Friday 29 July 2011

What the austerity plan actual means to you and me.

So we now have some fairly solid information about what the next three to four years worth of budgets are going to look like.

It’s pretty fucking savage: To put it in easy to understand terms, take 60% of your current gross salary - that’s effectively what you will be earning in 2014 in todays terms.

Now I know that this is what is needed in order for this particular plan to succeed but I don’t think the average sod on the street understands precisely what that means for the amount of money they will have left if it does actually work.

Oh and that’s before we even begin to consider paying for the banks. This part is just about getting our current budget balanced.

There are actually some long overdue and good ideas for reform in the plan too, but I don’t think there will be anyone worthwhile left in the country by 2014 for them to matter.

 

The Numbers, for those who are interested.

Income Taxes: The plan outlines €1.5bn in tax increases from additional individual direct taxation ( ie you pay more tax, get lower tax credits or pay some new taxes ). Since there are about 2.2million individual tax payers in the country tat will average out at an extra €700 per annum. given the income distribution of those earners the _average_ PAYE tax payer will be paying around €1000 more in direct taxes next year. 

Spending Cuts: Then there will be €2.1 billion in spending cuts. A significant chunk of that will hit the less well off via social welfare cuts, and a nice chunk should be realised by trimming down the civil service numbers but at least €500m or so will come from reductions in general “benefits” – many things that are now free, or subsidized will have to be paid for adding up to another €250 or so per taxpayer. That’s money you have today that you wont have this time next year.

Where we have to get to: Now remember that we are €18bn or so out of balance and need to bring that down to about €15bn to hit the deficit target. This first step addresses €3.6bn of that. So by the start of 2014 every tax payer in the country will take home (on average) €4000 or so less than they do today on the same earnings. Those that earn around the average wages for the country will end up with about €5000 less net take home pay per annum.

Net Income per person: To put that in context someone on the average income in Ireland today (€35k) who will take home about €28k (after PAYE, USC, PRSI and the rest). Or in other words they will pay about €7k in tax. By 2014 the plan is that they will pay €12k in tax – an increase of about 71% in the individual direct tax burden.

Inflation: Meanwhile we have high double digit increases in Medical Insurance (20%+ so far), Electricity (Bord Gais 12%), Gas (Bord Gais again 22%), Petrol is up about 15% over the past 12 months and there is no sign that it will abate. These increases will continue and on average we will all pay about €1500 per annum more for these core necessities each year. Even if the now freeze those costs we are all going to be €1500 worse off per annum next year based on the increases that have already been confirmed.

Mortgages: A 20 year mortgage for the average house price as it was in 2008 ie €300k , calculated on a monthly repayment basis, at 4% costs €1812 per month. If the rate rises to 6% that increases to €2138 per month. The increase is €3920 per annum. The actual average outstanding mortgage is probably only €200k but even at that level your average punter will end up €2700 worse off.

Putting it all together: An average PAYE earner on €35k gross who has €28k to live on today will find that in three years they have the same buying power at that point in time that someone who earns €21.5k gross has today (about €19k net).