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If I was him, I'd go back to Florence

Kitty Miv, Editor
27 February, 2014

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.

Italy in the spotlight again this week, with (unelected) Matteo Renzi in full flood of (unelected) government-forming. It's difficult to see how he can change the Porcellum (pig-sty) for the better with the dogs' dinner of a parliament that he has inherited from his unsuccessful predecessors, Mario Monti and Enrico Letta, which is most likely to tear itself apart if any real reforms seem imminent. But let's wish him luck. As an example of Italy's political incoherence we can point this week to the splendid piece of governmental incompetence displayed by the tax agency's announcement of a 20 percent withholding tax on monies received from "abroad," which it was forced to withdraw within 48 hours after the EU pointed out that it was illegal. That seems obvious: how can mandatory "withholding" be applied to cross-border EU transfers in a way that's consistent with freedom of capital? Anyway, it's not "withholding," it's theft. Withholding applies to outgoing payments, not incoming ones. The results would quickly have been catastrophic: nobody, no bank, and no company would have made payments to Italy in the face of such a regime. On one very probable construction, cross-border business would have become immediately paralyzed, and all Italians expecting to receive monies from "abroad" would have made sure to open bank accounts somewhere else. So, very stupid, but you have to ask: "Who's in charge?" Didn't the tax agency have to get approval from the finance ministry? Didn't the finance ministry realize what the results would be? Did (silly question) the Prime Minister know about it, whether that would be Letta or Renzi? It's disconnected government, not joined up at all. So if you're Renzi, where would you start? If I was him, I'd go back to Florence. As it is, he's in the snake pit, God help him.

So far as our news service is aware, no country is planning to reduce taxes this week, but at least in Ireland they are talking about doing so. The Deputy Prime Minister said as much; and a few days earlier the Finance Minister had said the same. They need to, heaven knows, and they have the right ideas, but I have to wonder where they are going to find the dosh. The budget deficit was 7.5 percent in 2013, and will be 4.8 percent in 2014, according to Government estimates, although external commentators think that is optimistic. Ireland's debt was 25 percent of GDP in 2008, before it started on the suicidal "rescue" of its banks; now the debt stands at 125 percent of GDP, and may rise further. It's hard to make out whether the Government is actually cutting costs: expenditure has gone down, but that is mostly due to the end of the bank bail-out program. Since there are no public-sector strikes, in my book that means there are no savings. With the end of the EU's formal stability package for Ireland, it has been able to return to the bond markets quite successfully; presumably that is at least partly due to the ECB's euro-zone blank cheque. But reducing taxes? I don't see it. If they're saying it, there must be an election around the corner, but one is not due until the spring of 2016 – perhaps this talk means that junior coalition partner the Labour Party is about to jump ship and force an early dissolution?

It's reassuring to know that the Benelux countries are going to fight against the exploitation of workers by unscrupulous Chinese gang-masters. Well, that wasn't exactly what they said: the Netherlands, Belgium and Luxembourg agreed to fight against social dumping, among other woes besetting honest working folk. This is the heartland of the EU's social partners zone, in which sound economic principles are tossed out of the window in an attempt to insulate workers against the rigours of competition. The C-word, which never should be spoken in the halls of EU governance. So what is social dumping? Like dumping in trade relations, it refers to an attempt to win by using your natural advantages in order to gain economic benefit. You come from a poor country, and you're prepared to work for less in order to feed your children back at home? That's social dumping. You place a contract with a cheap shoe manufacturer in Vietman which has the effect of putting Liege leather workers on the dole? That's social dumping (by you) as well as trade dumping (by the Vietnamese). You get the picture; and notice that both types of "dumping" actually have the effect of benefiting the consumer. The right way to deal with "dumping" is to help the threatened workers to adapt and improve, to become more competitive in other words, rather than to protect them with this farrago of mealy-mouthed and economically illiterate propaganda. But the "social partners" are deaf to such advice. Sadly, they will continue to destroy their childrens' future prospects with their well-meant but wrong-headed gibberish.

The law of unintended consequences merely states the obvious: that people often fail to understand the results of their actions. You intend one thing, and you get something else; and no recent piece of legislation has demonstrated this more thoroughly than Obamacare. It's a perfect example of what happens if you design a complex system from first principles without testing and challenging your ideas in the real world. Obviously that's exemplified in the chaotic implementation of the new rules. I suppose, sitting in the Oval Office, driven by principle (correct or otherwise), and surrounded by sycophants, it's easy to believe in the essential rightness of what you are doing, while neglecting to take account of the realities of human nature and the market. Of course all American citizens should have affordable health-care. Who could disagree? And of course the substantial extra costs of extending health-care nation-wide will have to be paid for. Although the experience of other countries shows that there is no easy financing model. Well, it ain't so simple, as the administration is discovering to its immense frustration. The latest road-blocks are the discoveries that taxing medical device companies results in less innovation, not more (could have told you that), and that forcing companies to pay for health-care for full-time employees results in fewer of them (could have told you that one, as well, but I wasn't asked). There's an outside chance that the catastrophic meltdown of Obamacare will result in a Republican bi-cameral majority this fall, with a consequent rapid dismantling of Obamacare, but if that doesn't happen, let's hope that there is not too much damage to Uncle Sam's health and welfare from the Administration's inept social engineering.


Kitty's Encomiums and Execrations

Methodology: each week (this is the 93rd) 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 at neutral, 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 then quickly recovered one step. Etc etc and now it's on plus 1 again.

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:

Ireland to reduce taxes

Italy dissolving

And Kitty's Execrations:

Benelux socializing

United States wellness denied




Tags: Government

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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