Better prepare now to pay for whatever programme for government may emerge
Personal finance columnist Jill Kerby brings us the latest installment of her popular, long-running column and she's warning consumers to do a financial review ahead of tough austerity measures ahead...
The journalist HL Mencken once said: “Every election is a sort of advance auction sale of stolen goods.” As I write we still don’t know if we have a three-party coalition of Fianna Fáil, Fianna Gael and the Green Party, but there is a hint of another new election in the air: Sinn Féin has been sizing up the auction room by offering free holiday vouchers to every man, woman and child should they get into power the next time, and even the outgoing taoiseach is hinting that the tax-free inheritance threshold, specifically the value of a family home, could go up if he gets to lead the government again.
I’ve already bought my holiday vouchers but no matter who ends up sharing power, the cost of paying off the consequences of the pandemic alone is going to set back the Irish economy for a number of years: by the end of 2020 we could well have added another €30 billion to the National Debt (of €220 billion). We will also end up with an exchequer deficit with which we run the day to day activities of the state, instead of a surplus, which we had been on course to enjoy.
It’s going to hit us all in our pockets and no one should expect to have the same amount of cash left in their pay, bank accounts, pension funds, or tied up in the value of their homes or other assets once a new government is created and budget [reckoning] day arrives in October.
But we can mitigate some those losses – whether caused by higher taxes, levies, excise duties, VAT rates, PRSI payments, the freezing of the state pension and/or cuts in social welfare benefits – by taking some action now, to stop procrastinating and to take responsibility for the things that are still in your power.
1) Review every financial contract you own
That means dragging out your payslips and P60s; the mortgage deed, car, home, health and life insurance; your private and occupational pension, gym membership, gas and electricity, mobile phone and broadband contracts. Switching mortgage will be your biggest, long term money saver.
An independent, fee-based adviser can provide a full financial review, from switching from expensive contracts like mortgages and life insurance to save money, to helping you review other debt, savings, pensions and the tax you pay.
From such a comprehensive review, which should also look at your spending patterns, you should be able to save considerable ongoing charges.
A financial planner can also help you achieve longer-term financial goals, especially retirement and long-term care.
Check out the interactive members map on the Society of Financial Planners of Ireland website (www.sfpi.ie) for a fee-based one near you. Make sure you use an independent practice, not one that works for a bank, life company, stock broker that will can only recommend the products of their tied employer.
Price comparison sites like Bonkers.ie and Switcher.ie claim that anyone who has not switched a fuel, insurance or mobile/broadband package in the last two years is overpaying.
Typical energy savings for switchers is c€300-400.
2) Review your taxes
A good tax adviser or accountant can do this for you but Revenue have a useful and relatively easy website (myAccount.ie) that lists all the tax credits and allowances you should be claiming: pension contributions; qualifying health and dental bills; annual family carer allowance; health insurance plans paid by your employer; working from home expenses; third level fees; nursing home costs; sole trader business expenses.
My colleague, Sandra Gannon of TAB Taxation Services, still claims (21 years after I started co-authoring with her, the TAB Guide to Money Pensions and Tax), that “at least 50% of new clients who walk in our door every year are entitled to a sizeable tax refund that can go back four years”.
3) Review your debts
The pandemic has resulted in a savings windfall for 80% of the working population, according to the latest CSO survey. A review of your deposit yields isn’t likely to get you a much better return but there are all sorts of options to consider – like paying off expensive debt, investing it in a tax deductible pension if you don’t already have one or are not fully funding one), using it to retrain or passing it on, tax-free to loved ones, buying ‘real’ money, like precious metals.
4) Spend less
Earn more. Once your particular ‘lockdown’ ends start keeping a spending diary to see if you adopt your old discretionary habits again. The goal is to avoid unnecessary debt and to have the capacity to pay higher taxes and levies.
The pandemic has shown just how suddenly your income can disappear, but hundreds of small companies and sole traders adapted the way they did business to keep income flowing. It won’t be easy to adapt a private home to the ‘Rent-a-Room Scheme’ but with a €14,000 tax-free rental income ceiling, it remains the single most lucrative way for anyone with a spare room to boost income.