So instead of having to make up €7.5bn, we are having to make up €15bn in Budget 2011 this December.
And most of the debate to date has focused on whether a large enough contribution is being made to the recovery by low paid workers / Public sector workers / high paid individuals (insert as appropriate depending on your own political persuasion or personal situation).
So can I throw in another sector of society that seems to have been missed out on in the analysis to date: The Mortgage Holder.
Lets illustrate with an example first featuring Joe Mortgage Holder and Joe Mortgage Free.
Joe Mortgage Free could be renting, living at home or have paid off his mortgage – it doesn’t really matter to this situation.
We’ve picked a single Joe here as an example, so we don’t have any kids or family to worry about. Just two individuals whose circumstances look the same from the outside and would likely be equally impacted by any budgetary changes. But as clearly indicated, the two Joe’s disposable income are massively different, Joe Mortgage Holder has just 63% of the disposable income of Joe Mortgage Free.
And what are the prospects for these two?
- Joe Mortgage Holder has probably already seen an 25% increase in his mortgage costs in the last year as indicated by ESRI data.
- Mortgage rates are likely to rise. It is expected that Germany and the core European economies will lead growth, pushing up interest rates in lagging economies like Ireland.
- Budget 2011: Belt your braces, both Joe’s will take an equal hammering in the next Budget (yes, I have used a very extreme example of this below … I hope). But the impact of that will be felt disproportionately by the two, reducing Joe Mortgage Holders disposable income by 9% as against 5% for Joe Mortgage Free.
Does this Matter?
Whether we have sympathy or not for Joe Mortgage Holder (and we have selected the least sympathetic one we could have chosen), his main concerns for the next bunch of years will be comparing prices from the different supermarkets on every second page of his newspaper rather than what apps to get for his IPhone4.
And he will be facing into that with probable negative equity, increasing taxes, increasing mortgage payments and worrying about not getting work.
Mortgage Interest Relief
As it is, the amount of Mortgage Interest Relief allowed reduces year on year, increasing the effective cost to mortgage holders.
I would like this government to re-think it’s strategy on Mortgage Interest Relief. Rather than reducing this over the coming years for existing mortgage holders, they should at least maintain the mortgage interest relief rates and allowances for the term of the coming crisis.
Of course this money has to come from somewhere, but if society was only made up by our Joe’s above and tax of income tax, we should consider income tax increases appropriate to allow an extra mortgage interest relief supplement.