Firms have adapted to Covid, but some changes will stick

On budget day last October Minister for Finance Paschal Donohoe made an understandably bleak forecast about the impact of Covid-19 on the Irish economy.

He projected a deficit of €21.5 billion or 6.2 per cent for 2020 – figures that reflected the devastating effects on the tourism, travel and hospitality sectors during the previous seven months, and the huge uncertainty that lay ahead.

Recently, his department adjusted its prediction, with the projected deficit now some €2.5 billion less than the budget estimate. This received little applause but the better-than-expected deficit demonstrates the impact of various Government initiatives, and critically, the reaction and resilience of many businesses operating in the equivalent of tornado-type conditions.

But the €19 billion deficit is still grim. While tax receipts for January and February were strong, they took a substantial hit when Covid struck last March. Corporation tax was the only major tax heading to record an increase in 2020 – coming in €945 million higher – as sectors such as pharma, ICT and financial services coped well, despite the harsh economic conditions.

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Income taxes also held up well, ending the year down just 1 per cent, partly due to a strong start in 2020, and also to both PAYE and self-employed receipts exceeding initial expectations.

The official figures paint a stark economic reality but they also fail to convey the determination and innovation of many sectors and businesses in keeping the show on the road.

In the midst of this lockdown, it’s important to learn from the business leaders who have successfully managed and adapted their business models in the pandemic.

Last summer I spoke with 25 leaders across a range of areas – the arts, business, catering and hospitality, tourism, corporate governance, communications and construction – to record how they coped with Covid. Their stories form the basis of my book, Crisis: 25 Business Leaders on Surviving Troubled Times.

They all described with great honesty how they faced worst-case scenarios as well as the rapid requirement to adjust to a plethora of new and necessary health and safety guidelines. Many of the business practices that they introduced during that period last year also proved efficient. So efficient, in fact, that they will stay in place in a post-Covid future.

According to Cairn Homes' chief people officer, Maura Winston, it had to dramatically change its day-to-day construction operations to ensure the safety of workers, while maintaining building activities. One of the ways they achieved this, was by adopting a GPS technology tool that was fitted to site-workers' helmets.

Distancing

The helmets vibrated when they were within a 2m social distancing radius of someone else. This was one of the company’s innovation-led recommendations of their Covid-19 working group.

There were other changes – the housebuilder decided to sequence work, with just one trade permitted on each floor at any one time. Winston said they had never operated in this way before. It meant that tilers would not be allowed to begin work on a particular floor of an apartment complex until the kitchen fitters had completed all of their work on that part of the building. Winston said this new way of working had proved so efficient, Cairn hoped to continue the system into the future.

In the private education sector, Griffith College Business School had to transform its lectures for students. Eilis O'Leary, deputy head of the business school, said her faculty had discussed moving to online lectures for years. When Covid struck, it was achieved within 24-hours.

She said it may encourage accrediting bodies to start thinking about transnational provision and whether there was the possibility of looking to the broader view of how higher education can work while still meeting compliance and quality assurance standards.

The catering and hospitality sectors have also had to dramatically adjust to rolling closures and restrictions. The award-winning food writer Catherine Fulvio runs Ballyknocken House and Cookery School on a 280-acre farm in Co Wicklow.

She did a "lockdown in Ireland" cookery show, which has since been aired to millions of people in the United States. It was all filmed here, with her son operating the cameras and Catherine as the presenter and with the producer/director instructing over Zoom.

Let’s be clear: the cameras were smartphones. No huge TV cameras swooshing around or boom mics dangling from the ceiling. Fulvio said they were able to produce the show, thanks to what turned out to be an incredibly fortuitous and well-timed course that she had undertaken in January last year. The course focus was on making your own videos and food photography.

But let’s return to the official figures because they also demonstrate the scale of Covid’s impact on businesses last year. According to Revenue, 66,600 businesses and 664,500 employees were supported by the Temporary Wage Subsidy Scheme last year, while 39,800 businesses and 443,100 employees were supported by the Employee Wage Subsidy Scheme, the replacement scheme that kicked in from September 1st. And 70,000 business benefitted from warehousing €1.9 billion of tax debt.

In spite of all the challenges that faced businesses last year, the average result for timely compliance with their tax obligations was more than 90 per cent with large and medium cases having rates of more than 95 per cent.

There is still much to do. We will see many more changes this year, given the public consultations outlined in the recently published update to Ireland’s Corporation Tax Roadmap, as well as the Government’s national remote working strategy. But many in the business sector have and will continue to play their part in bringing forward improved economic and business working models and conditions in what emerges post-Covid.

Tom Maguire is a tax partner with Deloitte