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I can't tell you what is going to happen, but I don't like what I see

Kitty Miv, Editor
28 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.

As the anniversary of the Tiananmen massacre reminds us, there is much that is unpalatable or worse about China, but any opening up is progress of a kind towards a better future, so we must welcome the loosening of the QFII rules which will allow a considerable expansion of foreign portfolio investment in the country, and marks another step on the road towards convertibility of the renminbi. It is trade, whether in goods or in money, that is the precursor of individual liberties (one of the main arguments for free trade), and who can deny that China's booming economy has brought benefits to its people, oppressed as they still are in many respects?

Good for Ireland, which is continuing to cock all possible snoots at the EU despite its bail-out, refusing to increase its corporate tax rate, and, this week, denying the tired old Tobin horse the chance to nosh on luscious emerald grass. With the UK, Luxembourg and Sweden also resolutely opposed to a financial transactions tax, it will be interesting to see whether the euro-core will persist in their collective dementia. The City must be hoping so, and eagerly awaiting the crumbling of Frankfurt's towers. But the Continentals have a trick up their sleeve, in the shape of drafting which will give the FTT extra-territorial reach, hoping to attack the City from a distance. It's all to play for, but the UK is probably going to have to use some very heavy artillery to see off the threat. Ireland's vote will be important, but Whitehall must be hoping to recruit at least one more country to join the existing gang of four. Poland? The Netherlands are probably too much to hope for, despite their internationalist past.

If I give Brazil a star for reducing the scope of its 'IOF' tax, it's not because I think that there is an internationalist, liberal economist calling the shots in Brazil's finance ministry. On the contrary, Brazil has a merchantilist, protectionist attitude in general terms, and must be a dreadful place to do business for any foreigner; but we must be fair, and a tax reduction is just that, whatever its provenance. Don't worry, they'll reverse it like greased lightning once the Real starts to appreciate again.

France has got a EUR10bn shortfall this year (or was it last year? or will it be next year?) and I will give you one guess, just one guess, as to what they are going to do about it, and if you can't get it right first time, off to the guillotine with you! Yes, you are a good student, that's right: they are going to soak the rich for it. That's to say, the few rich people who haven't already gone to London to buy a penthouse flat on Park Lane (that's Allee du Parc, or perhaps it's Pereulok Sad, and I don't know any Arabic so I'll spare you that one). There'll be more taxes on wealth, on dividends, on overtime (lots of that in France after the government before last cut the working week to 35 hours). Amazingly, in a gesture of ultimate generosity to Madame Lilliane Bettencourt, who will be the only rich person not leaving, because she has been imprisoned by her lawyers in her Paris apartment, the President has said that individual taxation will be capped at a mere 85% of income! How can he afford it?

When a government says that taxes are too high and it can't increase them any further, you know things are really bad. And in Italy, they are really, really bad, and going to get worse, because the government is looking down the muzzle of a gun called VAT, which is going to go off in September when the state has failed to slim itself and a substantial, automatic increase will kick in, with a further devastating effect on the economy. There isn't a single Italian that I have ever spoken to (and I go there quite often) who has a good word to say for their government. Mr Monti gets a reasonable press; but even he seems lackadaisical when it comes to cutting state expenses. Nothing has been privatized in Italy; there have been no cuts to public sector staff or pensions; the whole state sector is a byword for inefficiency and feather-bedding. Any ordinary Italian will give you a list of excrescent expenditures which could be cut; but they won't be. And until they are, why should the average citizen sign up to the idea of 'fairness'? Depressingly, it is difficult to see how Italy's democracy is ever going to come up with a Thatcher moment. This is a broken state. That's certainly sad; but more importantly, it's dangerous. I can't tell you what is going to happen, but I don't like what I see.

The pompously named Passenger Movement Charge is not, as you might suppose, what it costs to go to the loo on an Australian train, it's just another boring old illiberal, self-destructive, anti-personnel tax on air transport; and the Australians are putting it up. It's going to raise them another half billion dollars and they're going to waste 20% of that on creating a couple of tourism quangos. 'Nuff said!

Kitty's Encomiums and Execrations

Methodology: each week (this is the eighth) 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 – 2, 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 last week, so it drops 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:

Brazil gets something right, for a change

China another small step towards a brighter future

Ireland isn't anglo-saxon, but who would guess it?

And Kitty's Execrations:

Australia doesn't want you to go there

France Vive La Revolution!

Italy is living in a make-believe world




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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