Bailing out wealthy homeowners: the uncomfortable truth

The startling article from the Guardian published in June 2011 went almost unnoticed and unheeded in Ireland. It was a little article which entirely tore apart the myth that Ireland's hotels are the cheapest in Europe, forced to reduce prices by hostile receivers in predatory bailed out banks. Nobody in Ireland reported this Eurostat report. Conor Pope's Pricewatch column remains, aside from a small number of radio shows, the only newspost to persistently monitor the state of consumer prices in Ireland. Ineeded there is regular reporting on the impacts of mortgage interest rate changes in various media outlets, but information is based on guesswork, anecdotal evidence and sometimes downright spin.

For example there is no central, reliable source of information on the exact borrowings and financial status of mortgage holders in Ireland, aside from that held by the banks themselves. This effectively means that there are no independent reliable sources of assessment on the impact of interest changes that can be relied upon to get a solid picture of the true impact. As a result, bad policy decisions have been made which unfairly redistribute scarce tax resources to those who do not need them. A good example of this is the extension of tax reliefs for those who purchased homes between 2004 and 2007. The assumption is that such buyers were overpriced and thus bought at prices that would now leave them with unmanageable "jumbo" mortgages.

But in fact, this may not be the case.

And in reality, we really don't know.

For a start tax based reliefs only apply to those who earn enough to pay income tax. And the maximum levels of relief go to those who earn the most. In other words, those who are still in well paid employment get the largest relief, those who have suffered pay cuts, were lowered salaried to start with get less, and those who have lost their jobs get nothing at all.

So in other words, instead of focusing reliefs on the hardest hit, the government has passed the vast majority of the relief to those who need it least, while giving nothing at all to the hardest hit.

And there isn't a single statistic that would show this problem in its full extent.

For many years, it has been strongly criticised that generous tax reliefs are given to pension savers, again almost all of it going to upper rate tax paters: i.e. again, the highest earners, who need it least. It was rarely pointed out that the pension coverage levels of private sector workers largely mirrored their sectoral and institutional coverage levels. Those who worked in low paid jobs with no pension assistance from an employer are very unlikely to contribute to any kind of pension, because in order to provide any sort of real coverage would cost so much it would drain an already modest income. On the other hand, low earners working in businesses that provide generous employer contributions to pensions are more likely to save for their old age, but nowhere near the scale at which you find in earners in the 50k+ earnings bracket, where pensions are as much a tax relief tool.

What is most worrying, however, is the concept that because of statistical absence, misunderstanding or perceptions, scare tax resources are being diverted away from those who are hardest hit by the recession and simply passed on as windfalls to well to do, high earners. There is a dangerous perception still present as a legacy from the 1970s that self employed people are all high earning tax dodgers and that PAYE workers are the put-upon victims of the capitalist world. In fact the opposite is true: 80% of self employed are worse off than they would be in a job, vast numbers of vulnerable unemployed are being bullied into self employment by "advisors", media hacks and other vested interests, not to mention the scourge of forced umbrella contracting in sectors such as IT, which leaves those on fixed term contracts no option other than to "choose" self-employment to stay working. Not only that but it is no longer possible to get a mortgage as a self employed person, even on rolling contracts, and ordinary "real" self employed are more likely than any other group to have debt or mortgage arrears issues.

Unfortunately this perception is backed up by the yuppies of IBEC, terrified of the truth being told about self employment, and union hacks who know no better. As a result, the inequality of tiger Ireland is becoming much worse in recession.


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