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A Letta for Šemeta

Kitty Miv, Editor
02 May, 2013

Kitty's Kountry Rankings are below, with a description of how they are kompiled. This week, as every week, I give out three Encomiums to countries which have done Good Things, and award three Execrations for countries which according to my highly personal and partial views have done Bad Things.

Not sure if the Bundesbank counts as Germany, but we'll give it a prize because its President, Jens Weidmann, attacked the Financial Transactions Tax this week, which is music to my ears, you can imagine, and which is all the more remarkable given that Germany has been one of the prime movers as regards the FTT. On their own, Weidmann's criticisms won't kill the miserable animal, but coupled with legislative action in the US Congress, the UK's application to the European Court of Justice based on irregularities in the "variable geometry" 11-country structure, and perhaps best of all, the near-total failure of the French and Italian prototype FTTs (the Italian tax garnered a measly EUR29m in its first six months as against an expectation of EUR150m), it is looking distinctly wobbly. Then there was the leaked "non-paper" (EU-speak for informal document) sent this week by the 11 geometricians to the Commission, asking all the questions they should have asked two years ago when the stupid tax started to grow legs. An animal with eleven legs is probably not viable, so either they need to recruit another member, or one of the eleven can commit hari-kiri for the good (the bad) of the remainder. "It is a far, far better thing . . ." etc etc. Perhaps Italy's new government will oblige: a Letta for Šemeta. I promise that's the one and only time I'll use that pun, unless the Signore is elected into his job (almost unheard of in Italy), when he would count as a new person.

It seems as if the Canada/Japan Economic Partnership Agreement is being Fast-tracked (must be the weather for puns), and it's probably easier for Canada to do a deal with Japan than it would be for other countries to the south - too cold to grow rice, and the automotive industry consists mostly of assembly plants and component manufacturing, with the Japanese already well entrenched. For all the complaints that regional or bilateral trade deals have the effect of weakening Doha, I am not sure that's true. Every deal that's done is another piece of Doha that doesn't need to be fought over; and it's interesting that Canada and Japan are both negotiating members of the TPP (Trade Partnership of the Pacific), so that the same understandings, deals and compromises can presumably be carried over from the one to the other; it will be the same people each time, and they can scarcely pretend never to have met before. Wouldn't you imagine, in reality, that the various putative treaties merge seamlessly into one another? Nobody actually sits down to write these 1,000-page documents. "OK, Ed," says Jun Yokota (Japanese chief negotiator), "We did all this last week in Alm-Aty, didn't we? Shall we get in a round of golf before lunch? The boys and girls can pull something together for us to look at later on." Actually there is far more recycling of texts in international diplomacy than you might imagine: I've never sat at an international trade negotiation, but I was in at the birth of the Cook Islands constitution - a girl-friend of mine knew a New Zealand lawyer who had been sent to London to write it. We'll call him John -he's quite senior now - and we had lunch together. John was laughing: "I went to the Colonial Office for help," he said, "and this old geezer in pinstripe trousers said he'd have a look. So he riffled through a filing cabinet. 'Aha,' he said, 'Just the thing, it's the XYZ islands. I'll have the names changed, get it re-printed, and send a copy round to your hotel in the morning.' Here it is," said John, having another gulp of champagne and plonking the document on the table. "Job done! and it was supposed to take me two weeks."

The US Supreme Court is about to hear a case brought by Abigail Fisher which may lead to the end of affirmative action in US education; much research has shown that if anything it is counter productive. But in other parts of the world affirmative action is alive and well: in Dubai the "emiratization" program forces "Western" companies to employ a certain quota of locals, who generally don't have the requisite skills (not unknown in the USA, either, because of the green card system, or in the UK, where strict immigration controls have the same chilling effect). And in Bermuda this week in what we may call dis-affirmative action the government has announced that long-term immigrant workers are to be denied residency; on entry, they have to sign a formal declaration to that effect, thus creating a second class population which can be ejected when they have ceased to be useful. Bermuda is far from alone among "offshore" islands in having such rules - they are rife in the Caribbean - but that doesn't make the rule any the less distasteful. In many countries it would be illegal. I suppose the regime will turn away many of the better people that Bermuda actually needs, so it's a mistake as well as being odious. I hope nobody signs this unpleasant declaration.

The UK's tax authority, HMRC, is doing quite well at reaching its goal of criminalizing the entire population. If they can keep up the 53% increase in prosecutions they managed last year, they should double the prison population in just 14 years. But that will have unfortunate consequences because once they're in prison people don't contribute taxes any longer, plus there's the cost of all those new cells. I'm being facetious, I know; but the serious message is that tax authorities, like the finance ministries of which they are usually part, should try to follow Colbert's famous maxim, and obtain more feathers by being gentler. HMRC's strident trumpeting of its successes at locking people up, presumably pour encourager les autres, simply gives them a hard-faced image and exacerbates the poisonous relationship between taxman and taxpayer. Of course HMRC must pursue fraudsters; but must it display quite such relish when it catches them?

Belgium is copy-catting HMRC, gloating over the 11,000 fines and tax penalties it has slapped on late payers this year. The country is suffering from low growth and all the other European diseases, but doesn't seem to have learned the hard realities of taxation any better than the French or the Italians. At least the British have reduced the rates of both corporate and individual tax this year. Belgium has the second highest tax take of any European country, at 46.7 percent. The current austerity package has introduced new revenue-raising measures equalling about 0.4 percent of GDP, and the Finance Minister has bravely said that he will cut the costs of civil service staff by 0.5 percent; it's not easy to get at the figures, but that seems to equate to less than 0.1 percent of GDP. So he is getting 80 percent of fiscal adjustment from taxpayers and only 20% from savings. That's pathetic, as well as being probably unmeasureable. A good swipe from a certain lady's handbag is what is needed. In another recent piece of bad news for Belgium it transpired that Bernard Arnault has withdrawn his request for Belgian citizenship; his French tax payments are not disclosed, but surely that must mean many millions of Euros won't now be coming Belgium's way. In all fairness we must record that Belgium has the best beer in Europe, and you can eat just as well in Brussels as in Paris at half the cost.


Kitty's Encomiums and Execrations

Methodology: each week (this is the 50th) three countries are given encomiums and three are given execrations. Those are the entries below with descriptive links. In the following week, each encomium counts as + 1 for that country, and each execration counts as - 1, being added to that country's existing score. Over time, therefore, a ranking will build up for each country, and further countries will join the listing. Germany has a neutral ranking, since in the second week it had an execration and in the first week it had an encomium, leaving it at neutral; then it had an execration in week four, thus dropping to - 1, and another one in week six, dropping to -2; finally in week 13 it got something right, so it went back up to - 1; then in week 16 it gained a further star, so then it was in neutral territory until week 23 when it dropped back to minus one, but reverting to neutral territory in the following week..

The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but as time goes by they are becoming useful for decision-making. For any country in negative territory, you should think carefully before starting a business there.

Kitty's Encomiums:

Canada trading with Japan

Germany v Tobin

And Kitty's Execrations:

Belgium in the doldrums

Bermuda for the Bermudans

United Kingdom behind bars




Tags: Dubai

About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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