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Bulgaria's independent currency will help it to levitate its way out of its problems

Kitty Miv, Editor
13 December, 2012

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.

Plaudits to Bulgaria for sticking to its flat tax, when other ex-Soviet Eastern European EU member states are deserting it. Astonishingly, Bulgaria's rate of 10% tax applies to individuals as well as to companies, giving it the lowest rate in the EU. Cyprus can match it on corporate tax, although the Troika (as not in perestroika) will be trying to push the rate up as part of the bail-out deal being structured as a result of the island's suicidal support for Greece. Ireland managed to cling on to its 12.5% rate, but Cyprus faces a tougher task. At the individual level, no other member state comes close to Bulgaria's 10%. However VAT at 18% is at a more normal level. The Prime Minister says the country has to keep its low tax rates in order to "catch up" with the rest of the EU. With GDP per head at only 45% of the EU average it has a lot of catching up to do; healthy growth in the first years of the century has been smacked down by the debt crisis. Luckily for Bulgaria it hasn't joined the eurozone and no doubt hopes that its independent currency will help it to levitate its way out of its problems.

One and a half sensible things happened in the USA in the last week: Tom Price (Rep. - Georgia) introduced a bill to prevent Europe's Tobin tax from impacting on US financial institutions, and people started to talk about going over the cliff as if it could even be a good thing. If trimming the EU's extra-territorial ambitions succeeds in making the firebrands at the EU Commission realize that their FTT plan is going to fail, then the US will have done a major service for Europe's citizens as well as its own. The bill is just that, and in the House, not the Senate; but it does stand a chance of getting through. At least the Republicans and Democrats can unite in the face of an attack from Brussels! But it doesn't seem that they can unite on anything much else. The Brookings Institution says that going over the cliff looks by now to be the only way that the warring Congressional factions can be made to compromise: just because taxes will rise on January 1 (which is of course a Bad Thing) doesn't mean that they can't be cut again on January 2; and if the mandated cuts in expenditure are irreversible then that's a Good Thing. But, only half a cheer on that score.

Ireland's government published its 2013 budget last week, containing quite a few moderately helpful measures for business, more perhaps than might have been expected given the level of the country's indebtedness. And the Finance Minister continues to talk about developing an alternative tax basis for micro-businesses. But something strange: it's now being talked about only in relation to unincorporated businesses, and no convincing explanation is given as to why limited companies are to be excluded. Is it the Revenue? Is it the EU? I suspect the latter, but no-one is saying. Such schemes are usually very successful, because they significantly reduce paperwork and bureaucracy, even if they don't reduce tax as such. If it is attractive enough, it might tip the scales quite far in favor of being unincorporated; if you are starting a business and need to borrow money, there is already no point in limited liability because the bank will truss you up with personal guarantees, will take your house, etc etc.

Corporate panic at Starbucks this week led the company to promise what one commentator has called a charitable donation to UK plc. This silly piece of behaviour will no doubt be rewarded as it deserves, and within two days criticism is already rapidly overtaking stunned surprise in the media. But of course it is the UK which is the villain here, through one of the most villainous pieces of political posturing that I can recall. The Public Accounts Committee of the House of Commons has got no formal power, but enjoys the pretence of power through torturing people like Rupert Murdoch, or in this case executives from Google, Amazon and Starbucks. Just like US Congressional hearings, it's good television but poor economics. Here are companies with tens or even hundreds of thousands of workers in the UK, paying heaven knows how much in withholding (employment) taxes and VAT to the national exchequer, not to mention property taxes and a raft of other imposts, and what do they get for their pains? A self-indulgent whipping from ignorant politicians. The very last thing they should be doing is to present government with money which they don't owe. If the British government wants corporate tax revenue, it has to compete for it against the likes of Ireland, Malta and Luxembourg, not to try to shame its corporate citizens into bribing it to stay silent. Now of course there is a torrent of criticism being directed against multi-nationals by the EU, multilaterals such as the OECD, and national governments. Just ignore it, is my advice, and keep believing in the market.

Now from the sublimely scarifying to the gorblimey, as they (used to) say in Covent Garden, with the news that the Dutch are going to arrest Belgians and Danes carrying kegs of duty-free beer across the border to sell in local pubs. Or something like that. Actually it's just an agreement between the Dutch government and the brewers to weep together over their tankards: there's nothing they can do about cross-border trade because of course inside Schengen there aren't any borders any more. All they can do is to raid a tavern near the ex-border and demand that the owner proves the beer has paid excise. But beer, like money, is fungible; untaxed beer looks, smells and tastes exactly the same as taxed beer. Perhaps they could do some molecular engineering on yeast to encode taxed status as a genetic marker? Don't laugh: one day, if you drink untaxed beer you'll turn magenta and you'll be able to sue the publican for GBH. Meanwhile, keep drinking.

I have been leaving France alone for the last few weeks as it continues its stately progress towards fiscal dissolution, but the time has come to remind everyone just what a mess is being created. After a short-lived piece of political theatre in which the Senate pretended to disagree with one of the government's plethora of tax bills, they are being passed, one by dreary one, in the National Assembly. It's all a bit like the last scene in the Dialogue des Carmélites (opera by Poulenc) in which the nuns have their heads chopped off, one by one, quite cheerfully, everyone expecting it. But at the end of it, they are all dead. What will become of La Belle France, which we all loved so?

Kitty's Encomiums and Execrations

Methodology: each week (this is the 30th) 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 ranking of – 1, 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, falling back again in week 24 to minus two.

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:

Bulgaria stays on the true path

Ireland wants to help entrepreneurs

United States socks one to the EU

And Kitty's Execrations:

France oh dear

The Netherlands goes barmy

United Kingdom busy killing geese




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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