Jill Kerby

WE’RE ALREADY UNHAPPY ABOUT THE WAY OUR CARS ARE TAXED…

A recent survey by the tax refund company, asked 3,000 adults what they thought about motor tax.

Not surprisingly, 83% of respondents to Taxback.com said they’d support changing it or abolishing it. I expect the same might happen if 3,000 people (or 300,000) were asked their views about property tax and how it is already being predicted to be one of the most contentious issues next year when it is scheduled to be reset by the government. 

The motor tax survey results broke down this way.

27%    -   Those buying 2007 car should not have to pay up to 3-4 more for road tax than someone that buys a similar brand new €100,000 car
25%    -    I think the tax systems should be overhauled completed – scrap motor tax, increase tax on fuel so those who use their car pay more
17%     -   Motor tax should be based on the cost of the car
16%     -    I think that the current system is perfectly fair
15%      -   The system should be changed as CO2 is no longer the best measure of what’s good for the environment

Taxback’s director Barry Flanagan’s take on these findings focussed on what he thinks is really bothering the majority of the respondent’s – that basing the car tax on the emissions level is unfair.

“The emissions-based motor tax bands might bring cost efficiencies for drivers of [post July 2008] newer cars, but drivers who are just outside the cut-off point, are perhaps understandably frustrated by having to pay up to 3 times more tax than for a model just a year or two older.”
 
He noted that the road tax on a 1.2 Volkswagen Polo diesel/petrol car registered up to 01 July 2008 would cost €330 a year while the tax for the same diesel model registered in 2011, however would fall into motor tax band A2 and cost just €180 annually, a difference of €150. Someone with a 2008 BMW 525D (3.0 diesel) would currently pay €570 in motor tax while someone with the same 2007 registered car would pay €1494 a year in tax.

“It would appear, from these simple examples that, in effect, the current tax system rewards those with higher incomes, as they can afford post-2008 cars, and penalises lower income earners,” said Mr Flanagan.”

“Almost a quarter of respondents said that they believe motor tax should be scrapped completely in favour of tax increases on fuel so those who use their car pay more.

“The merits of this are not altogether difficult to see…a person who commutes by public transport during the week, only uses a car on weekends and clocks just 3,000km per year, pays the exact same amount of motor tax as a person with the same car, but who uses their car seven days a week covering huge distances, racking up 60,000km per year.”

This motor tax survey is worth noting because a far bigger debate – on the way property is taxed – is inevitable.

Should we tax residential properties at all given that they’ve been purchased with after tax income, interest-bearing loans (that do not attract any or much tax relief anymore) and for many who bought pre-2008, huge stamp duty charges?

Is it fair that owners of the same size property, but a very different value, pay the same rate of tax, and average of 0.18% of market value?  Should our homes be taxed on their size or their market value, regardless of their location? 

Should only properties that enjoy significant local services and benefits – mains water and sewerage, proper roads and street lighting, easy access to schools, shops and other amenities – pay property tax?

As the 2019 reset deadline approaches, all of these questions are circling political meetings at local and national level; they’re beginning to be raised by community groups and homeless services and charities, and by the thousands of homeowners who have ‘warehoused’ half their mortgage debt, but could see their tax double on a property that might even still be in negative equity.

Many city houses or apartments that were worth between €300,000 - €350,000 in 2013 have doubled in value since then, report Daft and MyHome. If the LPT is not reduced or revised next year, tax bills will at least double to €1,125 - €1,215.

The stakes are considerably higher on getting a property tax right than they are for getting a motor tax right. The tax issues are also at the heart of the ongoing ‘have and have-not’ property crisis. And it isn’t just the LPT that will be under the microscope, but all the other taxes associated with home ownership, from mortgage interest and capital allowance relief to our generous capital gains tax and inheritance tax rates and the subsidies that people with no property are paying to those who do.

The TAB Guide to Money Pensions & Tax 2018 is available in good bookshops. See www.tab.ie for ebook edition.

TIME TO TAKE SIDES – CASH OR CASHLESS?

It has been some time since I opened The Child’s backpack and found a note from the teacher instructing me to send him back to class with €5 or €10 or €20 for to pay for the latest school outing, or for vital class printouts/books/plants/charity collections / sports day prizes…etc.

We’d then go through the same process with the Scouts.

Either the school/Scout envelope included cash notes or a cheque. But those were the days when everyone still used cheques and the banks didn’t look upon them like used tissues to be processed by a machine in their increasingly empty lobbies.

On February 28, the National Payments Plan, an agency set up by the Central Bank of Ireland five years ago to help ease us into electronic payments and a future cashless society, announced a pilot project for schools that would see the end of cash payments like those above.

 “About time too!” I can hear parents saying everywhere. With cheques being rapidly phased out and parents resorting to rummage around the bottom of handbags and down the side of sofas to find the right number of notes, this is a win-win for schools and parents.

But how far should cashless transactions go?  Have we become so enamoured with the idea of not having to use notes and coins anymore that we lose sight of the bigger picture of loss of privacy (hello, Facebook!) and the further encroachment of Big Brother – the state and its agencies – into our lives. And what about how much power this gives Bigger Brother, the private banking

Contactless purchases have become so commonplace – one in every four payments now - that I find myself (unfairly) bristling at retailer who don’t feed my little purchases under €30 (and soon to be €50). People with proper Smart-phones use tap-on debit apps, instantly bypassing their debit card and the need for printed sales receipts.

Interestingly, as the use of cash continues to fall - Banking and Payments Federation Ireland (BPFI) expect that cashless transactions will surpass the use of cash and cheques here in just two years - a country that has been at the forefront of the cashless revolution for the past two decades, Sweden, is starting to have serious reservations about the consequences of being entirely cashless.

Last February, reported The Guardian, its central bank governor, Stefan Ingves warned that soon all payments for goods and services by Swedes will be controlled by their four private banks.  He wants new legislation to secure public (ie government) control over the payments system.

“Most citizens would feel uncomfortable to surrender these social functions to private companies,” he is quoted as saying. “It should be obvious that Sweden’s preparedness would be weakened if, in a serious crisis or war, we had not decided in advance how households and companies would pay for fuel, supplies and other necessities.”

Anyone whose bank account has been hacked, or their on-line service interrupted – Ulster Bank customers went weeks without proper access to their money a few summers ago – knows first hand how vulnerable they would be it a there was a focussed, technological attack by dedicated criminal, especially if they were sponsored by a hostile government.

A former Swedish police commissioner Björn Eriksson, 72, who leads a group called Cash Rebellion, or Kontantupproret, which had been dismissed as a bunch of old cranks has also warned about living so close to Russia and in having too much faith in the banking system to always do the right thing.

In Ireland we neither trust in the banks or government as much as Swedes do, but like the Swedes we’ve enthusiastically embraced the convenience, simplicity and lower costs associated with contactless payments and on-line spending.

GPs, taxi-drivers, pharmacists, petrol stations and soon, even primary schools (and of course the Revenue) will mainly see the security upside of this remarkable technology.  One of the main arguments that governments use for the use of less and less cash is that it makes illegal transactions less attractive, presuming of course that they, and their tax authorities will always be able to check everyone’s bank account records and spending activity.

Central bankers assure us that cash transactions aren’t going anywhere. (Really?  Their statistics show an exponential fall.)

How would you feel – how would I feel - if some day we could never again move our wages or savings into cash, because you wanted to make a perfectly legal, transaction that would be completely private?  Or you had nowhere to safeguard your money from being monitored, traced and ultimately, accessed by the agencies that control the power switch.

I no more want to exclusively return to paper money and metal coins than I fancy writing this copy on a manual typewriter.

But that doesn’t mean we shouldn’t be having a serious conversation about a cashless society, before it happens. 

The TAB Guide to Money Pensions & Tax 2018 is available in good bookshops. See www.tab.ie for ebook edition.

NERVOUS ABOUT THE STOCK MARKETS? DO SOMETHING ABOUT IT

Anyone who nervously watches their stock portfolio or pension fund value, checking daily unit-prices in the papers or on-line, is probably feeling a little uneasy.

They might not even be sleeping very well, depending on the kinds of stocks and funds they own.

And if they also follow Donald Trump’s tweets, which regularly include the president taking credit for any and all improvement in the US economy and especially about how well the stock market has done since his election, might be doubly concerned.

With the US markets having giving up all growth since last December, Trump  has become remarkably tight-lipped about the trillion dollar losses that have been racked up by American corporations.

For someone like Trump, for whom ratings are everything and big numbers constitute success, the reverse on Wall Street will be ignored until and if the Dow, NasDaq and S+P 500 pick up again.

And that may not happen too soon say some pessimistic commentators, at least not until everyone is clearer about the outcome of his latest tarriff war, his lack of progress on delivering infrastructure promises, the consumer spending slowdown and the worrying growth in the US budget deficit.  Had he simply stepped back and after getting his tax cut bill through and waited for the impact of the repatriation of billions of corporate dollars held offshor, recent headlines might have been more positive.

However, the markets have an uncanny knack of shadowing the political world and as one long deceased British prime minister once put it, that world is determined by “events, dear boy, events”.

If you, like Donald Trump, think every little surge or fall in share prices deserves attention, then you’re going to be on a perpetual roller coaster ride that is going to end in tears for you too.

Instead, you need to be asking, so what if the Dow is down nearly 3.5% since the start of the year?  Or the S&P 500 is down by nearly -2.3%, the FTSE 100 by -8.36% and the EuroStoxx 50, DAX and Nikkei by nearly -8%.

Apple and Facebook share prices – no doubt to the chagrin of their thousands of employees in Ireland who own some – have hit some volatility in the last month in particular (Facebook down by c5%).

But that shouldn’t matter a toss unless you’ve chosen to invest all your savings or especially pension fund money in any single share or market, despite the fact that last year the Dow jumped by 25%, the S&P by 19% and the high tech market, the NasDaq by 28%. (Even with big tech firms taking a hit, the NasDaq was still up just over 1.5%, year-to-date, at time of writing). 

Analysts and commentators are just as split in trying to explain what’s been happening in the Spring of 2018 as they were in the Spring of 2009 or 2010 when some predicted that it would take decades to restore the confidence and wealth that was lost after the 2008 crash of the financial sector.

The worst fears – that it was 1929 all over – never materialised of course. Bankrupt banks were bailed out, central banks forced interest rates down to zero levels to prevent mass corporate, state and individual bankruptcies and the bill was passed onto future generations.

Since then the debt mountains have just got higher, and the new normal is a mixture of low growth, uneven employment and a huge widening of the wealth gap.

And so it will continue so long as the money markets and their players (including pension funds) continue to be favoured with a regime of low interest rates and access to cheap finance from central banks. If market corrections are a natural part of investing, then we shouldn’t be in the least surprised at what has happened this Spring.

If you have a financial plan – and you should – then stick with it (my financial adviser keeps reminding me.) If you’re anxious about the markets…stop listening to the business news or reading the daily market reports.

If your plan is properly comprehensive and includes savings, protection insurance, modest debt, prudent spending and there is an investment strategy in place that you understand and can live with… then you’ve done what you can. 

The markets produce daily price snapshots. No one can accurately predict tomorrow’s price, let alone next months’. But if you do want to be pro-active and say, you belong to an occupational pension fund, and are getting closer to retirement request a meeting with your pension administrator or trustee. 

Don’t just ask about past performance, or how they think the fund will do for the next year. They don’t know.  Instead, get them to explain how widely – or narrowly - your assets are invested. 

And if they’re really doing their job, they’ll also explain the impact of all the fees, charges and commissions you’re paying, no matter how the markets perform.

The TAB Guide to Money Pensions & Tax 2018 is available in good bookshops. See www.tab.ie for ebook edition.