Budget 2023 – The Cost of Living Budget

Budget Overview

Finance Minister Paschal Donohoe has announced a Budget of around €11bn.

As he delivered his Budget speech in the Dáil at lunchtime, Minister for Finance Paschal Donohoe said that Budget 2023 is and must be, a «cost-of-living budget», focused on helping individuals, families and businesses to deal with rising prices.

Among the main components is a package worth €1,100 for pensioners, an increase in the higher rate tax band to €40,000 and a reduction in childcare costs of about €170 per month.

€1.4bn allocated to the new Business Energy Support Scheme (BESS).

The Budget, announced two weeks earlier than usual, will also see the introduction of a €600 energy credit paid out to households in three installments to help stave off sky-rocketing energy costs.

Mr Donohoe highlighted the war in Ukraine as a major factor in the crisis currently being experienced, adding that Brexit could bring further challenges.

Cost Of Living Package

• Is a series of one-off spending measures to help people struggling to pay bills due to record levels of inflation
• €600 electricity credit taken off energy bills in three instalments over the coming months
• Child Benefit recipients will receive a double payment on November 1st
• There will also be a two double payments of welfare rates between now and the end of the year
• Under Business Energy Support Scheme (BESS), businesses can avail of grants up to €10,000 p.m., per premises to help with their energy costs, subject to meeting certain criteria
• Rainy day fund will benefit from €2bn of the exchequer surplus, with €4 billion earmarked for the fund next year

Pensions & Social Welfare

• Pensioners to receive one-off payments of up to €1,100 before end of year
• State pension of €253 will be paid twice in the coming months
• Living Alone allowance recipients will receive a separate €200 payment, those claiming Fuel Allowance will receive once-off €400 lump sum
• The Fuel Allowance scheme extended to up to 80,000 people who currently do not qualify for the payment, bringing the total number claiming to 450,000
• The weekly Fuel Allowance means limit for the over 70’s, increases to €500 for single people and €1,000 for couples
• Social Welfare rate increase by €12-per-week increase in the new year, along with a special once-off €500 payment for carers and people with disabilities this year

Taxation

• Standard Rate tax band of 20%, to increase by €3,200 from €36,800 to €40,000
• Personal tax credit will rise from €1,700 to €1,775
• Employee tax credit and the Earned Income Tax Credit will also increase from €1,700 to €1,775
• The 2nd USC band increases from €20,687 to €22,920 due to the increase in the minimum wage
• Small benefit exemption will rise from €500 to €1,000. In addition, two vouchers can be given under the exemption in this tax year if an employer wishes to do so
• Personal tax credits for carers will also increase by €100, from €1,600 to €1,700

Housing

• Standard Rate tax band of 20%, to increase by €3,200 from €36,800 to €40,000
• Personal tax credit will rise from €1,700 to €1,775
• Employee tax credit and the Earned Income Tax Credit will also increase from €1,700 to €1,775
• The 2nd USC band increases from €20,687 to €22,920 due to the increase in the minimum wage
• Small benefit exemption will rise from €500 to €1,000. In addition, two vouchers can be given under the exemption in this tax year if an employer wishes to do so.
• Personal tax credits for carers will also increase by €100, from €1,600 to €1,700

Transport & Climate

• Excise duty reduction to continue, 21c per litre for petrol, 16c cent per litre for diesel and 5.4c per litre for Marked Gas Oil (MGO)
• The rate per tonne of carbon dioxide emitted for petrol and diesel increasing from €41 to €48.50 from 12 October, resulting in an increase c2% per litre of petrol and diesel
• A 10% concrete block levy introduced to including pouring concrete and other concrete products
• 20% public transport fare reduction and the Youth Travel Card discount of 50% on all operators’ services extended to end of 2023
• €337 million pledged to energy efficiency measures, an 32% increase on last year, with 37,000 home energy upgrades
• All schools to be eligible for funding for solar panels

Third Level

• Student Contribution Fee cut by €500 for eligible families earning between €62,000 and €100,000
• Income limit to qualify for a 50% reduction in contribution fees under SUSI will be increased from €55,240 to €62,000
• All SUSI maintenance grants will be increased by between 10% and 14% in September 2023
• Once-off €1,000 increase to the post graduate fee contribution grant
• Post-Graduate Fee Contribution Grant for eligible students of €3,500 will increase by €500
• An extra €10 million for further and higher education institutions to help with rising costs

Agriculture

• Five agricultural tax reliefs to be extended – Young Trained Farmer and Farm Consolidation Stamp Duty Reliefs, the Farm Restructuring CGT relief, and the Young Trained Farmer and Registered Farm Partnership Stock Reliefs
• Agri-green diesel will also benefit under marked gas oil reduction of 5.4%
• A new scheme will help provide accelerated capital allowances to farmers for the construction of modern slurry storage facilities

Childcare & Education

• Childcare fees to be cut by up to 25% for those availing of the National Childcare Scheme, costing €121million
• Free primary school books for all children
• 370 additional teacher posts further reducing the pupil to teacher ratio of 23:1
• 1,194 additional Special Needs Assistants, bringing total overall to 20,300
• 4,800 additional apprenticeship places and 4,000 further education registrations

Healthcare

• An overall package of €443 million to help reduce waiting lists
• Free GP care extension will see a further c70,000 children aged six and seven become eligible for free doctor visits by the end of the year
• Free GP visit card by April 1st next year to help c360,000 adults and children in low-income homes
• IVF public funding of €10m being allocated in 2023. including subsidising private IVF
• Free contraception expanded, currently available to women aged 17 to 25, to those aged from 16 to 30 years

Defence Forces & Garda

• Defence budget is set to increase by more than €1.1bn
• Includes €176m on building projects at barracks, new vessels for the navy, new aircraft for the Air Corps and more armoured vehicles for the Army
• 1,000 new gardaí and extra civilian garda staff

Other

• Newspapers will be zero-rated for Vat in today’s speech from January 1, also apply to digital editions and subscriptions
• Knowledge Development Box to be extended for 4 years
• The Special VAT rate for hospitality of 9% will expire at the end of February 2023
• Cigarettes will cost an extra 50c from tonight, but there will be no increase in price of alcohol

Achieving Success Through Relaxed Decisions

Everyone faces problems sometimes. You may be in an unhappy marriage, hate your job, or have financial problems. Whatever your current difficulties, at some point you’ll ask “What next?”

The time comes in everyone’s life when we have to decide what to do. Do you and your partner go for counselling or is it time to call it quits? Do you resign from your job or stay in your unhappy position until you have somewhere better to go? How do you resolve your financial concerns?

The decisions you make may have a lasting effect so it’s vital that you make the best possible choices.

MAKE RELAXED DECISIONS

Whatever you do, before you make any life-changing decisions, first relax. When you’re relaxed you can see things more clearly? In a relaxed state you can see the storm coming your way so you won’t take fright. You’ll make calm decisions and find solutions.

Many people fail to appreciate the importance of making decisions in a relaxed frame of mind.

Only a calm business leader can take their organization smoothly to the next level. No business can succeed over the long term under the leadership of an emotional person who makes decisions based on sentiment.

Unless we learn to relax before we make decisions, we complicate matters. When there’s stress and tension even simple decisions become more difficult.

When you’re wound up you are blind to opportunities and can’t see how courage could bring you good fortune.

You are more likely to take risks when you’re relaxed because you know that even if you fail, you will have the strength to pick yourself up and start again. You’ll find the best solutions safe in the knowledge that no matter what the outcome you can handle it.

When you’re relaxed you will make decisions that you’ll be proud of and that will help you to a successful future.

RELAX YOUR MUSCLES

Your body and mind are connected. Relax your muscles and you feel relaxed. Your brain will follow the actions of your body.

Likewise, when your muscles are tense, your brain starts to create negative feelings such as jealousy, fear and anger.

And it works both ways, when you have negative thoughts, your muscles will become tense and tight.

Your brain will only relax when you loosen those muscles, allowing the brain to imitate the body and loosen up. When your body is relaxed your mind will calm and you will automatically make better decisions.

WHEN YOU’RE RELAXED ALL PROBLEMS ARE SOLVABLE

Perhaps your world is full of opportunities, but you’re blind to them. It is very possible that you aren’t seeing life’s opportunities because you’re tense and uptight.

When you’re full of stress and tension you can’t see the opportunities for what they are. You’re too busy dealing with everyday worries to find the way to your dreams and to quickly solve problems.

People who are more relaxed and attentive will quickly find solutions to complicated problems.

See your problems as opportunities and a way to a new life and all your problems become solvable.

IN SUMMARY

Your current circumstances are the result of all the choices you have made in the past. Some outcomes may have been successful. Perhaps others weren’t.

Looking back, you will likely see your best decisions were made when you were relaxed and able to see opportunities. It is impossible to make good decisions from an emotional standpoint.

The calmer you are the better and more creative your decision making and the better the outcomes.

Economic Outlook

Market Madness

Consider the following facts. As of the end of November, through the first week of December:

• Nasdaq 100 / Dow Jones ratio – a measure of the ‘new economy’/tech stocks valuations ratio to the ‘old economy’ stocks values has risen above 0.471 – a number that is above the previous record reading of 0.467 last attained at the peak of the Dot.Com bubble in 2000. At the end of 2019, before the pandemic struck, the ratio was at 0.3.

• Value stocks have fallen against growth stocks to the levels last seen at the end of 2000: the 12 months forward PE ratio for Russell 1000 Value Index is now just 52 percent of the 12 months forward PE ratio for Russell 1000 Growth and a similar trend is now evident in the value vs growth stocks performance within S&P500. A reading of less than 70 percent is viewed as signaling a market that is severely overbought risk.

• S&P500 Information Technology Sector Total Return is up 28.7 percent year to date, the index price return is up 27.61%, implying that just 1/20th of the total return came from dividends, while the rest is down to speculative buying. In the same period, S&P 500 Value total return was up 19.7 percent, with dividends contributing ca 1/12th of the total return. Put differently, tech stock valuations not only outperformed value stocks, but they did so on the back of lower contribution of dividends to the total return. Of course, dividends represent a major metric for assessing companies intrinsic value. And, of course, no one cares today for fundamentals. (Chart 1)

• At the end of October, based on the data from Topdown Charts, ca 35 percent of all stocks traded on the US markets had a Price/Sales ratio in excess of 10x. At the peak of Dot.Com bubble that number set previous historical record at ‘only’ 23 percent.

• Some analysts are quick to point out that today’s profit margins are generally higher than those recorded back in 1999-2001, allowing for higher Price/Sales ratios. Alas, this hardly matters: we are witnessing investors propping up a historically high number of zombie firms (companies with annual EBIT below their interest bills). Zombie companies’ stocks now have total market capitalization in excess of $5.7 trillion. Back at the Dot.Com peak that number was less than $2 trillion, so increases in zombie firms valuations have outpaced overall market cap to GDP ratios increases.

• The latter, stock markets capitalization ratio to GDP, is now in excess of 205 percent – the highest it has ever been and above the Credit Crisis bubble peak of 140 percent and the Dot.Com bubble peak of 151 percent. Across 17 largest developed economies, GDP-weighted average stock market cap to GDP ratio is currently at its historic high of 165 percent. In the prior two crises, the same ratios for the advanced economies’ markets were 115 percent and 125 percent, respectively.

• Looking back at the PE10 ratios (ratios of current stock prices to 10-year average of corporate earnings), US markets peaked at 52x at the top of the Dot.Com bubble and at a moderate 29x in the run up to the Global Financial Crisis. Today’s PE10 ratio for the US is closer to 44x – somewhat below Dot.Com bubble top, but vastly above any other reading from 1985 through today, excluding 1998-2001 period. There is nothing comparable to this investor exuberance in the rest of the world: Emerging Markets are currently trading at PE10 multiple of around 15x and Developed Markets ex-US are close to 20x.

• Meanwhile, Liv-Ex Fine Wine Investables Index is now back above its previous historical highs achieved back in 2011, having risen at the rates only slightly below those for S&P500 since the start of the pandemic.

• Meanwhile, net cash positions in retail and institutional investors’ margin accounts are the lowest on record. In October 2021, cumulative cash net of margin debt drawdowns for the US investors fell to -$709.7 billion – its lowest level in history (Chart 2).

• Private Equity firms – former payday champions of the Wall Street world – are struggling to find any value in this environment. PE deals valuations and leverage risks are through the roof. Per recent analysis by White & Case, “US buyout multiples averaging 11.4x EBITDA in 2020 and more than two-thirds of US deals pricing above 11x EBITDA” (https://www.whitecase.com/publications/insight/usma 2021/private-equity-deal) . As the result, number of PE buyouts peaked in 1Q 2021 and have declined since, though the value of these deals continued to set new historical records. Perhaps even more telling, quarterly value of exits from PE holdings has exceeded $100 billion in every quarter starting with Q3 2020. There has been not a single quarter on record prior to this pandemic when PE exits were in excess of $100 billion.

Debt And More Debt

The last two points are important ones. Whatever one makes of the earnings and profit margins dynamics in recent years, the extent to which the US markets have leveraged up since the start of the pandemic is a major concern of its own. FINRA’s latest data through October 2021 shows margin accounts drawdowns of $935.86 billion. But this does not include margin debt carried by the US hedge funds that was raised abroad. Based on the Fed statistics for 1Q 2021, adding this debt, the total margin debt that is underwriting US stock markets valuations to date was closer to $1.04 trillion at the end of 3Q 2021 and has potentially risen to as much $1.18 trillion by the end of November. If confirmed in a data release due in 1Q 2022, this would imply that margin debt accounts for ca 2.3 percent of the total market capitalization of the US stock markets – a number well above 1.8 percent marker reached at the peak of Dot. Com bubble, although still below 2.7 percent all time high reached in 2008 (Chart 3).

The Herd Takes Over

Investors’ herd chasing risk-loaded returns has gone full contagion. Last month, Calpers, one of the largest pensions funds in the world with assets under management in excess of $495 billion announced that it will borrow 5 percent of the fund’s money to leverage up into high risk assets. Calpers is more than a canary in the mine. The fund manages pensions for a range of public sector employers in California, including highly sensitive and powerful unions representing police and law enforcement, fire crews and teachers. It is also the largest public pensions manager in the US. In recent decades, Calpers achieved returns have trailed far behind the returns required to achieve solvency on long term pensions liabilities promised to many of these critical employees. Which means that Calpers has started forcing smaller pension pools in rural parts of California to impose cuts on pensions payouts. In the political powder keg that is modern America, such cuts are equivalent to playing with fire in a munitions warehouse. In the political environment of looming 2022 mid-term elections and 2024 presidential and congressional contest, this playing with fire looks more like playing with napalm.

Switching to Higher Risk Gearing Strategies

Here’s what is interesting about Calpers’ decision. A pension fund is a conservative undertaking. The last thing Calpers want is to endanger – through leverage risk, market risk, liquidity risk or any other major source of value uncertainty – its long-term solvency. Which means it should be very careful with investments it makes, let alone with taking on debt to engage in leveraged trades that target higher risk strategies. But Calpers is not holding back. The fund already holds vast exposures to institutional investors (e.g. hedge funds and investment funds) which are leveraged up to historically high levels themselves. And now Calpers is borrowing directly to leverage even more. Doing this in a market on an upward trend with a lot of room to run based on the stocks (and bonds) intrinsic valuations is a risky proposition for an asset manager with growing longer-term liabilities, such as a pension fund. But getting deeper and deeper into leverage in the markets that are at or above prior historical highs in terms of valuations is pretty much a game of desperation.

Calpers is following in the footsteps of the Private Equity. As noted above, deal leverage has skyrocketed in the case of PE buyouts and is sitting at a record historical high. As stated earlier, more than two-thirds of US deals are currently being priced above 11x EBITDA. During the pre-GFC markets bubble, less than one third of all PE deals were done at such valuations. To afford these price exposures, PE firms are falling into debt. Debt financing as a share of buyouts rose to 7x EBITDA in almost six deals out of ten in 2020. Which is triple the level of debt leveraging involved in PE deals five years ago.

Just as PE industry is loading up on risk and debt, pensions funds are loading up on PE industry. At the same time as it announced that it will be borrowing to invest, Calpers also said that it will increase its portfolio exposure to PE from 8 percent of AUM to 13 percent (https://www. institutionalinvestor.com/article/b1vqmjx5wnv2vq/CalPERS-is-Turning-to-Private-Equity-and-Leverageto-Boost-Returns-and-Reduce-Risk-Will-It-Work).

Worse, debt exposures in PE sector have been shifting not only in terms of quantity, but also quality. A recent survey of PE firms by a law practice Dechert found that 45 percent of PE firms have increased their use of private credit financing over the last three years through mid 2021. This represents a 10 percentage point increase on 2020s survey (https://www.institutionalinvestor.com/article/b1vdhdbryr7dkp/Private-Equity-Funds-Fuel-Growthin-Private-Credit). Which potentially makes true debt exposures within the asset management and investment services sector less transparent and harder to pin down for pensions savers and institutional investors.

The rising exposure to leverage risks in today’s financial markets is even more apparent when one considers the fact that we are moving toward a potential reversal in the monetary policies that sustained the accumulation of this leverage and underpins current markets’ valuations. In recent weeks, both the FOMC and the Fed influencers, such as Laurence Summers, have accelerated the rhetoric about the need for accelerated tapering of asset purchases by the Fed, as well as the desirability of more aggressive interest rates hikes in 2022. Last week, Summers, who holds a significant influence in Washington, called on the Fed to pre-announce its intentions to carry out four interest rates hikes in 2022. Recent Fed’s dot-plots, mapping FOMC members’ outlook for interest rates in years ahead, has been shifting to reflect the growing pressure within the central bank to raise cost of credit faster and earlier.

Should the Fed opt for a surprise and put its monetary policy onto more hawkish footing in early 2022, the move can easily cause a major markets correction, blowing leverage risks up and forcing big losses into leveraged portfolios. But, for now, the party is rolling on.

Principles For Long-Term Investment

History has shown that the longer you keep your money invested, the greater the chances of a positive outcome. Staying fully invested through a market cycle has, in the past, ensured investors reap greater rewards over the long-term as rebounds after large losses are often significant. If you are concerned about recent market falls, it is a good idea to take some time
with your Financial Broker to review and refine your current investment strategy, rather than making a sudden decision.

Throughout your investment journey the markets will experience highs and lows in response to social, political and economic events. Timing the markets involves trying to anticipate when these highs and lows will occur, with investors hoping to buy when prices have reached the bottom and sell when they have peaked. Unfortunately, it’s very hard to predict when to buy back
in and getting it wrong means you could end up locking in losses and missing out on future gains.

Periods of extreme market volatility, such as what we are experiencing now, can heighten feelings of concern in relation to your investments, but staying the course and following the five key investment principles outlined below may help you to increase your chances of a positive outcome.

Stay Disciplined

Although it may be uncomfortable at times, staying the course and sticking to your strategic financial plan could
better serve you in achieving your long-term financial goals.

• By missing just the best 10 days in the market from 2003 to 2017, your investment returns would have been 48% lower

• Half of the top 10% of days for market gains historically have happened in Bear Markets – so switching your funds after they fall could lead to you missing these upswings

Volatility Is Part Of Investment

Markets rise and fall daily, weekly, monthly – it is part of the natural cycle of investing. But historically, each significant market downturn has been followed by an eventual upswing.

• In the U.S., Monday March 23rd 2020 saw the third-best one-day gain for equities since 1945 for the S&P 500, after the two-day rebounds that followed the Black Monday Crash of 1987,
and the Lehman Brothers bankruptcy in 2008

• Despite the infamous ‘Black Monday’ of 1987, it was still a positive year for equities

• Despite the last Bull Market being one of the longest on record, we still saw double digit falls in 8 of the 11 years

• Since 1980, European equities have finished the year in positive territory on 31 of 40 years, yet in each of those years, the market suffered an average intra-year decline of 15.2%

Keeping Your Money In Cash Is Not The-Term Answer

While markets have recovered somewhat from their lows, they are still in a period of significant volatility and further market falls are still possible. However, monetary and fiscal measures have emerged and there are a range of other potential responses available.

• Cash returns remain at record lows

• Equities tend to recover strongly after large falls

• Bear Markets tend to be shorter than Bull Markets

Over The Long-Term, Holding Money In Riskier Assets is Rewarding

Short-term market movements are often the result of changes in valuation and sentiment – how investors feel about the stock market. This is in contrast to long-term market movements, which are the result of changes to companies’ fundamental worth.

• In any ten year period the odds of equities posting positive returns is 96%

• In any ten year period multi-asset funds have never made a loss

• In any twenty year period equities have never made a loss

Diversify, Diversify, Diversify

A basic tenet of investing is diversification. Diversification means spreading risk by mixing a range of asset classes within your portfolio. A well-diversified portfolio might include equities, bonds, alternatives, property, and cash and helps smooth the return over the long run.

• While there is no such thing as a 100% risk-free investment, diversification can mitigate the inherent risk of investing, helping you to reach your long-term financial goals

• Multi-asset funds tend to be less volatile than equities

If you would like to talk to us about your investment options, call us on 1890 606 570.

6 Tips For Online Interviews

With working from home now the norm, the likelihood  to meet face to face for job interviews is very unlikely. Virtual job interviews have become another part of the new reality and we have put together some online interview tips to help you though it . The remote interview is a new experience for many work seekers, but it’s a practice that’s likely to be with us into the foreseeable future. It is therefore worth coming to grips with the best ways to conduct the virtual interview. It is not just the candidate that must come to grips with the virtual interview, many employers are also experiencing the process for the first time. Remote interviews may add to the applicant’s nervous tension ahead of the interview, but the employer must deal with increased complexity in preparing for the interview. Virtual job interviews are not easy for either the candidate or the employer, but you can make it easier. Here’s how:

1. Familiarise yourself with the tech

Preparing for the appointment is all-important. Set yourself up so that the light exposes your facial features, rather than putting you in silhouette. The candidate must be able to connect with you and this can only happen if they can clearly see your facial expressions. For effective communication make sure that the camera is at eye level. If you haven’t used your video conferencing equipment do a trial run and make sure that you know how to use it.

2. Inform the candidate of what to expect

Make sure that the candidate knows how to connect to the interview. Inform them of who will attend and give them a rundown of what they can expect. If you have asked them to make a presentation ensure that they can share the presentation and inform them of the time limits that you have set.

3. Make sure the candidate is relaxed as possible

Before you launch into the interview, make small talk about general, neutral topics. Introduce yourself with a friendly smile in the same way you would if you were in a room together. To get the most out of the interview your candidate should be as calm and comfortable as possible.

4. Make sure you are prepared to meet the candidate

Before the interview, go through the CV and prepare your questions. These should include questions that test the candidate’s handling of various circumstance and their emotional responses to situations. Using a similar list of questions for all candidates will allow you to draw a comparison between the various candidates and may help with the final decision on the outcome.

5. Allow the candidate to do most of the talking

It is essential that you refrain from butting in with online communication allowing the other person to complete their discussion. The golden rule is to WAIT (why am I talking?). Online, the whole discussion will fall apart when people start to talk over one another. Pause at the end of the candidate’s discussion before you ask your next question. Engage in active listening. Keep notes about the discussion, and if the candidate permits it, make a recording.

6. Allow for a free flow of conversation

A good interview isn’t just about ticking off questions, it’s about actively listening and then asking additional questions that flow from the
answers. This tactic can take you down avenues that you wouldn’t otherwise have ventured into. It can help you get interesting insights into the behaviour and character of the candidate. The purpose of the interview is, after all, not only to find out about the experience, skills and competencies of the candidate but to ensure that they’ll make a good fit with the rest of the team.