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Australia Faring Well

Kitty Miv, Editor
29 June, 2015

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

Another week, another foul-up by the EU, or, more accurately its executive arm, the European Commission, it would appear. I seriously wonder sometimes, when you fly in to Brussels Airport, or approach the city on the Eurostar from London for example, whether one enters a parallel universe, and leaves it again upon departure. Its the only way I can explain how detached from the real world the Commission and its army of (unelected) officials seems to have become. To think, as the Commission does, that the CCCTB has a realistic chance of becoming reality more or less confirms this, as does its belief that the recently launched Corporate Tax Plan will improve the EUs business environment. The fact that the EC made even the OECD wince with the publication of its controversial blacklist of non-cooperative jurisdictions must be some indication. OECD tax chief Pascal Saint-Amanss letter to Global Forum members actually suggests that they should defend these mainly-offshore territories if asked to comment on the EU blacklist by the media, because all are compliant, or largely compliant with international standards. Well done Brussels, thats some achievement! Not only this, but, as Bermudas Minister of Finance Bob Richards implied, the EU blacklist – itself compiled from the blacklists of a number of member states – is a bit like the pot calling the kettle black. "At least five of those 11 EU member states that have us on their national blacklist have not performed their obligations in one way or the other,” Richards observed. Bermuda, on the other hand, can exchange information with all G20 countries, all OECD countries except for one, and all EU countries except for two. Richards pointed out that those three EU countries have not signed the international standard on tax matters, the Multilateral Convention – unlike Bermuda. I really should award the EU yet another execration for its serial offending. But Im going to turn the tables somewhat, and instead bestow an encomium on one of the victims, Barbados, which, fearing for its reputation as a result of being named on the blacklist, has chosen the bite back at the EU with more than just a strongly-worded media statement.

So, after five years of work, the UKs Office of Tax Simplification (OTS), launched in 2010 with high hopes of hacking back the jungle of tax reliefs, has come up with… a spreadsheet! Well, excuse me if I dont fall off my chair with excitement. This so-called complexity index is supposedly aimed at measuring the relative complexity of the UK tax system. The OTS goes on to explain that the spreadsheet divides the tax system into 107 (107!) different areas. Surely this statement alone is all one needs to know to conclude that, yes, taxation in the United Kingdom is very complex! The UK Government has actually had a fairly decent track record on taxation since 2010, given the size of the budget deficit it inherited from the previous administration, especially in comparison to some if its European neighbors. It has managed modest cuts in personal income tax, while corporate tax has been slashed by 8 percent. However, its record on tax simplification has been pretty dismal. Gordon Brown must shoulder much of the blame for rising tax complexity in the UK. As Chancellor of the Exchequer for ten years from 1997, his propensity to tinker with the tax system, often undoing measures he himself had brought in, saw the UK tax legislation guide swell from 5,000 pages, when Brown entered Number 11, to 10,000 by 2008. But the coalition, which the supposedly pro-business, de-regulating low-tax Conservatives dominated, didnt fare much better. Indeed, the multitude of anti-avoidance provisions included in successive budgets and fiscal statements have probably made the situation worse. Im not sure we needed a spreadsheet to tell us that!

There are numerous annual studies attempting to rank nations in terms of how attractive they are to do business in, and Australia fares well in several of them. For example, the World Banks most recent Doing Business Index, which, as its name suggests, ranks economies on the ease of doing business, puts Australia in 10th place out of 189 countries. The Heritage Foundation/Wall Street Journal Index of Economic Freedom, which measures the strength of a number of economic and other rights in 178 nations, places Australia a very creditable fourth. However, when it comes to comparing Australias taxes with the rest of the world, the Lucky Country fares less well. According to PwCs Paying Tax Index 2015, Australia languishes in 39th place out of 189, with a total tax rate on an average business pushing 50 percent. To be fair to Australia, it isnt much worse than several other advanced nations in this respect. In fact, it performs better considerably better than some – the United States for instance is 47th, Germany is 68th, France is 95th, and Japan is 122nd. Still, a corporate tax rate of 30 percent is high these days, and must be acting as an impediment to investment to a certain extent. Even the IMF urged Australia in its recently published review of the countrys economy to reduce and simplify taxes in order to help boost economic growth. And despite numerous root-and-branch reviews of the tax system by successive governments, including by the incumbent one, little has changed recently to improve matters. To a large extent, the current Government cant be blamed for the slow pace of improvements to the tax system. It was bequeathed a legacy of plummeting tax revenues, rising expenditure, and a huge hole in the budget by the previous government. The recent cancellation of a modest 2 percent cut in the headline corporate tax rate did not win the Abbott Government many fans in the business community. But at least it has gone ahead with tax cuts for small businesses. It isnt much, but hopefully its the start of a longer journey of tax improvements.

Kittys Encomiums

Barbados fights back

Australia a start

Kittys Execrations

United Kingdom not excelling




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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