Money Express: Squeezed middle will bear brunt of the Budget

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The big post-Budget 2014 headlines that are catching attention are centred mostly on the loss of medical cards, the lowering of job seeker, maternity and disability allowances.

The big post-Budget 2014 headlines that are catching attention are centred mostly on the loss of medical cards, the lowering of job seeker, maternity and disability allowances.

Money Express with Jill Kerby in association with Danske Bank

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Overlooked are the more subtle taxes and cost adjustments to disposable incomes that far exceed the value of all the cuts above together: These include,

the extending of the local property tax to full year payments, which will amount to another €250 million plus taken out of your pockets in 2014 on top of the €250 million already collected in 2013;

the extra €120 million (bringing the annual total to €600 million!) that will be collected from raising the private pension levy on savings to 0.75% from 0.6%;

up to €100 million that might be raised from increasing DIRT from 33% to a whopping 41% on €100 billion worth of bank savings (or to 45% for non-pensioners). People who shift savings to tax free An Post state savings will avoid all DIRT.

the estimated c€40 million from the loss of standard rate 20% tax relief on full private health insurance policies. The tax relief affects adult policies that cost up to €1,000 and child policies up to €500.

Together, these four new Budget 2014 tax items alone could amount to over a half a billion euro worth of additional revenue to the state in 2014 and will be mainly paid by the ‘squeezed middle’, chiefly the 1.8 million productive earners and pensioners who are home owners, who have prudently saved for their retirement and who continue to pay, reluctantly, the increasing cost of private health insurance.

There is no avoiding Budget 2014 if you are a pensioner: You will still receive free travel and TV license and reduced electricity/fuel allowances and full or GP only medical cards, but 2014 will be the year that well off pensioners over 70 (earning more than €500/€900 per week) will again pay for all non-GP expenses. Non medical card holders who keep their medical cards will see their prescription payments rise from €1.50 to €2.50 an item.

All pensioners will lose their €114 a year telephone allowance but they can appeal this on hardship grounds to Community Welfare Officers. All pensioners should consider one of the increasingly competitive phone/mobile phone, TV, satellite/broadband packages. You can compare prices and packages www.bonkers.ie

The reduction in private health insurance tax relief will also disproportionately affect older people, says Dermot Goode of www.healthinsurancesavings.ie: “If there was ever a wake-up call to review your policy, this is it.”

He said that older people are most likely to have expensive, comprehensive health insurance plans “that cover all of their regular ailments and don’t have big excesses that they cannot afford.” The 20% tax relief on premium amounts over €1000, could cost them €200, he said. If the health insurers increase premiums again in November and next February/March – as has been their pattern – and the government hikes the health insurance levy again in January, these combined price rises could be so high as to force older people entirely out of the market, predicts Goode.

Aside from moving to a lower cost (but poorer value) plan, dipping further into savings, or dropping cover altogether, pensioners could consider adding or substituting health cash plans like those available from www.hsf.ie, the Hospital Saturday Fund, a registered charity.

Their schemes are available to individuals and families and for a single premium will pay tax-free cash payments for a range of medical events, including all dental treatments, optical and hearing checks, x-rays, physio, consultants and GP visits, plus up to €80 a night for hospital stays. This payment alone will cover the €75 a night (max 10 nights) charged to non-medical cardholders for public hospital stays.

Next, the 0.75% pension savings levy: it not only reduces workers’ pension fund savings but the actual income many companies pay their retirees for whom they did not purchase an annuity.

Unfortunately, the levy cannot be avoided, but pensioners who earn above the tax-free income threshold can avoid the huge new 41% DIRT tax on bank, building society and credit union savings. (The exit tax on growth from investment funds is also now 41%) by moving their money to DIRT-free Post Office state savings products.

Some commentators believe the surge in DIRT is intentional – to permit the state to borrow more cheaply (1.34%-2%AER interest) from its own citizens via state savings rather than pay 4%+ interest from international hedge funds once we leave the Troika bail-out.

The longer term impact of billions in savings leaving the more fragile high street banks and credit unions for An Post is another matter - and another risk to your money - that I’ll return to in another column.

jill@jillkerby.ie