In fact FATCA requires any foreign bank or deposit taker, insurance company, brokerage house, even estate agency identify and report to the US Internal Revenue any clients who are US citizens and who have holdings with their institution of $50,000 or more or €37,830.

FATCA, which is being rolled out over the next couple of years is part of a crackdown on personal tax evasion by US citizens who have foreign bank, brokerage, insurance accounts.  Banks and institutions that don’t comply will be liable to an annual 30% withholding tax on all their earnings from US assets (such as bank deposit and share dividends).

Irish institutions may still only be coming to grips with the implications of FATCA, but what is a real eye opener is the number of Americans living in Ireland, many of them for decades, who are even unaware of their obligation (if they have earnings in excess of the equivalent of c$90k) to file and pay US income tax every year and then claim credits here on their Irish tax liability.

If they haven’t been filing, and have savings in excess of $50k in a deposit account, shares or investment funds, these American residents may want to speak to a good tax advisor with an understanding of both the US and Irish tax code.