15 Apr 2017 | 09.49 am
Interview: John Glennon, RSM Irl
High income taxes puts Ireland at a competitive disadvantage
15 Apr 2017 | 09.49 am
RSM IRELAND’s MANAGING PARTNER JOHN GLENNON HAS HELPED MANY OF THE FIRM’S 150 FOREIGN CLIENTS SET UP THEIR OPERATIONS IN IRELAND
The Top 20 accountancy firms enjoyed a revenue increase of 15% in 2015/16. What’s driving this rebound in fee income?
The accountancy sector has certainly seen an uplift in 2015/16 as the economic expansion has continued to benefit our clients. However there remain some challenges within the sector.
Auditing and tax services remain very price sensitive, which requires firms to differentiate themselves based on service and sector expertise. Our SME client base are looking for advisors who truly understand their challenges and can provide tailored solutions.
The management of mid-market companies, who during the recession were focused on cost reduction and ensuring the continued viability of their business, are now looking at strategic opportunities and planning for the longer term. 2016 undoubtedly saw a resulting increase in the level of planned and executed transactions on the marketplace among our SME client base although a lack of funding on this sector still posed some concern, this strategic focus meant that our management consulting unit also saw a large increase in the provision of transformation & change and IT consulting services, which is a real reflection of the renewed confidence among our mid-market client base.
There are many reasons for continued optimism in the sector for 2017. However, I do believe that compliance service offerings will continue to experience pricing pressures and firms will need to continue to embrace technology to achieve efficiencies in the delivery of these services and to respond to the growing sophistication of the client base.
It is difficult at this stage to predict the impact of recent global events on FDI activity into Ireland. however I am optimistic that this will remain strong in 2017.
What’s top of mind with your growth-focused clients at the moment, and how are you assisting them? Are they spooked by Brexit and Trump?
Last year was an in interesting year, with the news of Trump and Brexit sparking uncertainty and concern amongst many of our clients. At RSM we empower our clients to move forward and in times of uncertainty being an advisor and foreseeing issues that might affect them is important to us. We are working to understand the complexity of Trump and Brexit and translating this understanding into relevant advice and services that apply directly to our client’s unique situation.
In relation to Brexit, Irish vital interests are at risk to an extent greater than most other EU member states. Before the Brexit vote, Ireland’s relations with the UK were at an all-time high; but in my view, most of our clients believe our interests continue to lie as a member of the EU. So Ireland must manoeuvre through the divorce proceedings between the UK and the EU as best it can. Ireland must also work to endeavour to ensure the divorce of its friends brings its compensations for Ireland.
Ireland needs to develop an urgent response plan to try and limit the hit to Ireland from Brexit and take advantage of the upsides. Ireland has one of the most educated work forces in the world. Ireland is a very adaptable country, the historic problems of peripherality have been partially offset by technology. So, Ireland can offer a home to new talent – Dublin should certainly be one of the many European cities that can profit from Brexit. “Openness” can be a differentiation strategy for Ireland as a result of Brexit.
I think we need to address high personal taxes for Executives of FDI Companies, address the housing and office space issues to increase Ireland’s attractiveness in a competitive way.
The Brexit negotiating process, as well as negotiating a new relationship between the EU and Britain, will represent the unique opportunity to redraw the ground rules for the remaining 27 countries. Hopefully, this will lead to the EU reconnecting with its people and reforming itself to deliver on the issues that will help the EU develop into one of the best regions in the world in which to do business.
Domestically, if President Trump does what he says, this should lead to lower US taxes, less regulation, improved infrastructure spending, which would probably mean higher US GDP growth, more inflation and a stronger dollar and higher inflation rate in the short-term, albeit with a resulting higher budget deficit. Whether this is all healthy for the US prosperity in the medium-term remains to be seen.
In terms of global prosperity and wellbeing, President Trump is full of contradictions, and it’s difficult to predict the final policy directions he will follow. We must really watch and see what he does rather than what he says.
There is evidently a talent shortage in the accountancy sector. Is this issue a problem for your practice and do rising salaries inevitably impact on client fees? Why aren’t more young people joining the profession?
Attracting and retaining talent has undoubtedly become a big challenge in the sector. We have seen increased competition in attracting graduates in recent years and we believe that making RSM attractive to younger professionals is important. The traditional work environment has changed and we see a need to redefine the workplace, flexibility and work life balance are key components in talent attraction, in particular amongst millennials and Generation Z.
At RSM we are placing more and more emphasis on understanding our staff and retaining the talent we have in-house. This year we’ve established a number of initiatives to encourage staff to ‘own their own future’ and strike that work life balance, we see workplace wellness programs being key to this.
We are also looking at alternative ways to grow our head count through organic growth. While making sure that you remain competitive with market salaries is important, this is only one aspect of our reward system. Staff also look to other benefits when choosing to stay in a role. These can be different to different people depending on where they are in their personal lives.
While professional services salaries have risen in recent years, this has not impacted client fees. In the same way that the employment market and credibility of talent impacts salary levels so too does competition among accounting firms impact fees. In reality margins in professional service firms have declined over the last 5 years.
Can Dublin cope with an influx of UK financial firms relocating for EU passporting rights? How can government make Ireland more competitive for FDI?
Much has been spoken about this, with commentators in the UK stating that Ireland would not be able to deal with a large influx of FS operations due to a lack of talent locally. However, a study by the jobs site Indeed reveals the number of financial sector professionals in Britain and continental Europe looking for jobs in Ireland increased sharply in the months following the EU referendum.
Job searches from the UK for Ireland-based auditor roles increased by 55% over the period, while job searches for financial analyst and accountant roles in Ireland jumped by 50% and 46% respectively. The data also suggests that Europeans are increasingly considering relocating to Ireland in the wake of the Brexit vote. Searches by Europeans for FD roles in Ireland surged by 196% in the eight-week period, while searches for auditor and trader jobs increased by 89% and 62% respectively.
Of course, this does not mean that these people are currently here but it does indicate that people are willing to come here as Ireland is viewed as a good place to live and work to supplement the talent already available. There are of course infrastructural issues that will need to be overcome, not least being the shortage of good quality residential accommodation.
In terms of making Ireland more competitive for FDI, a serious revamp of the personal tax regime is required. The continuing bias towards taxation on income means that our personal tax rates remain high. The opposition to taxes which exist in all of our competitors abroad, from property taxes to water charges, mean that the government is forced to keep the income taxes high.
At 52% we remain a high personal tax jurisdiction, with people hitting the top rate at a relatively low level. Changes to the SARP regime, mooted before last year’s budget, did not happen and this puts us at a competitive disadvantage.