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Greece Will Need a Third Bail-Out

Kitty Miv, Editor
29 August, 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.

Finally Greece is showing some faint signs of getting to grips with its dysfunctional tax system, overstaffed, corrupt and ineffective as it is, closing some of the island offices which were running out of control. For anyone coming from a "normal," fairly law-abiding Western democracy, it's hard to get one's mind around the chicanery and outright theft that characterized the old regime. The best model to think of would be the system of "tax-farming" used by mediaeval monarchs: you appoint me to collect your tax of one mark per acre of land; you won't pay me anything because you know I'm going to cheat you of one third of the overall yield, and another third is going to stay in the hands of the tenant, as his reward for letting me steal my portion. Except that under the Greek model (imagine trying to police all those thousands of islands) the tax collectors were paid anyway. So it's no surprise that the tax officials unions are out on strike. Needless to say, the unions' remedy for the situation is to hire yet more tax collectors!

The decision of the Greek Government nearly two years ago now to collect its new property tax through electricity bills says it all. And it's still doing it that way. Then came the shocker of the "Lagarde" list, incriminating wide swathes of the governing class, who had been helping themselves to their share of the proceeds of corrupt administration and putting the money in Switzerland. So what did the Government do when it got the list from the IMF? Why, they tore it up, of course! An International Monetary Fund (IMF) report in May identified a need "to remove completely political interference from revenue administration" in Greece. The results of a reasonably impartial inspection of tax-gathering carried out earlier this year showed that up to 85 percent of businesses were evading taxes, particularly of course on the islands. The inspections followed a visit by European Tax Commissioner Algirdas Šemeta to Greece in June. Addressing the Greek parliament, Šemeta called for a "zero-tolerance policy against tax fraud and evasion," and he complained that progress toward improving debt collection and the auditing of wealthy taxpayers remained slow.

Last week Troika officials began to say publicly what has been evident to most people for months already, which is that Greece will need a third bail-out. What's also evident to most people, especially the German tax-payers who are footing the bill for Greek games, is that this exercise in the public squandering of billions of euros should never have been begun, and should be stopped right now. Especially piquant is the thought that those parts of the bail-out money that are being stolen in their turn (any guesses as to the percentage?) won't even be going to Switzerland, and at least therefore staying in Europe, but will be on their way to Singapore or Panama, due to the transparency now applying to European financial transactions.

That, by the way, you'll be surprised to learn, was the award of a bouquet to Greece, which may finally be turning the corner, and another country showing signs of redemption is Mexico, although it's best not to lift the lid and look too closely. The jury is still out on new President Enrique Pena Nieto: he has good intentions, we verily believe, but it's not clear yet that he has the political and personal strength to face down the forces of darkness. At least now he is grasping the nettle of PEMEX, saying that private companies will be allowed into joint ventures for the development of new oil and gas fields. Well, you could say that he has no choice, given falling yields from PEMEX's existing antidiluvian operations, which have been milked for decades for . . well, we won't go there. The problem of course will be that, while Pena Nieto may be a trustworthy partner, he is only an elected politician, and Mexico's history does not engender confidence in its reliability as a venture partner. And looking around the world, governments have not been the best partners to have in oil and gas. Venezuela and Russia are just two of the more egregious examples, but there are plenty of others.

Neither Spain nor the UK (in the shape of its satrapy Gibraltar) comes out well from the current spat over concrete blocks being dumped into the Mediterranean. The patch of water where the blocks were dumped is so close in to the Rock, right alongside its airport indeed, that it is hard to believe anyone would want to fish there. On the other hand, given that Spain disputes ownership of every bit of Gibraltar, including all of its water, it seems careless to a degree that the Gibraltarian authorities would not have consulted in advance, especially if, as they claim, this is an ecological measure designed to encourage marine life. It's probably more cock-up than conspiracy, but that doesn't justify Spain in manning the barricades so aggressively. What I want to know, though, is how concrete blocks are going to encourage fish life? Perhaps really they are stage one of an airport expansion, and the new runway is going to be made of armoured glass, so that it can double as a tourist attraction at night-time, with floodlit, concrete-loving, vibration-proof fish swimming around happily underneath. Space is very limited in Gibraltar, it's a fact.

The concrete blocks don't constitute a brick-bat for the UK, but what does is HMRC's cock-eyed attack on self-employment. The consultation document issued in May downplays HMRC's intention to re-classify partners in LLPs as employees, claiming that it will have little effect. But in that case, why bother? It has elicited a real storm of complaint and anguish from LLPs and professional associations. What is really going on, of course, is that HMRC has been trying to extinguish self-employment for decades, and having largely failed with a piece of legislation known as IR35, is now resorting to cruder weapons. It's a fact that self-employment offers advantages to workers: payment of tax is deferred; you can claim certain types of expense against income; and social security contributions are lower. And it's a fact that many people claim self-employment unjustifiably. But that is not a good enough reason to attack an entire segment of the professional classes. Successive governments have done quite a good job of modernizing the professions, something that was important to maintaining the UK's international business appeal. LLPs have played a major role in this transformation, and it is retrograde for HMRC to take a chain-saw to the fast-growing forest of business infrastructure that has resulted. The Government should put a stop to this Luddism on the part of the Treasury.


Kitty's Encomiums and Execrations

Methodology: each week (this is the 67th) two or three countries are given encomiums and two or 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 is on + 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, but reverting to neutral territory in the following week, then dropping to minus one in week 50, and back up to plus one in week 51, then to plus two in week 52. Four weeks ago it dropped a place, though.

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:

Greece waking up

Mexico being oily

And Kitty's Execrations:

Spain bristling

United Kingdom in the 19th century



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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