‘Frothiness’ of corporate tax revenues risk to economy, says PwC chief
As PWC revenues rise to €446m, firm says Government needs to prepare for ‘rainy day’
PwC managing partner Feargal O’Rourke. Photograph: Eric Luke
Revenues at professional services firm PwC rose to a record high of €446 million in 2017, as the firm benefited from increased demand for Brexit-related advice and a recovering economy.
However, managing partner Feargal O’Rourke warned that the Government shouldn’t rely too much on “frothy” corporate tax revenues to fund the economy.
Revenues at the firm rose by 10 per cent on an all-Ireland basis, while employment rose by 15.8 per cent to 4,163 employees. The firm does not disclose profitability.
“Our strong growth reflects demand for our services across all business areas and is boosted by an economy that continues to show solid performance,” Mr O’Rourke said.
Revenues are on the rise across the sector; EY posted growth of 12 per cent for its latest financial year for example.
Mr O’Rourke said that “robust growth” was seen in all service lines, adding that the broadening of the range of services offered by the firm, in areas such as tech consultancy, data analytics, and cybersecurity, has helped grow fee income. Growth in these areas comes as traditional areas, such as audit, decline.
“Over the last five to six years, that traditional audit revenue, while still strong, is a declining part of our overall revenues,” Mr O’Rourke said.
In advisory, where revenues have more than trebled since 2010, the pace of digital transformation has redefined the market, driving exponential demand for technology solutions including advanced analytics, artificial intelligence, robotics and machine learning. The impact of automation on future skills needs is also driving demand for talent management strategies. The firm said its market-leading deals practice was also seeing significant growth as companies continue to expand through M&As.
PwC is also benefiting from a “Brexit boost”. While the UK’s departure from the European Union remains “a big unknown” for Irish business, Mr O’Rourke said that on the back of this uncertainty, his firm is seeing strong demand, across a range of industries, to help companies review their business models and prepare for the structural changes that may be needed. This includes helping companies assess which customs and trade registrations, authorisations and reliefs are required to enable customs clearance; and looking at potential diversification into new markets.
However, Brexit also poses risks to the broader economy.
“We still believe that the most likely outcome is a hard Brexit with no agreement,” Mr O’Rourke said, adding that many companies are not yet fully prepared, and a hard Brexit could be “dangerous to the Irish economy”.
On the tax front, global, US and European tax reform are key growth drivers for PwC. Demand for international tax services remains strong as foreign direct investment (FDI) flows continue into Ireland, as well as demand from Asian markets as companies in this region seek to use Ireland as their EU/global hub.
Mr O’Rourke, who advises many US multinationals on their European operations, said that the investment pipeline remains strong, and the “natural default position” for US multinationals is still Ireland.
“We’re in the middle of a golden era for FDI,” he said.
However, he said that US president Donald Trump’s tax changes will cause a slowdown in US companies looking to expand immediately in Ireland. They may now “try and do more of it at home”.
A potential follow-on impact from this is the risks it might pose to Ireland’s corporate tax revenues.
“The current corporate tax take – there is a little element of frothiness in there at the moment,” Mr O’Rourke said, adding that companies are currently very profitable, while others are bringing intellectual property onshore.
“But because it’s so heavily concentrated, it wouldn’t take much to have an impact of a few hundred million euro on tax take,” he said, adding that the Government should be “squirrelling away” a few hundred million of the current tax take for a rainy day.
Competitiveness is also a concern as the Irish economy heats up. While PwC continues to attract a strong flow of graduates – this year, for example, its summer intern programme received 1,700 applications for just 170 positions – the challenge is finding more experienced staff.
“More of the salary pressure is in areas that are in greatest demand; areas like data analytics, cybersecurity, and strategy consulting,” he said.