While the economic future is bright for the island of Ireland, we mustn't take it for granted. Neil Gibson outlines lessons learned from the last two years and what challenges lie ahead. It is encouraging to report that the all-island economy ended 2021 in much better health than expected despite the economic and societal headwinds of the past 22 months. The economic rebound has been quick and substantive to date, driven by a combination of well-timed policy responses and the ingenuity and flexibility of the business base. The economy is dealing with labour shortages and price increases exacerbated by high demand levels. These problems can be viewed as consequences of success, but it does not make them any easier for businesses or policymakers to navigate. The emergence of the latest COVID-19 "variant of concern" adds renewed uncertainty to the outlook as many unknowns remain about its severity and impact at the time of writing. The 2022 outlook for the Republic of Ireland (ROI) and Northern Ireland (NI) has been revised upwards from forecasts produced in spring 2021, with the labour market outperforming expectations. The pandemic has hastened a trend that has been gathering momentum – not all growth is equal. Purposeful growth that brings together economic, societal, and environmental development has become the goal for policymakers, citizens, and business leaders alike. The resilience and adaptability of the all-island economy will be tested further as the challenges of the "three Ps" – people, planet, and prices – move into sharper focus this year. Can the headwinds become tailwinds? The headline economic performance may be better than expected, but not all businesses are booming. The ever-changing nature of the virus, supply chain disruptions, and rapidly increasing prices all present significant headwinds for many companies. A strong labour market recovery amid a slowdown in migration also means that many businesses struggle to attract and retain talent. The economic outlook appears much more daunting when these short-term challenges are coupled with the necessity to transform towards a more sustainable future. The evidence of the past 22 months has shown that the organisations that can turn these challenges into opportunities will achieve unparalleled success. Finding talent in new places, deploying technology to mitigate price increases, achieving sustainability goals through innovation, clear leadership, and targeted investment are all traits of businesses that have thrived in these uncertain conditions. The critical question for the wider economic outlook is whether a sufficiently broad cohort of businesses can participate in this transformation. Policy plan remains 'grow faster' The UK and ROI budgets emphasised the need to keep public spending levels high to tackle ongoing pandemic issues and accelerate efforts to address significant societal, environmental, and economic challenges. The two most prominent issues set out in the ROI and UK budget speeches were climate change and housing. It was evident that the key policy choice is to raise taxation to meet spending rather than curb spending to match income. There were no widespread austerity measures put in place across either economy despite the levels of borrowing incurred due to the pandemic. However, the UK did introduce two major tax increases to rebalance public finances and facilitate sustained elevated levels of public spending, increasing national insurance and the headline corporation tax rate. In ROI, strong levels of growth and tax receipts have safeguarded against any immediate tax rises for the time being. However, the OECD global tax agreement will modestly increase the corporation tax rate. Reassessing risks is an imperative Given the outperformance of the all-island economy, it may seem pessimistic to warn of complacency as a risk to economic growth. Still, as the emergence of Omicron demonstrates, it is essential not to take the strong recovery for granted in 2022. The availability of a seemingly endless supply of public money to deal with the pandemic, the assumption by most economists that inflation will be temporary, and the availability of low-cost finance are all open to challenge. The public finances will need to be repaired, particularly if interest rates rise sooner rather than later. Traditionally, technology, global competition, and labour supply would mute prices. However, these assumptions are now being challenged as wages are rising and consumers are becoming more conscious of suppliers' ethical and environmental standards. Growth is always hard-earned, and the ingenuity and adaptability that has been evident across the island economy will be required again. As scientific evidence shows, there is very little calm after the storm, but at least the economy faces the challenges from a more robust platform than predicted. Neil Gibson is the Chief Economist at EY Ireland.

HMRC has informed Chartered Accountants Ireland that late filing and late payment penalties are waived for one month for Self-Assessment taxpayers filing their 2020/21 returns.  The Institute made representations to HMRC before Christmas and earlier this week highlighting the health and safety risks facing accountants and taxpayers in meeting the 31 January deadline in wake of worsening COVID-19 case numbers.  The deadline to file and pay remains 31 January 2022 but those who cannot file their return by the deadline will not receive a late filing penalty if they file online by 28 February and they will not receive a late payment penalty if they pay their tax in full, or set up a Time to Pay arrangement, by 1 April.  Interest on late payment of tax, however, will apply from 1 February, as usual. On publishing news of the penalty waivers, Lucy Frazer, Financial Secretary to the Treasury, said: “We recognise that Omicron is putting people under pressure, so we are giving millions of people more breathing space to manage their tax affairs. Waiving late filing and payment penalties will help ease financial burdens and protect livelihoods as we navigate the months ahead.” HMRC noted that, of the 12.2 million taxpayers due to submit their tax return by 31 January 2022, almost 6.5 million have already done so. HMRC told Chartered Accountants Ireland that Time to Pay options are still available to assist taxpayers.  Once they have filed their 2020/21 tax return, taxpayers can set up an online payment plan to spread Self-Assessment bills of up to £30,000 over 12 monthly instalments.  HMRC noted that if taxpayers still cannot file by 28 February or pay (or set up a payment plan) by 1 April, the usual right of appeal against any penalty will be available, with COVID-19 as a possible reasonable excuse.   See HMRC’s press release for further details. 

In the first interview from our new governance webcast series, Dr Margaret Cullen and Níall Fitzgerald discuss board effectiveness, some of the issues currently impacting Irish and UK boards and how those issues can affect behaviours, and key concerns boards have in relation to their responsibilities at the beginning of 2022. Dr Cullen discusses a range of topics in this webcast, including: three competencies that are critical to board effectiveness; what senior management can do to self-manage behaviours and ensure their contributions facilitate effective decision-making; individual and collective accountability and the importance of good decision-making processes; and the governance issues that are having the greatest impact on SMEs, large private and listed companies. The interview with Dr Margaret Cullen is available to view on our YouTube channel. Dr Margaret Cullen is an experienced non-executive director, lecturer, and researcher. She is founder and principal of Think Governance Limited, a corporate governance consulting firm.