Originally posted on Business Post 27 September 2022.  Paschal Donohoe and Michael McGrath have managed a careful balancing act, but the capacity issues that have caused problems in many sectors remain Like the last two budgets, this one was a response to a crisis. Instead of the pandemic, however, it sought to address a cost of living crisis created largely externally. Introducing significant fiscal initiatives can be tricky, as the UK government has learned in recent days. This Irish budget, however, has a good chance of keeping the national finances stable while improving the lot of most citizens. Paschal Donohoe, the Finance Minister, and Michael McGrath, the Public Expenditure Minister, avoided three potential pitfalls. First of all, the measures they announced should not disrupt the existing tax base. Finance ministers, like doctors, should above all else do no harm. The exchequer is funded primarily by corporate activity, consumer activity and the income tax paid by higher earners. None of the tax measures should disrupt any of these three key sources. In common with individuals, businesses are receiving assistance with spiralling energy costs. While we are often reminded that 50 per cent of the corporation tax yield comes from just 10 companies, it remains the case that 50 per cent of the corporation tax yield comes from the rest of the profitable companies operating in this country. Many of these smaller firms will be a direct beneficiary of the 40 per cent energy cost rebate scheme. The sizeable grants and social welfare payments will go towards sustaining people’s purchasing power and therefore help sustain Vat receipts. Higher energy costs also result in higher Vat yields. When petrol prices jumped from €1.40 per litre to around €1.90 per litre, for example, the government’s share rose by €0.11. The increase in the 20 per cent rate band will directly benefit approximately 1 million taxpayers who will see a greater portion of their income taxed at 20 per cent rather than 40 per cent. This is not so much a relieving measure as a preservation of the status quo, because incomes are also increasing in response to inflationary pressures. The change in the rate band should be seen as preserving and securing the high proportion of income tax paid by higher earners, rather than giving anybody a tax break. Secondly, the government has avoided borrowing for its tax and welfare measures. That’s a good call given that euro interest rates are on the increase, but it is also an important signal to potential investors in this country that the national finances are stable. Avoiding borrowing has only been possible thanks to an exceptional corporation tax yield, but as most of the tax bounce seems to have been diverted to one off measures, applying the budget surplus in this manner is a good use of available funds. Many finance ministers across the world would be envious of the Irish surplus available coming into this budget. Thirdly, while some of the additional welfare payments such as the increase in pensions and unemployed benefit will be permanent fixtures, the ratio of enhanced long-term welfare payments to once of reliefs seems to me to be about right. The gamble here is that the inflationary surge – and in particular the energy costs surge – will be short lived. There is of course no guarantee when, or even if, the pressures will abate and not all prices will ever revert to their pre-2022 levels. The mistake that may have been made in the budget is that much of the budgetary emphasis has been on an ability to purchase rather than on an ability to supply. A lack of capacity is a huge problem in our economy. It is encouraging to see an increase in the number of doctor only medical cards, for example, but it will increase the pressure on GPs. It should be a matter of national pride that our third level system is so accessible and after today even more affordable, but are we investing enough in our universities and colleges? It is also excellent to provide €500 in an annual tax credit for hard-pressed renters, but is the €6.2 billion of funding promised to the Department of Housing, Local Government and Heritage going to improve the supply of accommodation quickly enough? Overall, the government has done a good job. If capacity issues in the economy are addressed with the additional spending, it could even be an exceptional job. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Originally posted on Business Post 10 September 2022.  The findings of the current Commission on Taxation and Welfare come at a moment where inflation is rampant, and they could well prove to be a harbinger of impending economic mayhem.  What is the best early predictor of economic chaos? Is it a slump in GDP, or a surge in inflation or interest rates, or perhaps a dip in the purchasing managers index? In this country, it may be the establishment of a Commission on Taxation. While the findings of the current Commission on Taxation (and Welfare, to give it its full title) have been seeping out in the press in the past few days, its report will land at a time of inflation not seen since the 1980s, and of energy chaos not seen since the 1970s. Its predecessor commission, the second of that name, was announced in early 2008 when we still thought things were booming, but published in 2009 when it was clearly evident they were not. The original of the species, the first Commission on Taxation, was mooted in the late 1970s, but concluded in the grinding economic difficulties of the mid-1980s. All of these tax commissions were made up of knowledgeable and committed people. Their reports were careful and informed, and there is no reason to think that the report of the current commission will be any different. Only their timing is lousy. Taxation is based on technocratic principles, but ultimately it is a political process. The maxim of that long-ago and otherwise forgotten French minister for finance, that taxation is the art of plucking a goose with the minimum amount of hissing, remains true. This maxim tells us all we need to know in advance about the likely shape of the budget which is now just a fortnight away. Those of us in industry associations who lobby at the annual National Economic Dialogue and write anxious pre-budget submissions to government may have been troubling deaf heaven with our bootless cries. Instead, there are likely to be just two imperatives as Budget 2023 is framed. The first is to look after citizens and businesses whose livelihoods are being crippled by energy costs and inflation. Here, we should benefit from the lessons of the pandemic. The pandemic budgets of 2020 and 2021 were interventionist to an extent not seen in the previous decade. The 2007-08 crash left politicians and policymakers with a horror of manipulating the tax system to any purpose other than maximising tax collection. No serious attempts were made to help address homelessness, infrastructure deficits, or education and healthcare capacity shortfalls with tax incentives and reliefs. By contrast, interventionism was the watchword during the pandemic. The income tax system was thrown into reverse and used to subsidise wages, businesses were given what were in effect interest-free loans by deferring collection of Vat and PAYE, and Vat rates were temporarily reduced. This year’s economic rebound strongly suggests that temporary interventionist tax policies can work extremely well. Temporary reductions in Vat and excise can make inflated prices more manageable for people. Income tax reductions (unlikely to be as temporary because, after an exceptional inflationary period, not all prices go down) will make goods feel more affordable, particularly fuel. Sentiment is everything. An attractive and effective tax package should, from the political perspective, also quieten potentially noisy opposition benches. A percentage income tax or Vat reduction trumps a fancy tax policy or a principled position any time. The second imperative is to ensure that the exchequer continues to be able to provide help. The exchequer returns published on September 2 are unusually rosy. Perhaps more important, though, from the budgetary perspective, was the Department of Finance Annual Taxation Report published the previous day. This report confirms that the Irish exchequer is funded by higher income taxpayers, corporate activity and consumer spending. As long as those three sources are guarded, an appropriate exchequer response to a serious crisis such as the current situation is possible. There are no steps that any government can take to guarantee their preservation, but a prudent budget will ensure that at least these sources are not threatened. Amid all these considerations, it is unlikely that the concerns of any individual business sector or industry group will feature large in the budgetary arithmetic. Nor is it likely that there will be anything too new or innovative in how taxes are raised or collected. Instead, we may well see a series of targeted and reversible tax-relieving measures to supplement direct help provided under the social welfare code – an income tax relief is not much help if you’re not paying tax in the first place. The report of the Commission on Taxation and Welfare is due to be formally published shortly after budget day. Its conclusions will surely not be discarded, but new tax ideas are more likely to feature in future national budgets framed during less stormy economic times. And if, at some stage, a future finance minister announces the establishment of a fourth such commission, history suggests it will be time to prepare for the worst. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Originally posted on Business Post 06 August 2022.  The resolution of the agriculture emissions problem requires it to be seen for what it is: a problem of oversupply of a by-product. The vote of no confidence put down by Sinn Féin in the Dáil last month was a failure. Not only that, it seemed to galvanise the government parties while rallying some of the independents in the Dáil, whether they belonged to the government parties’ gene pool or not. Thus stabilised, government ministers should have gone on their summer holidays feeling reasonably secure, until the dispute over carbon emissions targets came to prominence. Climate change is not a little thing, but it should not trigger a crisis within government over carbon emissions targets in the farming sector. The concerns of farmers serve as a magnifying glass on political activity, and this particular magnifying glass can burn. The government’s position is not helped, either, by a discernible scepticism about climate concerns in the public mind fuelled by growing concerns over energy security. Fear of unbearably hot conditions over the next decade are being eclipsed by fear of unbearably cold homes over the next winter if Russian gas supplies to Europe are turned off. The EU’s relatively unambitious plan to cut gas consumption by 15 per cent has fallen foul of so many terms, conditions and exclusions that the net reduction might well be a lot less. It depends on every EU member state playing nice, and there are no guarantees of that. Few enough leaders across Europe have sufficient political capital to withdraw any existing services, or impose widespread restrictions on their electorates, and hope to survive the next election. This fact is at the root of the EU’s difficulties in agreeing restrictions on energy consumption, even if they can make the Russian sanctions regime more effective. Agreeing restrictions to make Ireland’s carbon sanctions regime more acceptable to the electorate is also at the heart of the current government problem, of which this is only the first instalment. If the government can survive this rattling over the next few months, it will be due in no small part to the disarray of the opposition on the issue. In all this, however, both government and opposition parties have missed the potential of commercial policies when it comes to achieving their objectives. There are many ways to view the problem of carbon emissions in the agriculture sector, but its resolution requires it to be seen for what it is: a problem of oversupply of a by-product. Agricultural oversupply can be resolved. In the past, butter mountains have been levelled and wine lakes have been drained when agriculture policies were modified to manage them. And before anyone starts whinging about subsidies to farmers, remember that for all its faults, the Common Agricultural Policy (CAP) is designed to ensure food security at reasonable prices for consumers. This is not just about incentives, but about euros and cents. If, despite protestations, the national herd gets forcibly reduced, say by 25 per cent, then the prices paid to eligible farmers need to increase by 33 per cent through direct government intervention. It won’t make the prospect of herd reduction attractive for the farming industry, because farmers are justifiably proud of their herds and of the quality of their produce. Equally, however, farmers are business people who, for the most part, recognise that restrictions for a broader purpose in their industry are sometimes necessary. One of the faults of the current CAP is that it is not clear enough about funding climate action. There won’t even be a method to measure its impact “until 2026 at the latest”, according to the EU’s own factsheets. So much for the notion that what gets measured gets done. More broadly, providing higher agriculture subsidies in Ireland to combat climate change may not be particularly effective. The world market for beef or dairy is unlikely to contract just because Ireland produces less. In this case, the ultimate consumer is the planet, not the person. We would be responding to the science, not to the demand. Perhaps the main obstacle to such a strategy is the lack of imminence of the problem. Climate activists the world over have seen their objectives topple down the policy agendas as governments grapple with Russia’s invasion of Ukraine and its consequences. It is hard to marshal political support for any problem not crystallising before the next election, or even before the summer holidays. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Originally posted on Business Post 06 August 2022.  The resolution of the agriculture emissions problem requires it to be seen for what it is: a problem of oversupply of a by-product The vote of no confidence put down by Sinn Féin in the Dáil last month was a failure. Not only that, it seemed to galvanise the government parties while rallying some of the independents in the Dáil, whether they belonged to the government parties’ gene pool or not. Thus stabilised, government ministers should have gone on their summer holidays feeling reasonably secure, until the dispute over carbon emissions targets came to prominence. Climate change is not a little thing, but it should not trigger a crisis within government over carbon emissions targets in the farming sector. The concerns of farmers serve as a magnifying glass on political activity, and this particular magnifying glass can burn. The government’s position is not helped, either, by a discernible scepticism about climate concerns in the public mind fuelled by growing concerns over energy security. Fear of unbearably hot conditions over the next decade are being eclipsed by fear of unbearably cold homes over the next winter if Russian gas supplies to Europe are turned off. The EU’s relatively unambitious plan to cut gas consumption by 15 per cent has fallen foul of so many terms, conditions and exclusions that the net reduction might well be a lot less. It depends on every EU member state playing nice, and there are no guarantees of that. Few enough leaders across Europe have sufficient political capital to withdraw any existing services, or impose widespread restrictions on their electorates, and hope to survive the next election. This fact is at the root of the EU’s difficulties in agreeing restrictions on energy consumption, even if they can make the Russian sanctions regime more effective. Agreeing restrictions to make Ireland’s carbon sanctions regime more acceptable to the electorate is also at the heart of the current government problem, of which this is only the first instalment. If the government can survive this rattling over the next few months, it will be due in no small part to the disarray of the opposition on the issue. In all this, however, both government and opposition parties have missed the potential of commercial policies when it comes to achieving their objectives. There are many ways to view the problem of carbon emissions in the agriculture sector, but its resolution requires it to be seen for what it is: a problem of oversupply of a by-product. Agricultural oversupply can be resolved. In the past, butter mountains have been levelled and wine lakes have been drained when agriculture policies were modified to manage them. And before anyone starts whinging about subsidies to farmers, remember that for all its faults, the Common Agricultural Policy (CAP) is designed to ensure food security at reasonable prices for consumers. This is not just about incentives, but about euros and cents. If, despite protestations, the national herd gets forcibly reduced, say by 25 per cent, then the prices paid to eligible farmers need to increase by 33 per cent through direct government intervention. It won’t make the prospect of herd reduction attractive for the farming industry, because farmers are justifiably proud of their herds and of the quality of their produce. Equally, however, farmers are business people who, for the most part, recognise that restrictions for a broader purpose in their industry are sometimes necessary. One of the faults of the current CAP is that it is not clear enough about funding climate action. There won’t even be a method to measure its impact “until 2026 at the latest”, according to the EU’s own factsheets. So much for the notion that what gets measured gets done. More broadly, providing higher agriculture subsidies in Ireland to combat climate change may not be particularly effective. The world market for beef or dairy is unlikely to contract just because Ireland produces less. In this case, the ultimate consumer is the planet, not the person. We would be responding to the science, not to the demand. Perhaps the main obstacle to such a strategy is the lack of imminence of the problem. Climate activists the world over have seen their objectives topple down the policy agendas as governments grapple with Russia’s invasion of Ukraine and its consequences. It is hard to marshal political support for any problem not crystallising before the next election, or even before the summer holidays. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Originally posted on Business Post 09 July 2022.  Glowing reports from the IMF won’t mean much to those struggling with rent, fuel and food costs. It feels as if the country has just done some kind of economic Leaving Cert, with end of term reports published last week. First there was the Summer Economic Statement, then the Central Bank quarterly update, and finally on Thursday a good conduct report from the International Monetary Fund. Subject to the usual terms, conditions and hedging that we tend to find in economic assessments, the portrait which all three of these reports painted of the Irish economy is surprisingly positive. The Summer Economic Statement projects that there will be a modest budget surplus in 2022 with significant money available to help on the social welfare and tax front to take the sting out of inflation. The Central Bank is of the view that the inflation spike will be most pronounced in 2022, and that once we are through this current calendar year, inflation may revert to something more tolerable. Both the IMF and the Central Bank conclude that the employment outlook is perhaps as strong as it has ever been, with less unemployment, more vacancies available and much greater female participation in the labour force. This time three years ago, the predictions from all these bodies were not as positive. The commentary in the 2019 Summer Economic Statement and the Central Bank’s quarterly forecast in July 2019 was dominated by Brexit fears. The IMF chimed in with Brexit concerns as well, adding the escalation of global protectionism, and having to adapt to ongoing international tax changes for good measure Since then, of course, we did have Brexit which was orderly or disorderly, depending on your political (not commercial) point of view, a crushing pandemic, and a Russian invasion of Ukraine disrupting commodity supplies worldwide. You would never seek it out, but one outcome of the pandemic is that it was like an experimental laboratory for the economy. Decisions were stress-tested in a way that would otherwise never have been possible. Depending on how you count them, more business supports and social welfare benefits were paid out by government in the two years of the pandemic than might usually be the case over five years. The outcome of this “experiment” has been that these payments seem to have been more in the nature of an investment than in the nature of largesse. The pandemic has also proven that our tax base is very resilient. We have discovered that the exchequer is predominantly funded by the corporate sector paying corporation tax, high-income earners paying income tax – about 80 per cent of all income tax and USC comes from the top 20 per cent of earners – and consumer activity in the form of Vat. According to the June exchequer figures, over 85 per cent of all of our tax revenues come from these three sources. Whatever else is done in the September budget, these sources have to be managed and preserved as no package of social welfare benefits and tax reliefs can be delivered without them. This resilience is further underlined by the fact that it is Irish business that acts as the collector of taxes for PAYE and Vat. During the pandemic, a sensible process of tax debt “warehousing” was introduced which allowed business to defer paying PAYE and Vat to Revenue. However, it is surprising how little tax debt was deferred in this way. Totals did vary over the ebb and flow of the lockdowns, but broadly speaking, there was deferral only to the tune of 5 per cent of the total tax yield. That's a confident performance by Irish businesses in a pandemic crisis. This sense of business confidence is reflected by surveys such as the Bank of Ireland’s Economic Pulse, suggesting that business sentiment is currently higher than consumer sentiment, but vastly more so than in April 2020, when we all stared into the abyss of the Covid-19 pandemic. There will be some who will argue that all this confidence and positive sentiment is misplaced and that we underestimate the interest rate and inflationary challenges of the coming months, but nevertheless, that confidence is there and is already having a bearing. It may yet be bolstered further. The indifference, bordering on hooliganism, shown by the current British administration to the political and economic status of Northern Ireland and Ireland’s position within the EU could soon be remedied. It certainly can’t get much worse. The problem now for the government is to translate this economic capacity and success into consumer sentiment. Glowing reports from the IMF won’t cheer anyone who is struggling with fuel, grocery or accommodation costs, nor for that matter the employer who can’t get staff because prospective employees can’t find a place to rent. And while inflation is expected to ease over the next ten months or so, it won’t over the next ten weeks between now and budget time. The economic exams may have been passed with flying colours. The budget will be a different matter entirely. There could even need to be some economic mistakes made by over-spending or undertaxing on the next Budget Day to make the public aware of these past successes. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Karen Flannery and Níall Fitzgerald consider the critical points in the revised Chartered Accountants Ireland Code of Ethics, which came into effect on 1 March 2020. The revised Chartered Accountants Ireland Code of Ethics took effect on 1 March 2020. The revised Code was necessary to increase alignment with the International Ethics Standards Board for Accountants (IESBA) Code of Ethics, which underwent a significant restructure in recent years. While there are no changes to the fundamental principles, Chartered Accountants familiar with the previous Code of Ethics (effective September 2016 to 29 February 2020) will find the look and feel of the revised Code significantly different. While additional sections and emphasis were included, others were removed. This results in greater clarity and ease of navigation. Figure 1 provides an overview of the revised Chartered Accountants Ireland Code of Ethics. Added emphasis on fundamental principles The five fundamental principles of the Code of Ethics remain unchanged. These include integrity; objectivity; professional competence and due care; confidentiality, and; professional behaviour. The conceptual framework that describes the approach used to identify, evaluate and address threats to compliance with the fundamental principles also remains the same. However, there is now a heightened emphasis on the fundamental principles and the use of the overarching conceptual framework underlying each section of the Code. Before, much of the narrative was contained in a single section of the Code. Responding to non-compliance with laws and regulations New sections were added concerning non-compliance with laws and regulations (NOCLAR) for professional accountants in practice (Section 360) and professional accountants in business (Section 260). These bring the NOCLAR provisions of the IESBA Code of Ethics into the Institute’s Code. A vital feature of the NOCLAR provisions is the specific in-Code permission to breach the principle of confidentiality in the public interest. This permission has been explicit in the Institute’s Code for several years and so, the NOCLAR provisions can be seen as a change of detail rather than of substance. The new sections outline the required actions when NOCLAR is discovered and provide additional guidance in this area. Key points to note concerning the NOCLAR provisions are: The first response to identified NOCLAR is to raise the matter, and seek to address it, at the appropriate level within the relevant organisation (internally); Where NOCLAR is not dealt with appropriately internally, the professional accountant considers whether to report to an external authority in the public interest. The decision to report externally is (as it always has been) a complex one; and Where a report is made in the public interest and good faith, there is no breach of the confidentiality requirements of the Code of Ethics. However, there may be legal implications for the professional accountant to consider. Revised layout The most obvious change is the revised layout of the Code of Ethics, which now mirrors the structure of the IESBA Code of Ethics with additional material for members of Chartered Accountants Ireland. A new paragraph numbering format was introduced and as a result, sections were restructured (e.g. what was “Part C” (Professional Accountants in Business) is now “Part 2” in the revised Code).The revised layout facilitates more natural referencing and distinguishes between the Code’s requirements (in bold text and denoted by the letter ‘R’) and application material or guidance (indicated by the letter ‘A’). Complexity has been reduced by simplifying sentences and language in parts. Also a new ‘Guide to the Code’, explaining how it works, has been included. Other content changes Table 1 highlights other notable developments in the revised Code of Ethics and suggests where you might focus your attention depending on whether you are a member in practice or business. Retained Institute ‘add-on’ material Where existing Institute ‘add-on’ content created important additional requirements beyond the IESBA Code, these ‘add-on’ requirements are retained in the revised Code of Ethics. Such requirements include: Specific requirements regarding communicating with the predecessor accountant (Section 320); Particular obligations regarding transparency around the basis for fees and dealing with fee disputes (Section 330); and Agencies and referrals (Section 331). No new ‘add-on’ material was created. Additional support for members The Institute’s online Ethics Resource Centre is updated regularly with a range of supports and guidance for members. Additional information included in the old Code of Ethics, but removed in the revised Code and still considered useful, has been reproduced in a series of new Ethics Releases. The Ethics Releases are not a substitute for the requirements of the Code, but they do provide additional support for members in particular scenarios, including: Code of Ethics and changes in professional appointments; Code of Ethics and confidentiality; Code of Ethics and marketing of professional services; and Code of Ethics and corporate finance advice. Future updates The last substantial change to the Institute’s Code of Ethics was in 2016. While the Code does not change regularly, there is a significant body of work happening behind the scenes to ensure it remains appropriate, precise and effective in the context of the issues affecting the accounting profession. Members can, therefore, expect amendments from IESBA in the coming years; for example, considerations addressing the impact of technology-related ethics issues on the accounting profession. For members who are insolvency practitioners, a new Insolvency Code of Ethics is imminent. The current Code of Ethics for Insolvency Practitioners, appended as Part D of the Institute’s old Code of Ethics for members, remains in effect until then.  Actions speak louder than words It was evident from the Ethics Research Report, published by the Institute in January 2019, that members hold their professional and business ethics in high regard. While the Code of Ethics does not change regularly, it is a hallmark that establishes a minimum standard which is signed up to and shared by all members of the profession. It is useful to be familiar with its requirements and to remember that it is individual member actions that express commitment to the Code of Ethics in addition to a member’s personal ethics. The revised Code is available via the Institute’s Ethics Resource Centre.   Níall Fitzgerald FCA is Head of Ethics and Governance at Chartered Accountants Ireland.  Karen Flannery FCA is Head of Professional Standards Projects at Chartered Accountants Ireland.