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Cut Their Own Bloated Payrolls

Kitty Miv, Editor
13 September, 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.

Although this column is never in favour of new or increased taxes (because what governments should rather be doing is to cut their own bloated payrolls and electoral pork) I'm pleased to see that Ireland is ignoring the IMF's advice on property tax and going with a lower figure for its new real estate tax. The IMF, like the OECD, long ago lost its mildly useful role, in the case of the IMF as a corrective institution for wayward governments. When was the last time that a spendthrift finance minister had to turn back at the airport from yet another international jolly in order to meet his stern-faced IMF task-masters? Now all they do is to recommend governments to tax more and more and more. We'd be better off abolishing both the IMF and the OECD and starting with a clean sheet of paper.

I was trying to explain last week that bribery has a useful economic function, and that banning it is futile, but I am presumably the only person in the Western hemisphere with such a deeply unfashionable point of view. In Russia, things are different. Russians have a rooted contempt for what they regard as wimpish Western political correctness - all Russian men revel in being sexist. I remember being startled when, in my office in Moscow, there appeared an outrageous spoof poster about the role of women at work, which would have sent the perpetrator straight to the dungeons in the West; yet the girls (who were in a majority) thought it was hilarious. So it is a surprise that Russia would have signed up to the international bribery convention (tongues firmly in cheek), and quite funny that they now say bribes (although illegal) must be reported in financial statements, but are not tax deductible. Only in Russia, and they get a star for that piece of realism.

Perhaps free trade is catching after all: yet another Canadian minister is globe-trotting on a quest for improved trade relations. I have a vision of the Canadian cabinet table: instead of bottled water they have fizzy free trade elixir, sponsored by Pascal Lamy, I hope. John Baird (Foreign Affairs Minister) will have a tough time keeping up with Ed Fast, who must be rivalling Hilary Clinton in the government air miles stakes this year. That causes me to wonder what happens to ministerial air miles: when I was, briefly, a public servant, I bought my own tickets, claimed the money back and kept the air miles, which meant that every third flight was up front (those were the days). Paul Volcker, all six foot six of him, used to cram himself into an economy seat on principle; did he get air miles to use for his family holidays in the Caribbean?

Slapping down an attempt by some of his unfortunate and less-crazy-than-most ministers to limit the inevitable and catastrophic effect of the proposed 75% upper rate of income tax, raving Marxist Francois Hollande has now really gone for the jugular of France's reeling economy, promising even more dramatic tax increases next year. France's richest man, industrialist Bernard Arnault, is said to have applied for Belgian nationality, leading to a vicious war of words in the French press and accusations of unpatriotic behaviour from the President himself. If anyone is being unpatriotic, naturally in the most well-meaning way, it is of course the French government, which seems determined to commit national suicide in the most expeditious way possible. Let me predict what will happen - it's not difficult: the government will copy the US in subjecting French citizens to worldwide taxation regardless of their residence, and like the US Senate will attempt to penalize anyone renouncing French citizenship, except with more success, because the left has a strangle-hold on both houses of parliament, the constitutional court is a feeble relic, and there's no need to ask where the President will come down. So wave goodbye to France, Mr Arnault, you won't be welcome there for a long time to come!

We haven't given a ranking to Ukraine as yet, seeing as it is one of the most impossible places to do business in the whole world, and if by some mischance as a foreigner you start to make a profit, you will quickly find yourself either dead or in prison for tax evasion. But the spat between Russia and Ukraine is worth noting with a black mark, especially since Ukraine is nominally now a partner with Russia and Kazakhstan in the home-grown free-trade area which is intended to include all of the 'CIS' member states. Both Russia and Ukraine are members of the WTO, of course, in the latter's case since 2008. It is difficult to see how either Russia's 'utilization' tax on foreign cars, or now Ukraine's threatened equivalent are consistent with these countries' WTO obligations, let alone their local free-trade regime. It's very sad, what has happened in Ukraine: there are (or were) reformers a-plenty when the USSR broke up, and Ukraine had a shining future as a European country. By now it could have been a member of the EU; why not? Instead, it is descending into authoritarian chaos in a spiral of corruption and mis-government.

Another incident in the developing onshore/offshore gaming stand-off in the EU sees a gambling operator going head-to-head with the Czech government, threatening to go to Malta, the emerging gaming capital of Europe. I don't know what they're waiting for. Most EU member states have now legislated to tax on-line gaming, and a few, notably the UK, are trying to impose their domestic tax regimes on 'offshore' wagering if the bet is made from national territory. Sooner or later, they'll all do it, and it is a monstrous breach of EU single market rules. If the UK can tax a betting transaction that takes place on a Maltese server, why can't Malta tax a holiday booked and paid for in the UK and spent in a Maltese villa? The cowardy-custards in Brussels and the ECJ are doing nothing about it, no doubt because they're having too much fun destroying the EU's banking sector. Anyway, that's a digression, this is meant to be about the Czech Republic, which apart from over-charging its gamblers (quite a puritan streak in Czechslovakia, as was, thanks to Martin Luther perhaps) is shooting itself in the foot by trying to increase VAT rates against the wishes of the sainted Vaclav Klaus who is still, amazingly, President and failing to get it through parliament. The very last thing any country can afford is to appear indecisive and ineffectual in the eyes of business, and regardless of the rights and wrongs of it (of course, I am with Mr Klaus!) the Czechs need to pull themselves together if they want to attract inward investment. This is not the way to do it.

Kitty's Encomiums and Execrations

Methodology: each week (this is the 19th) 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 two weeks ago it gained a further star, so it's now in neutral territory.

The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but hopefully one day they will become useful for decision-making, even if for the moment it is all just an amusing game. For any country in negative territory, you should think carefully before starting a business there.

Kitty's Encomiums:

Canada fast forwarding to a tariff-free world

Ireland cocks a snoot at the IMF

Russia calls a spade a spade

And Kitty's Execrations:

Czech Republic needs to get its act together

France has its own fiscal cliff coming

Ukraine You probably don't need to be told not to go there





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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