Money Guide Ireland

The European Central Bank could cut interest rates for the second time in less than a month next week, ECB President Jean-Claude Trichet said this evening. (October 27th)

“I consider possible that the Governing Council will decrease interest rates once again at its next meeting on November 6th. It is not a certainty, it is a possibility,” Mr Trichet said in a speech at a banking conference in Madrid.

Although he declined comment on the size of any move, analysts firmed bets on a repeat of the 50 basis point reduction on October 8th, when the ECB acted with other central banks in a bid to stem the intensifying financial crisis.

Mr Trichet said financial market turmoil was putting pressure on economic growth in the short-term and this was also easing inflation fears.

Still, he stressed that the ECB would only reduce rates from their current level of 3.75 per cent if the inflation outlook justified such a move.

“Taking into account the recent decline in commodity prices together with the substantial weakening demand that has emerged lately, upside risks to price stability have diminished,” he said.

“Any new monetary policy stance that we could decide on at our next regular monetary policy meeting must continue to allow us to tell our 320 million fellow citizens: ‘you can be confident. We will deliver price stability in line with our definition of less than but close to 2 per cent in the medium term’,” Mr Trichet said.

Mortgage holders will be happy to hear the latest thoughts of some “experts” . Savings account holders may not be as happy with the forecast of more ECB interest rate cuts.
As reported in the Sunday Business Post – Dr Dan McLaughlin, chief economist of Bank of Ireland, said he expected interest rates to fall to 2 per cent by the first half of 2009, as long as there was no further spike in oil prices.

According to Jim Power, chief economist with Friends First, the bottom of the housing market has yet to come. He said: ‘‘The eurozone economy is losing momentum rapidly, and inflation is going to ease, due to lower growth, food and energy costs, so the ECB will have to cut rates quite aggressively over the coming months. I would expect up to 1 per cent off rates over the next six months.”

Simon Barry, senior economist with Ulster Bank, agreed that there was plenty of scope for the ECB to cut rates further.

‘‘There is at least another 1 per cent of reductions now on the cards,” Barry said. ‘‘Incoming economic news has been extremely poor, even before the unprecedented turmoil in financial markets of late fully feeds through. So economic growth forecasts are being slashed, with the eurozone now headed for recession. Weaker growth will contain underlying inflation pressures, while the decline in oil prices will see headline rates of inflation tumble.”

Today Brian Cowen did another U turn on a Budget proposal. The 1% levy will no longer be taken from anyone whose income is at or below minimum wage levels. It is not yet clear if this is based on an hourly rate or an annual basis.
This change makes sense – but why did they even think of trying to introduce it for everyone in the first place? The electorate forgave Bertie Aherne and his “cash flow problems” – how long will it take to forget about this mess of a Budget which was rushed and badly thought out.
Education cuts will hopefully be the next U turn.
With all these changes – how will the government now make those expected savings? Maybe another Budget is needed.

After a week of uproar because of the introduction of means testing for medical cards for over 70′s – Brian Cowen called a press conference this morning. It was reported and expected that an almost complete reversal of that decision was going to be announced.
The original proposal meant that 30% of over 70′s would lose the Medical Card.
At the press conference it was confirmed that the income thresholds were going to be increased
The new thresholds are €700 for single people and €1400 a week for a couple – will get a full medical card. Only new applicants from Jan 09 will need to undergo a means test. It is “hoped” that those over the limit will own up of their own accord. No checks will be made on income levels for existing medical card holders.

There is also going to be discussions about changes in the payments made to GPs for Medical Card holders.
Brian Cowen said he expects the same amount of savings to still be made – but it is hard to understand how that can be the case.
Mary Harney also spoke about the fees paid to doctors – stressing how much more they got for over 70s. The cost of drugs was also mentioned – and they hope to get reductions in the drugs bill.
It is hard to understand why a couple with a net income of €1400 a week need help with their medical costs – whilst young families earning much less will not get a medical card or even a GP visit card. It is not a fair system.

Now maybe they will also do something about the education cuts – which affect the youth of this country – who are just as important as the over 70′s.

Under the Drugs Payment Scheme – a family unit only has to pay a maximum of €90 a month for approved prescribed drugs, medicines and certain appliances for use by yourself and your family in that month. The Budget in October 2008 increased this amount to €100 euro a month from January 2009

Family expenditure covers the nominated adult, his or her spouse/partner and children under 18 years or under 23 if in full-time education. A dependant with a physical or mental disability/illness living in the household who does not have a Medical Card and who is unable to fully maintain himself/herself, may be included in the family expenditure regardless of age.

Medical Card holders are already entitled to approved prescribed drugs and medicines free of charge so are not eligible for this scheme.

If over 70′s lose their Medical Card in 2009 - at least there will be an upper limit on what they will have to pay towards medicines and equipment. There are many people who should know better who are scaring people by misleading them into thinking they will have to pay the full cost of all drugs and incontinence pads etc. They will only have to pay a maximum of just over 23 euro a week per family . For a couple – this is €11.50 a week maximum. Whilst this may be a lot for someone on an income of around €300 a week – it is a lot less worrying than having to pay for the full cost of medicines.

After the recent uproar over Budget chnages to means testing over 70′s for medical cards – the government has made some changes to the income thresholds.
Whilst they have increased thresholds – they also said that they still expect the same number of over 70s to qualify for a full Medical Card. It is hard to understand how this can be the case – and brings into question the methods used to calculate the savings to be made by this change.
The new rules on eligibility for over 70′s
The weekly income thresholds are now €240.30 (single) and €480.60 (couple).
If you have income of more than €240.30 (single)/€480.60 (couple), you will be asked for some additional information.
Other social welfare payments like the fuel allowance or the living alone allowance are not counted in the means test.

The means test income amount is net income after certain expenses. For example, rent/mortgage, GP costs, medicines costs, medical appliances, nursing home fees, maintenance payments you make, any income tax or PRSI you pay,
Savings : Any savings you have up to €36,000 (single) or €72,000 (couple) will not be counted in the means test. Your family home will not be counted in the means test.

GP Visit card The income limit for the GP visit card for over 70′s will be €360.45 (single) or €720.90 (couple)

If you don’t qualify for either of these and if your gross weekly income is less than €650 (single)/€1,300 (couple) you will get the €400 annual “health support payment”

Don’t forget that the maximum any family will have to pay towards medicines on prescription will be limited by the Drugs Payment Scheme. No person or couple will have to pay more than €100 euro a month on prescription medicines.

The tax on your savings – Deposit Interest Retention Tax – DIRT is to increase to 23% from 20% after yesterdays budget. This increase will take effect from January 1st 2009 and is estimated to bring in an extra €85 million for the government.

As expected – HBOS who operate Halifax Ireland and Bank of Scotland Ireland – have stopped offering tracker mortgages from today. New customers can either choose the variable rate currently 5.25% – or one of the fixed rates. All the main lenders in Ireland have now stopped offering tracker mortgages to new customers. Only Leeds Building Society is offering a pretty unattractive tracker of ECB plus 2.2% .
Will we ever see tracker mortgages in Ireland again – probably not. Anyone who did manage to get one at below ECB plus 0.8% will be glad they did at the moment.