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Financial Transactions Tax, or 'How to destroy your banks in one easy lesson'

Kitty Miv, Editor
21 June, 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.

It may be acting out of self-interest (Adam Smith would have approved) but the US Senate's proposal to reset the country's trading relationship with Russia to 'Permanent Normal Trading Relations' after 38 years of an adversarial stance under the Cold War Jackson-Vanik amendment is a step in the right direction. And it's even bi-partisan, so it will probably go through. But why has it taken more than 20 years for it to happen (since that Wall came down and Saint Boris stood on a tank? In fact, it's only happening now because Russia is joining the WTO, and the Senate doesn't really have a choice. Oh well, mustn't carp!

The UK government is going to give tax breaks to its 'creative' industries, ie animation, video games and 'high-end' television, whatever that is. It's a long time since I saw a piece of television that could be described as 'high' anything, except perhaps high camp. Anyway, congratulations on pushing through common-sensical measures in support of competition, despite the lunatic anti-competitive policies of the European Union. In order to scrape under the bar of State Aid (verboten), qualifying projects will have to be 'culturally British'. This wheeze was invented by the French in order to protect their own 'high-end' film sector, and now forms a settled part of EU policy. So I suppose video games will display against a washed-out backdrop of the cross of St George, which now adorns car roofs, municipal flower beds and chavs' faces, while animated characters will have to speak in regional dialects which are incomprehensible to anyone south of the Humber (Celtic will be OK, too, of course), and 'high-end' television will encompass endless biopics of Delius and Handel (both German).

I hate to support tax rises, but Japan is an exception: its public spending and tax take are both low by international comparison, it has more than 200% of debt, and is drowning under the weight of its social policies. It's a no-brainer that the 3% consumption tax should be increased. At least, it is to the OECD, the IMF, the G20 and almost anyone who has been in a position to comment on Japan's economic situation over the last 10 years. But it isn't to Japanese politicians, and seems as tasty as strychnine to Japanese prime ministers, who have fallen like ninepins in recent years as a result of mentioning it. So full marks to Mr Noda, who has been clever, determined and flexible enough to get the Opposition to talk about it and even agree with it. So far. But don't hold your breath.

They don't believe in competition in large swathes of the EU, including obviously France; but more surprisingly, nor do they in Germany. At least, the politicians don't. Evidently the Mittelstand does, and international companies like VW or Siemens can hardly do other than live or die by it. But try telling that to the idiots who govern the country. Of course, they're just doing what will get them re-elected next time, we know that. But then that makes them liars as well as stupid. We knew that, too. So what to do about the lemmings who are about to jump over the FTT cliff? Are they just striking poses? Will they slam on the brakes at the last moment? Don't count on it. Nicolas Sarkozy encouraged banker-hatred for his usual pragmatic, populist purposes, and had no choice but to follow through the destructive logic, not that it helped him. Ironically, it has helped Francois Hollande, who can now double the tax (he said he would, this week) without being blamed for it. Oh, you didn't know what FTT stood for? Lucky you. Financial Transactions Tax, or 'How to destroy your banks in one easy lesson'. You don't even need a Bac or an O-level; just a big mouth and an empty treasury. So that's black marks for both France and Germany. An FTT is a BAD THING. In capitals.

140m people trying hard to be democratic (small d) and middle class, being let down by their government. That's sad. Indonesia did a good job of ridding itself of autocratic dinosaur Presidents, and has made some moves towards opening up its economy. Until now. Everything is wrong with the scheme to tax mineral exports out of existence, indeed to ban them altogether, in favour of local secondary processing. Companies will flock to Indonesia to set up mineral processing plants if they are offered fair terms; the fact that they don't is a commentary on the corruption and protectionism that are still too rife in the country, and the wrong thing to do is to take a sledgehammer to the problem. All they will do is to break their own feet. Please stop, before it is too late! Indonesia may balance its books this year; but next year?

Kitty's Encomiums and Execrations

Methodology: each week (this is the seventh) 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. Next week it will drop to – 2.

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.

Kitty's Encomiums:

Hong Kong 2

New Zealand 2

The Philippines 2

Canada 2

Dubai 1

Ireland 1

Japan believes something impossible before breakfast

Russia 1

South Korea 1

Switzerland 1

The UK strikes a blow for competition

The US accepts the inevitable

In neutral territory:

Australia 0

And Kitty's Execrations:

China – 1

Cyprus – 1

France – 1

Germany – 1

France and Germany on the primrose path to ruin. Won't it be nice when all those horrid bankers have gone? (to Hong Kong)

Hungary – 1

Indonesia may be raking in the cash, but has become arrogant and should stop digging a hole for itself.

Italy – 1

India – 1

United Kingdom – 1

United States – 1

Spain – 4




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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