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Like Dame Edna Waves Bunches of Gladioli

Kitty Miv, Editor
05 March, 2014

Spain and Italy are both in tax-cutting mode this week, the former more convincingly than the latter. By the time you've climbed to the top of the greasy pole, you've probably had to shed most of your principles (if you ever had any) as "not wanted on voyage," and in any case you can only go as fast as your party and the economy you inherited will allow you.

Despite his rhetoric, Mariano Rajoy certainly didn't have much opportunity to display any right-wing anti-tax credentials during his first turbulent months in office, when it was a question of preventing the ship from sinking. Now perhaps things are a bit different, and Rajoy's announcement of job-enhancing social security cuts may have a real impact on the economy, especially since restrictive employment protection laws have been loosened to some extent. Cutting into the appallingly high youth unemployment rate must surely be the Government's highest priority.

It would be good to believe that Matteo Renzi across the water in Italy has the same good sense, but his initial appearances before parliament (of which he is not a member) were unconvincing, and his proposals seem to owe more to political rather than economic necessity. He says that his tax cuts will be paid for by "spending cuts, and the remainder from reducing inefficient and unused corporate subsidies." Well you know what I think of politicians who wave spending cuts around like Dame Edna waves bunches of gladioli; and as for corporate subsidies, if they are "unused" then scrapping them won't save money, will it? And if they are used, scrapping them is a tax increase, isn't it? So you'll have to try harder, Matteo, and by the way, it's best to take your hands out of your pockets when you address the nation. Didn't anyone tell you?

I love it that they have a Central Excise Day in India. Is it the equivalent of a corporate sports day, aimed at building departmental morale? Are there prizes for people who collected the most tax? Senior ministers took the opportunity to harangue the assembled bureaucrats about the need to be more friendly towards taxpayers, and to create pride in the taxpayer's breast at having contributed to the country's welfare. No comment.

It's not reported whether there were any taxpayers present at the occasion, proud or otherwise; but I am able to tell you about a meeting that took place across town on the same afternoon at the offices of a certain multinational, between the Asia-Pacific Tax Directors of three telecoms/IT MNCs, we'll call them Joe, Jean and John. They are halfway down their second bottle of Johnnie Walker Black Label, although Jean is having hers with chasers.

"We've given up," says Joe. "Especially with the election coming up, there's no chance whatever that they're going to negotiate sensibly. The next lot may tear up the retrospective legislation, or more likely they'll backdate it to the Indian Mutiny. We're going to arbitration. At least it'll win us a year or two and by then the whole shebang will be digital, so we can run it from Luxembourg and I won't have to take those stomach pills any longer."

"What I don't understand is why you didn't use Mauritius in the first place," said Jean.

"I wanted to," said Joe plaintively. "It would only have cost a couple of million to move the shares from Hong Kong. But they said it was too expensive. Now look."

"Thirty years ago," said John, who was a lot older than the other two, "we'd have settled it over dinner. But that's not allowed any more. For us, anyway. They still do it that way, of course. We agree with you about the cloud, though. We're just going to migrate everything over the next few years, and leave all the costs here, so there'll be a big pile of losses we can negotiate with."

"That's BEPS, if anything is," said Jean, not quite sure whether she was being serious or making a joke. But the guys laughed.

"They're so tied up in red tape they won't notice until it's too late," said Joe. "Anyway there'll be another four finance ministers between now and then."

"And I'll have retired," added John, reaching for the bottle.

Surely I can't end today without mentioning Dave Camp's tax reform draft, which will presumably go the way of his colleague Max Baucus's equivalent drafts. That two such intricately crafted prescriptions for a future US tax system will fall victim to bi-partisan politics may seem an indictment of democracy as she is practised nowadays, and indeed the Economist asks this week whether democracy is failing us. Of course it concludes, as did Winston Churchill, that democracy is a bad system – but that all the others are worse. Democracy suffers from its reliance on the level of education of voters, which is still far below what it would be in an ideal world. But ask this question: are the bulk of voters better or less informed today than they were a hundred years ago? The fact that they are now incomparably better informed accounts for the fact that they despise politics and politicians, which are cast in an 18th or 19th century mould. It's not democracy that needs to change, it's politics. The broken state of the Congress may be a reflection of the ossification of the American party system, or it may even be healthy: countries seldom suffer from a lack of legislation; usually it's the opposite, that is they suffer from an excess of it. And as an example, notice that many of the problems that preoccupy today's legislators, from Dodd-Frank to Obamacare, result from a period of one-party dominance. If the Republicans win the Senate this fall, only the President, for all his faults, will stand in the way of another wave of ill-considered legislation.

I'm not arguing for stasis in tax regulation: of course the corporate tax rate needs to come down; of course entitlements need to be trimmed; of course etc etc. The problem is that politicians have not succeeded in putting the issues clearly to voters, despite Messrs. Camp and Baucus's best efforts. Until the parties (two of them or hopefully more than two) offer a sophisticated electorate a choice between clearly understood and presented alternatives, which is certainly not the case at present, it's probably better that nothing changes.


Kitty's Encomiums and Execrations

Methodology: each week (this is the 94th) 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:

Italy hmmmm

Spain making supply-side sense

United States unreformed

And Kitty's Execrations:

India loves its taxpayers




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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