Originally posted on Business Post 05 December 2021. We need more information on the opportunities and challenges that a 32-county regime would bring for businesses as well as individuals The Red C opinion poll in this newspaper last week highlighted the jarring reality that while many of us might aspire to the notion of a united Ireland, our views might change dramatically if it comes to paying for it. There is precedent for this reaction. The most prominent reunification in recent memory was that of East and West Germany. To fund that particular initiative, a solidarity surcharge was introduced which put a few additional percentage points on most existing taxes. The levy still exists today in many cases and suggests a solidarity surcharge may need to feature in debates over a united Ireland too. The travails of the Irish economy and the levels of indebtedness are well known, but the private sector is thriving. By contrast, the Northern Ireland economy is unbalanced. The proportion of public-sector to private-sector activity in Northern Ireland is considerably higher than usual – 27 per cent of workers in Northern Ireland are employed in the public sector. In the Republic, the Department of Public Expenditure and Reform reports 350,000 public sector jobs, suggesting that only 14 per cent of workers in the South are paid out of public funds. In terms of tax collected, Northern Ireland typically accounts for approximately 2 per cent of all British tax receipts, or just over £15 billion (€17.6 billion). The Revenue Commissioners in the South will collect something in the order of €90 billion in gross receipts this year. A block grant is paid from Westminster to bridge the gap between what taxpayers in Northern Ireland pay and the cost of providing all the jobs and public services in the region. This subvention runs at the rate of approximately £1 billion a month, a British funding hydrant that would surely dwindle, if not get turned off entirely, in the event of unification. The political players in Northern Ireland are wedded to their Westminster block grant, as is shown in their approach to how Northern Ireland companies are taxed. Stormont has had the power to set its own corporation tax rate since 2015, but adjusting the rate would come at the cost of reducing the block grant subvention from Westminster, so it hasn’t happened. We need some better perspective on the opportunities and the challenges that businesses, and not just individuals, would have within a putative 32-county regime. A united Ireland will surely mean some move towards harmonised income and corporation tax rates across the island, if only because Brussels would insist on it as a condition of re-admitting Northern Ireland to the EU. A harmonised corporation tax rate might be unlikely to rest at 12.5 per cent for most industry, but the all-island rate could be lower than the 19 per cent rate currently paid in Northern Ireland and which is due to increase for larger businesses to 25 per cent from 2023. Businesses would also need to factor in the costs of employment under a harmonised income tax and national insurance regime. According to recent OECD comparisons, the typical tax cost of employing a person on the average wage is remarkably similar North and South of the border. While the tax wedge – PAYE and National Insurance or PRSI combined – is around 31 per cent on average in both jurisdictions, this can change dramatically depending on family circumstances and different wage rates. Tax considerations aside, government and employers alike would have to wrestle with the significant differences in labour law which currently exist on the island. One of the biggest challenges for a truly all-island economy could come from losing Northern Ireland's privileged trade status under the Northern Ireland protocol. Despite the wrinkles in the protocol (and I do not discount the practical difficulties in its operation), the opportunity now available to Northern Ireland business to sell goods into both the EU and British markets without hindrance is a unique benefit. Neither the EU nor Britain would see any advantage in allowing one EU member country or region of the remaining 27 countries to have any form of privileged access to their respective markets. While undoubtedly there would be transitional arrangements and sunset clauses established were the political accommodation ever to come to pass, these could not be prolonged indefinitely. It is not only individuals that might be asked to pay more tax in a united Ireland; businesses in both the North and South would have to as well. Some form of solidarity surcharge would be an unavoidable consequence. Brexit has shown us what can happen when political decisions on sovereignty are taken without care for the legitimate concerns of industry. If the concerns of business are left out of the debate about a united Ireland, everyone will be worse off. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

The Irish Government this week approved the detailed Annex of Actions to support the delivery of the Climate Action Plan 2021. The Annex of Actions, which follows the Climate Act 2021, aims to drive delivery of climate action across all Government Departments and bodies. The implementation of the plan will be underpinned by the following:  the Climate Action Delivery Board ensuring accountability for the delivery of actions set out in the Climate Action Plan, and reviewing key strategic projects and areas of work;   the Cabinet Committee on Environment and Climate Change being central to climate policy formulation and implementation on a whole-of government basis;   the provision of a delivery report to the Cabinet Committee on Environment and Climate Change and the Cabinet each quarter; and   the streamlining of the reporting process to allow for greater transparency on progress towards decarbonisation.  Commenting, Minister for the Environment, Climate and Communications, Eamon Ryan TD, said: “We have seen that we can work across Government to tackle Covid. We now need to give the same cross-government impetus to our work on climate action, so we can reach our goals and create a cleaner, greener economy and society.” 

The Irish Government launched its new climate toolkit this week. This online resource provides businesses with practical ways to start taking climate action. Businesses input simple information on the site, such as their energy bills, and get an estimate of their carbon footprint and a personalised action plan to reduce it. The toolkit also highlights relevant help available from the Government, through agencies such as Enterprise Ireland, the Local Enterprise Offices and the Sustainable Energy Authority of Ireland.  Speaking about the toolkit, Tánaiste and Minister for Enterprise, Trade and Employment, Leo Varadkar TD, described it as “a very practical starting point for every business looking to take their first steps to reduce their reliance on fossil fuels and make more sustainable choices.” Minister for the Environment, Climate and Communications, Eamon Ryan TD, also commented that “[s]uccessful businesses know that cutting their emissions and their waste makes both financial and environmental sense” and that “companies who show leadership on climate will reap the rewards, in terms of customer confidence, corporate reputation and the long-term sustainability of their business.”  You can also find information on climate-related resources for businesses on the Chartered Accountants Ireland Sustainability Hub.  

Broadband connectivity also key to Ireland’s ability to compete internationally  Chartered Accountants Ireland comments on today’s release of 2020 FDI statistics by CSO   16 December 2021 Commenting Cróna Clohisey, Public Policy Lead, Chartered Accountants Ireland said “FDI has been the key driver of Ireland’s return to economic prosperity, and to further capitalise on this position of strength, the regulatory conditions and environment must continue to meet the needs of today’s globalised businesses.  “Chartered Accountants, as business advisors, have played a crucial role in bringing technical skills to bear in supporting overseas investment, facilitating regulatory compliance, and reducing any association risk and uncertainty for businesses. It is not only what is done from a policy perspective that can set a country or location apart from others, but how it is done.” The Consultative Committee of Accountancy Bodies - Ireland (CCAB-I) emphasised earlier this year the need for a stronger pipeline of students to fill accounting courses and apprenticeships at third level, leading to professional accountancy qualifications. It warned that Ireland needs greater ‘bench-strength’ to meet demand from employers and future-proof economic growth.   Clohisey continued “38% of respondents to an Institute study earlier this year worked in Irish subsidiaries of foreign companies, demonstrating the importance of the accounting profession to FDI in Ireland. Accountants are on the Department of Enterprise’s Critical Skills Occupations List, professions in which there is a shortage of qualifications, experience or skills required for the proper functioning of the economy.  “Traditionally, demand for accountants has come from professional and financial services as well as industry, but now we see increased demand in business process transformation, data analytics, RegTech, Fintech, compliance and risk management.”    According to the IDA, 52 percent of FDI investments were outside of Dublin in 2020. In addition, prompted by Covid-19 and underpinned by the new legislation needed for remote work, the hybrid working model is likely to become embedded in the future of many workplaces. The success of this new workplace model will depend on the availability of broadband connectivity.  Clohisey noted “The pandemic has highlighted the need to address issues around digital infrastructure, and it has drawn attention to the digital divides that exist between regions and between industry sectors. Ireland has made some progress over the last decade in rural broadband coverage, however, very high-capacity network coverage (21%) is less than half the EU average (44%). “In an extremely competitive environment, inadequate broadband capacity risks undermining our ability to compete internationally for investment. For that reason, it is imperative that broadband connectivity is accelerated as per the commitments set out in the Programme for Government.” ENDS                                                      

In a letter to Tánaiste Leo Varadkar, the Institute has raised concerns that employers are being given an ‘impossible window of time’ to introduce statutory sick pay. The scheme is expected to become mandatory on 1 January 2022.  The Government’s Sick Leave Bill 2021, published on 4 November 2021, contains limited information on how to practically introduce the scheme and the Institute has told the Tánaiste that employers, software developers and payroll service operators do not have enough time to analyse the Bill, which is yet to be signed into law, and implement its requirements.

Originally posted on Business Post 08 November 2021. Excessively taxing one particular cohort in society may be politically expedient, but it’s not a realistic long-term strategy. Mary Lou McDonald and Joe Biden make strange bedfellows, but they share similar aspirations. The US president’s investment plans aspire to provide enhanced social supports for his country. So too does the alternative budget of McDonald’s party. The Sinn Féin plan majors on affordable housing; so does Biden’s. Both feature enhanced childcare policies and proposals on climate change, and while these differ in detail the direction of travel is similar. In each case initiatives are to be paid for by increasing the burden of tax. Every fair-minded person wants improvements to the social fabric, be it in housing or environment or infrastructure. Yet both leaders seem to assume that few enough fair-minded people might be willing to pay for those improvements. For the Democrats, reforms are to be paid for by those earning more than $400,000 a year. The Sinn Féin threshold is considerably lower, with €100,000 of earnings apparently being the sweet spot over which citizens cease to be citizens and become mere taxpayers. Both parties are also comfortable with the notion that industry should contribute more to cover the funding gap for their spending aspirations. This progressive taxation policy approach is acceptable and works up to a point, but when it passes an excessive burden onto any one cohort, no matter who is in that cohort, government finances are left in a vulnerable position. That was the lesson in Ireland in 2008 with the property crash, when tax receipts had become too reliant on the cohorts making their living from the property sector. This is not a hazard peculiar to left-wing ideology, it is simply the way the world works. Even the most fashionable tax policy can go astray. In a week where the news in the developed world is dominated by COP26, only brave souls will argue against carbon taxation. Yet the lack of choice in our fuel and transport infrastructure renders carbon taxes useless at influencing behavioural change. It makes no sense to increase social welfare fuel allowances and increase the standard income tax bands and allowances so that people could afford to pay carbon tax, but that was the key feature in last month’s budget. Not only are carbon taxes not delivering change; they have a negative exchequer impact. There is an argument that the most successful tax policies are the ones which are the least specific to a particular cross-section of the population. A change up or down should apply to the general body of taxpayers. Not everyone pays income tax but everyone pays Vat on many foods and most services. A Vat increase may well be the most equitable way of raising additional revenue. It is certainly the least divisive. The Sinn Féin alternative budget makes no reference at all to Vat, which is the second largest source of money to the Irish exchequer. Instead, their alternative budget depends on more payments from fewer people, topped up with borrowing. That looks even more risky because it assumes their new policies will cause no disruption to the existing level and source of tax receipts. The only way the reforms that the US Democrats and Sinn Féin alike are proposing can be paid for, on a sustainable basis, is if the cost is shared. It may be politically expedient to promise largesse to be funded by a small group who mightn't vote for you anyway. Yet the big risk is that those promises can only be delivered for a short period of time before the small group either ups sticks or simply runs into financial difficulties. It’s hard to collect tax when the small group being relied upon to pay it is not earning much. It gets even harder when short-term tax receipts fail in the face of long-term spending programmes. The Irish tax system is not perfect, but it is relatively broad-based; higher earners pay proportionately more, and any allowances and reliefs are generally available to most taxpayers. The extent of the US political divisions along party lines limits such policy choice and nuance. That is not the case here yet. The Sinn Féin proposals risk a polarising effect on the policy debate because they narrow the tax base. Joe Biden and his Democrats may be in power but his party is not fully behind him, his economic and tax plans have made it through the House, but have yet to make it through the Senate. McDonald’s Sinn Féin party seems to be fully behind her, but were they to be in power, would their tax plans survive the rigour of the Irish parliamentary process? A narrative is emerging that, following its Ard Fheis, the party is in some way moving towards the centre ground. That might be so, but it still has some distance to go with its fiscal policies. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland