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Life's never simple

Kitty Miv, Editor
25 January, 2019

It's no wonder voters in many countries are feeling aggrieved, ignored and generally disillusioned. Often, it seems they vote for one thing, and get something completely different.

Look at Brexit. That was supposed to be a simple binary choice between the United Kingdom remaining a member of the European Union or withdrawing from the EU. But after the House of Commons resoundingly rejected Prime Minister May's negotiated deal with the EU last week (apparently the largest margin of defeat by a sitting government – no mean feat in a parliament hundreds of years old) the choice seems to have multiplied into an infinite array of options for the UK: a renegotiation; an extension of Article 50; a softer Brexit; a "crashing out of the EU" Brexit; no Brexit; a general election; another referendum; a referendum on the question of calling another referendum. And so on.

What's more, when voters appear to have had enough of a particular premier, president, or prime minister and decide to vote them out, they end up hanging around like a bad odor.

In Germany, voters turned away from Angela Merkel's Christian Democratic Union and Social Democratic Party in their droves in the 2017 federal elections. Indeed, the SPD suffered one of its worst elections results ever, polling a mere 20 percent of the vote. It was so bad that the SPD initially felt too embarrassed at the idea of entering another coalition. It was inevitable, then, that the next government would be – you guessed it – a CDU/SPD one.

Similarly, in Sweden, Prime Minister Stefan Lofven's Social Democrats received an unprecedented kicking from the voters in last year's elections – so much so that his party lost the ability to govern alone.

Yet despite securing just around 30 percent of the seats in parliament, Lofven remains Sweden's Prime Minister. And how did that come about? Thanks to the agreement last week, after months of gridlock, of an unholy alliance between the Social Democrats and a set of minority parties with quite different agendas. From that, a mixed bag of a coalition agreement was drafted that tries to please everyone, including with some tax cuts. Well, that's more than the German voters got out the new Grand Coalition, I suppose.

France is also quite a curious case. The youthful vigor of Emmanuel Macron was supposed to a breath of fresh air, an end to the perpetual seesawing between the Socialists and the Republicans. Look how he broke the established order and took an entirely new political party to power within the space of about two years. Things were never going to be the same again!

Yet, when you look at the voting figures for the early rounds of the last French presidential election, Macron was hardly sparkling. Quite clearly not being considered the next De Gualle. In fact, he only polled about 20 percent of the vote in the first round. And, largely thanks to his tax policies, Macron is proving to be just as unpopular in power. Strange how democracy works sometimes...

Indeed, in Europe at least, we seem to have entered an era of governments afflicted by a sort of political cognitive dissonance. Coalitions of mainstream and fringe parties stitched together in meeting rooms weeks, often months after inconclusive elections, saying one thing one minute, another thing the next, and doing something different entirely after that. The Netherlands went through a similar experience recently. Latvia is going through it now.

This does have certain ramifications for tax policy. While we are also in an era of unprecedented change to the international tax framework, and certain countries have been able to bring about comprehensive reforms – notably, of course, the United States, with its Tax Cuts and Jobs Act (TCJA) – coalitions tend to bring about fewer sweeping legislative changes. This is because their often-fragile foundations simply can't withstand the force of a TCJA-style tax overhaul.

As such, in the affected jurisdictions, changes, including in the area of taxation, are likely to happen incrementally, and at a snail's pace. Although, for taxpayers, keeping up with these small-scale, low-key, tinkering-at-the-margins-type of reforms can be just as challenging as the big, bold changes. Life's never simple is it?

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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