We once had the highest price inflation in Europe, so it should come as no surprise that we now have the highest price deflation – currently -2.6 per cent (yes, as in minus) but expected to be nearly minus four per cent by year end.
Politicians have been quick to point out that the falling cost of living is a buffer against the higher taxes they introduced last week, but the selective nature of those falling prices makes this theory easy to dismiss.
For example, the CSO reports that clothing and footwear prices are down about nine per cent over the past year, furnishings and household equipment down 4.2 per cent, petrol is down 14 per cent and mortgage interest has halved.
But the cost of food has only reduced by -0.5 per cent and some items and services are up sharply – like insurance premiums (19 per cent), education (5.5 per cent) and health services (nine per cent).
If you don’t have a mortgage and don’t need any more furniture or clothes (for the next season, at least), your cost of living is hardly improving.
Meanwhile, last week’s Budget will result in a typical middle earning private sector worker on €50,000 a year losing about €3,000 as a result of the tax and health levies.
If this person happens to have two young children and was in receipt of the early supplement allowance, that loss will rise to €4,000 this year and €5,000 in a full year.
The public sector worker on the same sort of wage is much worse off: once February’s pension levies are factored in he or she is about €7,000 poorer.
With only a third of the tax loss recovered by this emergency budget, there is a great deal more tax pain to come in December and it might include:
– A property tax on your principal private residence as well as the €200 that already applies to a second home;
– Means testing or taxing of child benefit payments;
– Further erosion of mortgage interest relief for remaining recipients of the relief (those within seven years of purchase);
– Reduction of pension contribution relief;
– The re-introduction of third level fees and
– The substitution of even higher tax rates and tax bands than the equivalent of the income levies, say to at least 45 to 47 per cent at the top rate and 23 per cent at the standard rate.
Between now and next October/December you should try to get your existing finances into focus and perhaps offset some of the additional damage that will be done in the next budget.
Just in case other tax reliefs that weren’t touched last week are targeted in December, make sure you are claiming all existing tax reliefs for the past year and for the four previous years (the maximum back tax period).
Mortgage and health insurance relief is now applied at source, but you had to make the application in the first place so double check that you are receiving this relief.
Make all your health and dental relief claims (now only available at the lower rate) and for bin charges, union subscriptions and rent allowance.
This may be the last year you have in which to maximise tax relief on private pension and AVC contributions and there is a very good chance that top rate relief will fall to either the lower, standard rate, or be set at a single rate.
Also, there is a risk that the size of the tax-free lump sum payment from your matured pension – currently 25 per cent for the self-employed and directors or one and a half times final salary for employed workers will either be reduced, or the lump sum will now be taxed.
You might want to speed up your retirement plans if you can.
A property tax is a near certainty, though no one is exactly sure how that will work – either as a lump sum, or as a percentage of the rateable or market rate value of the house.
The latter assessment will take much longer to set up so the government will more likely go for another levy in the short-term.
If you are retiring this year and were thinking of moving abroad, or even if you wanted to trade downwards or sell and rent, you might want to do it this year.
Property prices are still falling but they will only go lower once the property tax and lower mortgage reliefs come in: parents and children might want to consider swapping houses now.
The other danger is that a capital gains tax on the sale price of a principal private residence might be introduced – that rate has already gone up (for CGT and capital acquisition (inheritance and gift) from 20 to 25 per cent from May 1st).
If you are gifting someone a property or other asset you will want to get that paperwork done by May 1st.
The raid on our incomes and wealth has been so substantial that I strongly advise you to finally hire – if you haven’t already – a good fee-based advisor to prepare your an in-depth wealth review and report.
Next week, I’ll report back from a few of them – Eddie Hobbs included – on their top recommendations for surviving the next tax raid on our money.
- Jill Kerby welcomes reader’s letters. Please write to her via
Money Times, The Munster Express, 37, The Quay, Waterford or via email at jmkerby@indigo.ie.
