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

Resonant with the Institute’s position paper, The Next Financial Year, Michael Diviney surveys some of the issues and changes expected in 2022 and beyond. Changes at the core After years of relative stability, disciplines associated with Chartered Accountancy are about to undergo significant change, a key source of which will be legal and regulatory initiatives from the European Union. In 2022, the focus and effects of this change will be seen in: Environmental, social and governance (ESG) reporting: A new Corporate Sustainability Reporting Directive (CSRD) is due. In tandem with this, the European Financial Regulatory Advisory Group has been asked to develop ESG reporting standards by mid-2022 to be applied in EU member states. Reform of the audit market: An EU Commission consultation on the ‘three pillars’ of corporate reporting, corporate governance, and audit and supervision with a response deadline of 4 February 2022 will undoubtedly lead to attempts to revise EU legislation and regulation next year. International tax reform: At least three draft EU tax directives are due to be published. The first will give legal expression to the 15% minimum effective corporation tax rate for larger multinationals. The second will concern public disclosure of minimum effective tax rates in the EU by companies that fall under the OECD agreement’s scope. The third concerns allocating limited taxing rights to the countries where a corporate entity’s market is located. Anti-money laundering legislation: As part of its action plan to prevent money laundering and terrorism financing, the European Commission has published a set of legislative proposals. These include a sixth Anti-Money Laundering Directive and the establishment of a pan-European monitoring authority to coordinate anti-money laundering activities. What is driving this change? The impact of the pandemic: Many businesses in developed economies are receiving government supports to assist them through the COVID-19 pandemic, which has created a need for additional accountability and reporting. In 2022, government will be bigger. Climate change: There is an emerging consensus on the need for robust sustainability reporting standards to be more widely applied in geography and business scope. High-profile audit failure: Recent business failures have brought the audit market, conduct, and regulation into sharp political focus. International crime: There is increasing recognition that organised crime across national boundaries needs to be tackled with anti-money laundering techniques and more traditional policing and enforcement. Tax: There is now a global consensus that large multinationals should be taxed at an effective minimum rate of 15%. The largest corporate entities should also make corporation tax contributions by reference to the location of their markets and where they are established. Governance Increasing focus on sustainability, corporate failures, and technological advances impacting business are driving corporate governance reforms. For example, the European Commission’s sustainable corporate governance initiative will enhance the EU regulatory framework on company law and corporate governance. As a result, we are likely to see increased responsibilities for directors and more requirements for internal controls and supply-chain management in organisations of a certain size. In the UK, we await the Government’s next steps following consultation on restoring trust in audit and corporate governance. In Ireland, the Government is progressing legislation on individual accountability for certain senior management positions in financial institutions. Gender balance on boards The Irish Corporate Governance (Gender Balance) Bill 2021 proposes that 33% of a company’s board must be female after the first year of its enactment, rising to 40% after three years. If enacted, it would apply to limited and unlimited companies, charities, and all state-sponsored bodies. There would be a few exceptions, such as partnerships and companies with fewer than 20 employees. Gender pay gap reporting New to Ireland in 2022 will be the mandatory reporting of gender pay gap (GPG) information, initially for organisations with 250 employees or more. GPG is the difference between the total average hourly wages of men and women in an organisation regardless of their roles or seniority. It is different from equal pay, which measures if men and women are paid the same for performing work of equal value. GPG is an indicator of whether men and women are represented evenly in an organisation. Regulations will set out details of the reporting and publication processes. Leading on purpose November saw the launch of Evaluating Trust in the Accountancy Profession, a report by Edelman for Chartered Accountants Worldwide, of which the Institute is a member. Based on a survey of 1,450 financial decision-makers, 80% of whom are non-accountants, the report reveals an opportunity, if not an expectation, that Chartered Accountants take the lead on purpose-led initiatives such as driving action on sustainability and diversity, equity and inclusion. Commenting on the report, Ronan Dunne FCA described it as a call to action for Chartered Accountants “to broaden the base of trust”, building on their ethical reputation and professional standards. CEOs are now expected to have opinions on societal issues. This is an opportunity for Chartered Accountants to be influential in establishing the ‘citizenship’ of corporates, advising industry leaders on the integration of purpose with strategy and planning. Technology and the accountant Societal issues are not the only fundamental factors broadening the role and value-add of the accountant. Technology is also a driver of change. Writing in this magazine, Aoife Donnelly FCA and Thady Duggan FCA have argued that, accelerated by the pandemic, and as more traditional finance tasks are automated, the emphasis will be on maximising the impact of digital technology, enabling a shift from a past focus to a future focus. A future focus involves changes in the accountant’s skillset to include: data analysis (at least an understanding of the fundamentals of data analytics to be able to challenge specialists); communicating insights from the data; data governance and assurance; horizon-scanning and innovation; collaboration across the organisation, as well as working with multidisciplinary teams on defined fixed-term projects; and applying technology to support these contributions. The rise of the social enterprise Reflecting the emphasis on purpose and linked to sustainability, 2022 will see the resurgence of the social economy. COVID-19 caused people to pause and reassess their priorities and values, and some entrepreneurs are recycling into social enterprises. Social entrepreneurs bring momentum to the emerging circular economy. They reflect new ways of thinking about business, focusing on digital innovation, diversity and inclusion, and transparency – a magnet for Gen Y and Gen Z. They also influence the future development of mainstream corporations. Social enterprises like Food Cloud, connecting retailers with charities to donate food, need appropriate advice and sources of finance that match their broader societal objectives. Working 3:2 Assuming it is safe to return to the office, ratios like ‘3:2’ will feature as hybrid (or blended) working becomes a reality, at least for those who can work from home. The remote working forced by the pandemic has been a positive experiment in trust. In many sectors, productivity was maintained, even improved. So it makes sense to retain the discovered benefits, including flexibility, which employees now expect to be ‘baked in’. However, the start-up challenges for hybrid working should not be underestimated. There is little precedent, though we can learn from sectors where staff have not been able to work from home during the pandemic. An experimental, patient approach is required from all. New ways of working will be designed. They will distinguish between what we need to do in person, where the focus will be on high-impact interaction (innovation, performance conversations, organisational change), and what can be done remotely. The workplace will be physical and digital in equal measure. The purpose of the office will be redefined, reflected in its layout. New risks include the potential inequalities of a two-tier system of those present in person and those not. Training will be needed for the management of blended teams. Digitalisation Not all work can be done remotely, and not all employers can afford the IT for staff to work from home. There is an opportunity for Government to support the digitalisation of businesses to make the hybrid transition and continue the roll-out of work hubs. Tax and remote working To adapt to this new reality, tax rules must align with remote working practices and fairly reflect the costs of working from home, allowing a tax deduction for expenditure on equipment used for remote work purposes. In addition, an employee’s ‘normal place of work’ should be based on where they carry out most of their work. Childcare The lack of affordable childcare for working parents came to the fore during the pandemic, particularly when schools closed. In an economy crying out for talent, working parents should be encouraged to engage fully in the workforce, or at least have the choice. From September 2022, new funding of €69 million will be available for childcare providers to ensure the sustainability of services. However, it remains to be seen if this first step will have the desired effect of controlling fees. Talent and the ‘perfect storm’ ‘The Great Resignation’ may encompass employees who are resigned to stay in their current roles as well as the millions of people worldwide reported to be changing jobs or who plan to. In any case, for 2022, a ‘perfect storm’ is predicted when increased demand for talent meets the post-COVID phenomenon of career change. There are tools employers can use in recruiting and retaining talented people: offering remote/hybrid working and flexibility; budgeting time for regular conversations with individuals about how they feel about their work; delivering on the ‘employability contract’ – the expectation to learn new, marketable skills; and a strong and empathetic employer brand. Arguably the best way to recruit and retain the best people is to show leadership with values and purpose. Michael Diviney is Executive Head of Thought Leadership at Chartered Accountants Ireland.

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