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Horrible National Crimes Committed Against Taxpayers and Citizens

Kitty Miv, Editor
31 October, 2013

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.

Omigod, hasn't even one tiny little country done something good this week? Apparently not. What am I going to write about, then? Unlike the UK's BBC, the mighty organization I work for doesn't sack people for reporting good news, but they might indeed sack me if I don't report any news at all. Luckily there are plenty of horrible national crimes committed against taxpayers and citizens this week, but we'll get to those later. Right down at the bottom of this week's news (that is, it just scrapes into the designated time period) is a report on Canada's trade deal with the European Union. Now of course we are in favor of trade deals, so much so that we will ignore the awful crimes committed against Canadian taxpayers by the country's tax department, the CRA, reported in this week's Global Tax Weekly (the CRA seems to have wilfully persecuted taxpayers behind a cover of some sort of spurious sovereign immunity, which the courts are now dismantling, and not before time). Actually, Global Tax Weekly eulogizes Canada this week, for all the things it has done right over the last few years, and trade deals are not the least of them.

Unfortunately we cannot say the same for Russia, which is pursuing its bloody-minded and self-destructive campaign against all that is good about international trade. Its latest offense is to refuse the EU's application to open a dispute resolution panel at the World Trade Organization over the matter of its blatantly protectionist recycling fee scheme. Cynically, this scheme, which amounts to an illegal import tax on foreign-made vehicles, was instituted virtually on the very day that Russia joined the WTO. With hindsight, it appears to have been a terrible international mistake to allow this bandit country into the WTO. If only there was a way of kicking it out again! The prim and proper administrators of the WTO have a touching faith in the reforming influence of their institution; sadly, when a country is determined to behave selfishly (to use the kindest possible word), and to break all the rules whenever it suits it, the consensual rules of the WTO go for nought. I say 'it' but of course there is no Russia in terms of international law, there is just a collection of oligarchs or worse, hell-bent on making their pile regardless of the interests of their fellow citizens and untrammelled by any moral code. London and Monte Carlo estate agents are the beneficiaries; but it wasn't meant to be like this. "We want to be a normal country," said the reformers in 1991, and they meant it. But as so often in Russia's miserable history, the fleeting moment of reform was soon overwhelmed by greed and the absence of the rule of law. It is easy to forget the importance of the rule of law, and the sacrifices that our ancestors made to enshrine it in our political systems. In Russia it never happened.

Russia acknowledges the Ukraine as its progenitor, racially and culturally, and the 20 years since the break-up of the Soviet Empire have seen a tussle between the Russo-centric (let's call them oligarchic) tendencies of the Ukraine and its Western European leanings. Although the current President is clearly on the wrong side of that debate, and of history, the country as a whole has seemed to swing towards Europe in the last few years. It's still a delicate balance: in the 1990s Ukraine was a byword for corruption, and reformers were routinely assassinated; even now, reformist ex-prime Minister Julia Timoshenko, perhaps no angel herself, languishes in a Ukrainian gaol. But the country seems likely to enter an association agreement with the EU, along with Moldova and Georgia, despite Russia's heavy-handed attempts to browbeat these "client" countries out of such intentions. It's possibly also a good sign that the Ukraine has joined the Tax Transparency Forum, although that could be regarded simply as another victory for the international association of spooks.

Russia and the Ukraine count as "northern" countries, and they're certainly cold most of the time, but they don't seem to conform to the stereotype of virtuous, hard-working, dutifully tax-paying northern countries, which are typified by Germany, where there seems to be general celebration that more tax is being collected. Other paid-up members of the fiscal masochists club are the UK, Denmark, Sweden, Norway and Canada, and of course they are all largely Protestant countries. It's not an original thought that Protestantism (good work ethic etc) lay behind the industrial success of these countries, as contrasted with the laid-back, sun-drenched life-style of Roman Catholic "southern fringe" countries, but it is an element of the truth, even if Portugal had an empire and Italy has more manufacturing than the UK. We also should remember that when the course of the Industrial Revolution was marking out some countries as winners and others as laggards, there was no income tax for individuals or businesses: success came first and taxes came later. And Italy didn't even exist as a nation-state (some would say it still doesn't, but that's another story). So, returning to Germany, why do people put up with outrageously high tax rates while continuing to work hard? The tax burden in Germany is in the low forties as a percentage of GDP, but when you take out of the equation all those sections of society that are net recipients of the State's largesse, the effective rate of taxation for people in reasonably well-paying jobs is far above 50 percent. The answer is that they, or at any rate many of them, cheat, by devoting large chunks of their energy to avoiding tax in one way or another, and shipping untaxed income to places where taxes are low. The prevailing social and fiscal paradigm, therefore, is doubly inefficient: much of successful people's time and energy is devoted to escaping taxation on the one hand, while on the other the State creates moral hazard by rewarding society's disadvantaged and unsuccessful. From that perspective, the debt trap into which Europe has fallen is a consequence of the flawed paradigm, which is eventually unsustainable in the face of competition from more thrusting societies, even if in the short term it appears stable, as it currently does in Germany. I leave it to you to name those other countries, but, hint, they don't include Russia.


Kitty's Encomiums and Execrations

Methodology: each week (this is the 76th) 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. Some weeks ago it dropped a place, but this week it will recover one step.

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:

Canada loves the EU

Germany chugs along

The Ukraine hmmm, maybe

And Kitty's Execrations:

Russia in the corner




Tags: Euro | Trade | London

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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