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It's a straightforward socialist attack on business

Kitty Miv, Editor
05 July, 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 has been a good week for one of the most successful international trading partnerships of the last 20 years. 'International' may not be quite the right word for trading between Mainland China and Hong Kong; but there is a border, there are different currencies, and very different legal systems. The Closer Economic Partnership Agreement flagged up its ninth enlargement, and the numbers, in terms of the volume of trade, are stunning. There were two other PRC/SAR moves forward this week, as well: the establishment of a Special Economic Zone in Shenzhen, and approval for ETFs on Mainland exchanges based on Hong Kong listings. Bizarrely, all this positive forward motion is being achieved at the same time as Hong Kong's new Chief Executive, widely rubbished by the SAR's intelligensia, is being installed. He is thought to be too pro-Beijing; but given that Beijing is so pro-Hong Kong, at least in economic matters, perhaps that's OK. The real issue, but it's still five years away, is Beijing's promise to allow Hong Kong universal suffrage, something they are going to find hard to deliver on if parallel progress is not made on the Mainland. Maybe they will claim to be using Hong Kong as an experimental laboratory, as they have done in other respects.

It seems strange to be awarding a gong to Cyprus, which has been suffering for years under an inept and venal regime which does everything imaginable that is wrong for the country's future; but it remains a good place to do business, and even this appalling government has to be congratulated for refusing to countenance any increase in its corporate tax rate, the lowest in the EU. In this stance it is copying Ireland, which also refused such an increase during bail-out negotiations. It will be difficult for the troika to deny Cyprus what it gave to Ireland. Even the bail-out can be seen in a positive light, since the troika is likely to call a halt to the state gravy-train which has been sapping Cyprus's life-blood for so long now. Such idiocies as the COLA need to be swept away, and if there is to be a confrontation with the unions, then bring it on, will be most people's view; it's long overdue.

Brazil is hardly a beacon of free-trade purity, but it is right to attack the anti-dumping duties South Africa places on its poultry exports, as high as 65% in some cases. Anti-dumping duties are anathema to me; the world would be doing itself a favour if they were banned lock, stock and barrel. They are especially iniquitous in the agricultural sector, where the EU has been a prime offender over the years. If you protect a farmer with subsidies, you increase costs for your own citizens, but worse, you deprive lower cost producers in undeveloped countries, which leads directly to economic disaster and in many cases starvation. Go figure. I don't know the history of South Africa's poultry sector, but without a doubt, it is being protected in order to secure the votes of farmers, just as used to be the case in France, for example. One odd thing about this: how can it be that poultry farmers in Brazil can produce their animals for half of what it costs in South Africa?

Australia got its first execration for abandoning the corporate tax abatement it had promised as part compensation for its Minerals Resource Rent Tax; now it's going to get another one for the tax itself, which has finally entered into force this week. It's a straightforward socialist attack on business, nothing whatsoever to do with greenery, and the proceeds are mostly being spread around socialist voters, many of them already on benefits. I've never heard such a self-delusive farrago of flatulent and fraudulent justification as has been pouring from the mouths this week of assorted government spokespersons. It simply a piece of theft from shareholders, done for entirely political reasons, and will have entirely negative consequences for the Australian economy. What an unlucky country, to have such a government!

Imagine: you live in Ardenough Common, 500 yards away from the river Ardenough, while your uncle lives in Ardenough Bottom, 500 yards the other side of the river. You both run units of the family business, which is poultry farming (probably you had South African or Brazilian ancestors). The firm is successful, with large export volumes to France, Russia, South Africa and Brazil. There's just one problem: your uncle pays 12.5% corporation tax on his profits, while you pay 24% on yours. Needless to say, all family investment goes into Ardenough Bottom, and your workers spend most of the day working for your uncle. The border guards turn a blind eye; they've been doing it for nearly 100 years, and they're good at it. Anyway, they're mostly cousins. You've guessed by now: Ardenough Common is in Northern Ireland, while Ardenough Bottom is in Eire. So why doesn't the British Government do something about it, like, for instance, reducing Northern Irish tax rates to something closer to those in the South? It would like to, to be fair, but it doesn't because of a piece of madness called the Block Grant. This is basically a vast bribe paid by the British Government to Northern Ireland in order to buy the votes of Ulster MPs in the Westminster Parliament, and the EU won't allow the corporate tax rate to change unless the missing tax is offset against the Block Grant. Geddit? If you can solve this one, you're a better man than I am, Gunga Din!

Kitty's Encomiums and Execrations

Methodology: each week (this is the ninth) 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 in week six, dropping 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 marches resolutely forward in lockstep with mainland China

Cyprus wants to be like Ireland

And Kitty's Execrations:

Australia goes ahead with MRRT

South Africa wrings the necks of Brazilian chickens

The UK is too scared of Brussels to help its provinces





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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