Thought Leadership News

As the need for Chartered Accountants grows, so does the shortage of available talent, says Dr Brian Keegan. If asked to describe an accountant, most business people these days would probably use the word “scarce.” Chartered Accountants are in demand perhaps as never before. One senior executive in the multinational sector damned the qualification with faint praise. He recently told me that he liked to hire Irish Chartered Accountants because they didn’t give him any trouble.  This misses the point. The shortage is not merely an island of Ireland phenomenon; it is a global issue. Contributing to a panel discussion on the topic at the International Federation of Accountants a few weeks ago, one of the panellists pointed to a simple reality: worldwide, more businesses are starting up than accountants are coming through the education process to service them.  Such entrepreneurial demands do not tell the full story, however. In the context of the destruction caused by the evil invasion of Ukraine, there is now a real possibility of a significant economic downturn in the western world.   Central banks are still trying to determine if the current surge in inflation is short-term, a result of supply chain disruption or a more systemic trend to be remedied by interest rate hikes.   As central banks, governments, and government agencies try to figure this one out, they continue to impose greater levels of reporting and regulatory requirements on businesses. One example is the drive towards environmental, social and governance (ESG) reporting. The EU’s Corporate Sustainability Reporting Directive (CSRD) is the biggest show in town for those in Ireland.   While the CSRD is still wending its way through the European institutions, it is clear that in the future at least five times more businesses will be required to report on ESG issues than is currently the case. These reports will also have to be assured.  The growing demand for qualified professional accountants is already evident in the rising number of students currently undergoing training with Chartered Accountants Ireland (though not necessarily in the figures of the other Irish accounting bodies).  This is partly down to our own marketing efforts and the training firms that continue to attract the vast majority of new entrants to the profession. However, supply chains of talent are more challenging to build than the supply chains of goods.   It will be critical to sustain this training momentum because some of the capacity issues we are currently experiencing are down to a fall-off in new entrants during the most recent recession.   If we continue to attract new talent into the profession, positioning the relevance of the accountant’s role in modern society really matters.   Although ESG reporting presents a capacity challenge, it also presents an opportunity to develop capacity. Assuring corporate sustainability achievements will be an attractive way to build a career for some new entrants. Yet, the European institutions framing the CSRD do not seem to have recognised this reality. On the contrary, at the time of writing, there are even suggestions that the “traditional” auditor would be precluded from providing assurance services on ESG matters.    It is hard to refute this argument without sounding self-serving. Nevertheless, without the participation of a vibrant accountancy profession, there will be no coherent reporting or assurance on ESG – and that is not in anyone’s interest. In the meantime, we will have to address the capacity issues, not just with the usual blandishments of good wages and attractive conditions for new students, but by facilitating the participation in the Irish market of accountants qualified elsewhere. Effectively doing so will be down to all of us – the Institute, firms and regulators alike. Dr Brian Keegan is Director of Advocacy and Voice at Chartered Accountants Ireland.

The Keynesian financial philosophy of deficit spending and government manipulation of economic activity has been popular, but does it still hold up post-pandemic, asks Brian S. Wesbury. Intellectuals and politicians often try to summarise or justify conventional thinking in pithy ways. Milton Friedman (in 1965) and Richard Nixon (in 1971) both used different versions of the phrase: “We are all Keynesians now.” John Maynard Keynes, one of the most famous economists of all time, supported deficit spending and government manipulation of economic activity, and Friedman and Nixon were both referring to the Great Society redistribution programs and the inflationary monetary policy designed to offset their cost. If economic policy was Keynesian in the 1960s and 1970s, as policymakers moved away from free market ideology, we are certainly all Keynesians now. COVID-19 spending and monetary policy are a clear continuation of this economic thinking. It all began in 2008 when the Bush and Obama administrations spent $1.5 trillion in taxpayer money to “rescue” the US economy, and the Federal Reserve (Fed) began quantitative easing (QE). That blueprint of policy response to the Panic of 2008 was used to respond to COVID-19 shutdowns. This time, the US Federal Government borrowed at least $5 trillion to spend, and the Fed increased its balance sheet by over $4.5 trillion. As a result of the Keynesian policies of the 1970s, the US experienced stagflation (slow growth and high inflation) – with both unemployment and inflation peaking in the double digits. Currently, inflation in the US is 8.1 percent, and the unemployment rate is 3.6 percent. So, while inflation is clearly happening, signs of stagflation are harder to find. This doesn’t mean economic growth isn’t being impacted. Multiple factors need to be analysed and untangled to fully understand the ramifications of lockdowns and government largesse. First, the US economy was artificially boosted by borrowing money and distributing it through government loans and pandemic benefits. Second, the US M2 money supply (measure of the money supply that includes cash, checking deposits, and easily-convertible near money) has increased more than 40 percent since February 2020, as the Fed renewed QE and monetised deficit spending. In other words, a great deal of that spending was paid for out of thin air. The impact of these policies was like giving morphine to an accident victim. The lockdowns dramatically damaged the economy, but the morphine masked the pain. All that pain-killer stimulus boosted sales and profits. This year, without new spending legislation—and, asؙ the Fed starts to reverse course, the economy will lose its morphine drip. On the surface, this suggests that the economy could be in trouble, but this ignores the impact of the third factor at play—its reopening. At least to me, it is clear that generous pandemic unemployment benefits had a massive impact on employment. In fact, the “Great Resignation” has had a lot to do with these benefits. While it was never the case, many thought the Build Back Better (BBB) spending bill would keep the money coming. Now that BBB appears dead, those people are heading back to work. In the first three months of 2022, 1.69 million jobs in the US have been filled, and this year will likely total four million jobs or more. So, even though the Fed will be lifting rates and Keynesian deficits will fall, the economy will expand in 2022, and profits should continue to rise. Unfortunately, we forecast that real GDP growth in the US will remain at less than three percent while inflation remains above five percent. This is reminiscent of the 1970s and, once society reopens fully following COVID-19 lockdowns, the full impact of these policies will be felt. The recent inversion in the yield curve suggests the bond market thinks that, if the Fed lifts short-term rates to three percent or so, it will be forced to cut rates again. This may be true, but we think inflation will prove a more persistent problem than the Fed or the bond market has priced in. The US is now stuck in a Keynesian dilemma of its own making, and the way out is to cut spending, cut tax rates, cut regulation, and tighten money enough to stop inflation. Because in the end, Keynesian policies don’t create wealth; free and open markets do. Brian S. Wesbury is Chief Economist at First Trust Global Portfolios.  This article represents the views of the author. This article was first published on FM Report.

Originally posted on Business Post 08 May 2022.  As a country, we consistently ask the wrong questions about our industrial and investment policy. The current row over turf tells us much about Ireland’s body politic, and it isn’t a good story. Bad policy does damage, but we don’t have enough politicians with sufficient ambition for their constituents to do it a better way. Surely, the real question is why any citizen of one of the wealthiest countries in the world has to rely on turf to heat their homes. The wrong questions are also being asked about our industrial and investment policy. The focus, post-Brexit and the Northern Ireland protocol, has been our trade in goods with Britain and the wider world, but Ireland exports just as much in services. Services can only be provided if we have people to provide them. Investment policy in this country has traditionally focused on how we tax employers. Having resolved the tax status of the body corporate, it is now time to think about the body in the office sitting at the keyboard, providing the financial management, systems programming and business support facilities which fuel so much of our prosperity. We have issues with the retention of qualified talent in this country. This seems to be particularly pronounced in the medical profession, where, as an OECD study of health systems pre-pandemic rather dryly observed, a high number of medical graduates who qualify here will never work here. It is difficult to resolve retention challenges in any particular sector, but we have to slow if not completely halt the brain drain. While not every problem can be solved by throwing money at it, should we start thinking again about how we tax our working population? What might the effect on the workforce be if we increased the personal tax allowances available to those under 30, while reducing the personal allowances available to those over 50 by a similar amount? That would, in effect, frontload the personal tax allowances people receive across their lifetime of work in the country to ensure they are less taxed in their early careers. Such an initiative would be a long-term project, and history suggests that while it wouldn’t be ineffective, it may not be permitted to be effective. The last attempt at engineering the make-up of the workforce with income tax policy was individualisation – lower taxes for working couples – and that failed for little better reason than a political resistance to any form of change. There was no ambition for the wellbeing of working couples, or for the resourcing of national growth. Turf fire thinking is not a new phenomenon. Yet there are some grounds for optimism. There have been positive developments in providing apprenticeship opportunities and in education syllabus reform. One area where the government has made considerable progress in dealing with the challenge is in the granting of critical work visas for skilled personnel coming into the country. Waiting time has dropped from almost six months to, in some cases, less than a month. Many knowledge workers do not need to be physically located in this country. International tax conventions preclude the possibility of special tax dispensations for workers resident outside the country but employed by an Irish firm. They do not, however, preclude simplifying the whole process of calculating and offsetting the correct amount of taxes due between countries. Making administration easier can make all the difference in ensuring ready supplies of goods, as post-Brexit Britain is finding to its cost. The same holds true in ensuring the ready availability of talent. This time last year, Ireland was an outlier from the international consensus was when the government sought to protect the country from the loss of one of our key investment incentives – the 12.5 per cent corporate tax rate. The outcome was an international rate of 15 per cent that would not go any higher, while persuading the European institutions that it was tenable to run a tax regime with different rates depending on the size of the industry. But the other side of the international reform agenda, which garnered less attention was that some corporate tax revenues would migrate from countries of production to countries where markets were to be found. This would mean that Western economies such as the US, France and Britain would in effect be surrendering part of their corporation tax take to countries with large markets such as Russia, China and India. There is now little to no chance of that happening any time soon. Future success will not be achieved by attempting to mirror the patterns of the past. It has often been pointed out that money tends to flow to locations where it is most welcome, and the same is true of professional talent. It is not terribly long ago since we systematically impoverished our country by restrictive trade and industrial policies which did little other than prompt people with get up and go to get up and go from our shores. We now need to do exactly the opposite. It’s time to stop the turf fire thinking. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland