Monday 21 January 2019

Ten reasons you'll be better, or worse, off financially in 2019

Improved pay rises are on the cards this year and groceries are cheaper - but Brexit could quickly turn all of that on its head

Factors such as housing availability, grocery prices, public transport ticket increases, and diesel car surcharges will all have an impact on people’s pockets
Factors such as housing availability, grocery prices, public transport ticket increases, and diesel car surcharges will all have an impact on people’s pockets
Louise McBride

Louise McBride

This New Year will see many of us on a better financial foot than we have been in a long time. Employment is at an all-time high, pay rises are in the pipeline for many (though not all) workers, and the economy is booming.

Not everyone is benefiting from the upturn though - about one in six people are still at risk of poverty, according to the latest official figures. Furthermore, even if you are in a good financial situation, 2019 will have its fair share of financial drawbacks. Here are some reasons you'll be worse - and better - off financially this year than you were in 2018.

It will cost more to treat yourself

Haircuts, meals out, overnight stays in Irish hotels, and trips to the cinema, theatre, art gallery and museums are likely to be more expensive now - thanks to the Vat hike introduced in Budget 2019. So too are takeaway coffees and teas, and hot takeaway food (such as fish and chips).

Young woman shopping in the supermarket
Young woman shopping in the supermarket

The Vat hike, which increases the Vat rate on tourism activities and certain other services from 9pc to 13.5pc, kicked in at the start of this month.

More expensive bus, Luas & plumbers

The cost of a monthly or annual Luas ticket increased by 10pc last month. This hike was one of a number of public transport fare increases that kicked in at the start of December. Another is the almost 5pc increase in the cost of the annual Dublin City bus ticket.

Public transport is just one of the services that has become more costly over the last year. Other services which have got pricier include care received from doctors, dentists or in hospitals; education; handymen hired to maintain or repair properties; hairdressers; taxis; and postal services.

"Services inflation could pick up in 2019 as the shortage of labour continues or intensifies," said Alan Ahearne, director of the Whitaker Institute at NUI Galway and a former special advisor to late finance minister Brian Lenihan.

No let up in housing crisis

Bluebell Luas Stop...31/07/'18 Bluebell Luas Stop pictured this afternoon, where a Cash in Transit van was robbed today, and a person was assaulted and taken to hospital, after collecting the takings from a ticket machine at the Luas stop..Picture Colin Keegan, Collins Dublin.
Bluebell Luas Stop...31/07/'18 Bluebell Luas Stop pictured this afternoon, where a Cash in Transit van was robbed today, and a person was assaulted and taken to hospital, after collecting the takings from a ticket machine at the Luas stop..Picture Colin Keegan, Collins Dublin.

National average house prices continue to grow - though at a slower rate than 2017, according to the latest official figures. Still, in certain parts of the country, house prices are soaring at a much faster rate than Dublin. For example, in the mid-west (which covers Limerick, Clare and Tipperary) house prices increased by more than a fifth over the last year.

House prices are likely to continue to rise in 2019, according to Ahearne. "All of the pressure on house prices is upward because there continues to be a big demand for housing, employment is growing, wages are growing, and lots of Irish people who emigrated in recent years are now returning from abroad," said Ahearne. "So there's big pressure on housing demand and still a very sluggish response in terms of the construction of new homes. All of that implies that there will be continued upward pressure on house prices."

The cost of rent also continues to spiral. In some parts of Dublin, it costs more than €2,300 a month to rent a three-bedroom home.

With almost 2,000 private landlords leaving the rented market since 2015 - and more likely to so as rent controls are stepped up, the rental crisis is likely to continue well into the New Year.

"People on high incomes will find a place to live - though they'll pay high rent," said Ahearne. "People on middle incomes will find it hard to find a place though." So, too, of course will those on low incomes.

Mortgage bills could tick upwards

Another thorn that house buyers may have to grapple with in the New Year is the prospect of an interest rate rise in autumn 2019.

Should the European Central Bank (ECB) increase interest rates then (as it has suggested it will), monthly mortgage bills will start to rise for those on tracker or variable mortgages.

A rate hike in autumn 2019 would be the first European interest rate rise in eight years and mark the first time that many borrowers would feel the impact of interest rate rises - assuming the ECB raises rates then.

"We will see [European] interest rates increase in the near term - whether it's late 2019 or 2020 will depend on how the eurozone's economy performs," says Ahearne. "The eurozone's economy seems to have lost its momentum - if its economy doesn't slow anymore though, we could see a rate rise in late 2019."

Diesel cars are more expensive

Fans of diesel cars will find it more expensive to buy a new model this year - as a result of the 1pc Vehicle Registration Tax (VRT) surcharge introduced under Budget 2019. This surcharge will apply to diesel engine passenger vehicles registering in the Republic of Ireland from January 1, 2019.

Groceries are cheaper

One of the biggest boons for consumers over the last year is the fall in the price of a large number of groceries. The price of rice, coffee, jams, marmalades and honey, for example, has fallen by about 8pc over the last year, crisps by 7pc, sugar by 6pc, beef by 5pc, and breakfast cereals by 3pc, according to the latest official figures. The price of pasta and couscous has fallen by almost 10pc.

There are some groceries that have bucked this downward trend though. Potatoes, for example, have increased in price by about 14pc over the last year, yoghurts are up 4.5pc, while butter and mineral water have also become more expensive. The higher potato prices are thought to be linked to the drought last summer - as well as higher energy prices.

Brexit, which has so far made it cheaper to import many groceries from the UK, is one of the main reasons for the drop in many Irish food prices. These lower grocery prices are likely to continue into the New Year - until Brexit is resolved (if it is), according to Alan McQuaid, chief economist with Cantor Fitzgerald.

"We import a lot of goods from the UK," said McQuaid. "Our food inflation is falling because sterling is so weak - so the cost of importing many groceries is cheaper. Sterling will probably remain weak in the near-term until Brexit is resolved." Grocery prices, however, could become more expensive later on in 2019 - depending on how Brexit pans out. "If there's good news on Brexit - such as a 'soft' exit of the UK from the EU, or a referendum where the UK votes to stay in the EU, sterling would start to get stronger and put upward pressure on Irish import costs," said McQuaid. "If there's a hard Brexit, the movement of goods between Ireland and the UK will be more difficult than it has been and that could push up the cost of groceries here, particularly if there are tariffs under Brexit."

Other things which could make groceries pricier this year include Irish wage inflation and any ramp up in the trade war between the US and China. "If the trade barriers between those two countries were to escalate, that would be a worry for us," said Ahearne.

"If more and more goods were covered by the US-China tariffs for example - or if Europe was brought into the current trade war, that would be a worry for the overall economy and affect Ireland's ability to export. With wage inflation, businesses could pass on wage increases by increasing the price of their own goods and services. So you could see increases in the price of domestic goods and services."

It appears that where lower prices do exist, they may not do so for long this year - so enjoy them while you can.

 

REASONS TO BE CHEERFUL

Pay rises are in the pipeline

Many workers will get pay rises this year, according to Alan Ahearne of NUI Galway. “The economy is expected to continue to grow and employment growth is expected to be strong,” said Ahearne. “So there will be pay rises in 2019 as a result — and these pay rises could be higher than those of 2018.”

IT professionals, solicitors, accountants, consultants and those in financial services are among those most likely to see the best of the pay rises, according to Ahearne. “There are high job vacancy rates in these areas. It will be harder for employers to attract and retain such workers in 2019 than it was in 2018.” As a result, employers will have to offer better pay and perks to attract such staff. Some, however, might not see any pay lift at all —  particularly if there’s a hard Brexit. “A hard Brexit could have a negative impact on Irish businesses selling to the UK,” said Ahearne. “The Irish agrifood and agriculture sectors, for example, could see a big drop in sales to the UK under a hard Brexit — so employers in those sectors could start to lay off people and may not be in a position to increase wages.”

Energy price hikes may ease off

Electricity and gas prices have been ticking up for more than 14 months. A recent spate of price hikes means many people will pay more for their electricity and gas this winter and spring than they did at the same time last year. Price hikes could, however, ease off later this year because of recent falls in the price of oil. In late 2018, oil prices dropped to their lowest level in a year — largely as a result of fears of a slowdown in demand for oil. Some analysts are predicting further oil price falls in 2019.  “The sharp fall in oil prices since October 2018 should lead to a reduction in energy costs,” said Cantor Fitzgerald chief economist Alan McQuaid.

  “There is usually a time lag between when oil prices start to fall and when those lower oil prices feed through to gas and electricity prices. Fuel and energy prices should be well contained this year if oil prices continue to fall.” The price of diesel and petrol has already started to fall.

More paid leave for parents

There will be an extra two weeks’ paid leave for parents of newborn children from November 2019. This leave will be available under a new State benefit — parental benefit. It will be in addition to the paid leave already available through maternity and paternity leave.

  As the paid parental benefit will only be available in the first year of a child’s life, parents of older children will lose out on the new perk.  More families are also set to qualify for childcare subsidies under Budget 2019 because of changes to the Affordable Childcare Scheme.

More take-home pay

Many workers will see their pay packets increase by about €5 or €6 a week this year — as a result of the Budget tax cuts announced last October. Those tax cuts largely consist of a small cut to the USC for those earning between €19,874 and €70,044 — and a €750 increase in the amount workers can earn before getting hit for the higher rate of income tax. The self-employed should also see a boost in their tax-home pay this year due to the increase in the self-employment tax credit.

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