2017: A YEAR OF FINANCIAL SWINGS AND ROUNDABOUTS

Jill Kerby

Reporter:

Jill Kerby

Email:

jill@jillkerby.ie

2017:  A YEAR OF FINANCIAL SWINGS AND ROUNDABOUTS

Looking a gift horse in the mouth is never recommended, but there’s really no other way to review the personal finance events of 2017.  

In a land where ‘swings and roundabouts’ is the norm, 2017 was no different:  good news about the economy was tempered by bad news on the housing front; jobs growth was strong in the FDI sector, but there was little wage growth in the wider economy.

And yes, a well-diversified stock portfolio rewarded most asset holders, but few ordinary workers have any surplus earnings to invest and pension membership in Ireland continues to fall.

So how was the past year, financially, for you?  

Did your standard of living improve or stand still, as so many people are reporting? Was this the year that your family home came out of negative equity, or were you one of the 30,000 victims of the great tracker mortgage scandal?  

As a first time buyer, did you benefit from the easing of the new borrowing rules and the introduction of the Buy To Help scheme – or did these change overtake you in a market where prices kept rising?

Nearly all the official government indicators show an economy in recovery, with nearly 5% GDP in 2017, though this is distorted by the foreign multinational sector and the convoluted way it reports its accounts and value of the intellectual property it registers here.

Officially, inflation is still very low at about 0.5%, but the rise in the price of many imported goods – via the UK – is noticeable in grocery line check-outs even as the price of some raw food stuffs , like domestically produced vegetables has never been lower, putting Irish farmers under huge pressure.

Health, transport and education services continued to rise throughout 2017.

The overall tax take rose in 2017, but income tax growth was not as robust as forecasters predicted. Too many of those new jobs in the domestic economy are either so low paid or temporary that there is no income tax to be paid.

Even the relatively small change in the hated Universal Social Charge in Budget 2017 has been cited as a reason for the weaker than expected tax take at one point. Swings and roundabouts indeed…

One of the enduring disappointments of the last year, and of Budget 2018 is the negligible return on savings. Personal debt, including mortgage debt continued to throughout 2017, but the banks, post office and credit unions continued to lower their deposit interest rates and dividends. Bank of Ireland became the first Irish bank to introduce negative interest rates on large deposits while bank and post office closures and credit union mergers continued.

The only good news was that the government finally lowered the DIRT tax on deposit yields from 40% to 39% - it will fall again to 37% in 2018 – but 37% tax on zero is still a zero return.

The lack of reward for savers hasn’t discouraged those who do have some money to squirrel away but a combination of the housing shortage and nil returns on cash have fed the house price and rent bubble with over half of all house sales in 2017 undertaken by cash buyers.

The ECB stuck to its zero base interest rate in 2017, which is good news for euro-zone countries with substantial personal and national debt legacies, like Greece, Spain, Portugal, Ireland and Italy – but by the year end , this long-standing position changed in other countries like the US, UK, Canada. Where they go, we usually follow but perhaps no time soon.

Our debt legacy is one of the most enduring with 50,000 mortgage holders still in serious arrears at year’s end.

The best return of all in 2017 for any surplus earnings in Ireland (aside from reducing expensive debt like credit cards and personal loans) was a pension fund, if only for the 20% or 40% income tax relief on contributions. Underlying assets still grow tax-free and at retirement, you can claim a tax-free lump sum worth 1.5 times your final salary or 25% of the fund if you are self-employed.

Well-diversified, risk-balanced pension funds also performed pretty well in 2017, yet membership continued to fall. The government claimed once again that plans are afoot to introduce a universal (sic) pension scheme (universal to the private sector only) but amid such a great housing crisis it was all talk and no action.

If 2017 proved anything at all – and not just here but in most western societies - it was that job uncertainty, housing uncertainty (and homelessness) and the growing cost, especially of medical services, has grown acuter.

Amidst all the talk about the rising economic tide, what seemed lacking was the sight of lots more little boats sharing the harbour again with the gleaming yachts.

Next week:  Get financially fit in 2018

Please send your queries to Jill c/o this paper or by email: jill@jillkerby.ie

(The 2018 TAB Guide to Money Pensions & Tax will be appearing in bookshops and online soon. See www.tab.ie for ebook edition.)