Nose Cutting And Face Spiting
Kitty Miv, Editor
31 January, 2018
Kitty's Country Rankings are below, with a description of how they are compiled. 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.
You know the world is being turned on its head when Hong Kong is trying to be the next Denmark, and Singapore the next Sweden.
I exaggerate of course. The world really would have become unrecognizable in a short space of time if tax reached Nordic levels in these bastions of economic liberalism. But it is true that both jurisdictions have embarked on similar fiscal trajectories that involve higher spending on welfare and infrastructure.
This does create a certain amount of tension with their economic policies however. Higher spending obviously necessitates higher taxation, but these two jurisdictions have reputations to maintain; both are rated as among the best places in the world to do business, largely because of their relatively low tax burdens and simplistic tax rules.
It'd be very premature indeed to suggest that either of these jurisdictions were in danger of experiencing a long competitive decline by seeking to follow more sociallyorientated policies. But the timing of these fiscal shifts isn't great, given the intense tax competition that is going on globally. Indeed, the United Kingdom isn't far off Singapore's 17 percent corporate tax rate, and there are even some countries in the European Union which have lower corporate tax than Hong Kong, where the rate is 16.5 percent.
The presence of this policy push-and-pull was highlighted by a couple of news developments last week, in which Singapore was urged to sharpen its act on tax with the next annual budget coming up (and not for the first time this year), and Hong Kong was urged to diversify its dangerously volatile revenue streams, given it intends to spend more on health, education, and transport, etc.
So, it's quite likely that we will see taxation continue to creep up in these two places in the coming years. Perhaps even new taxes will be introduced, such as a sales tax in Hong Kong. And the risk is that this could dent business confidence and lead to something of a reputational downgrade.
For the foreseeable future however, they remain comfortably ahead of most of the competition, and the world is still racing to catch up. So, we're unlikely to see Singapore twinned with Stockholm any time soon.
Still, it's telling that both jurisdictions have begun to glance over their shoulders, and perhaps the time is coming when they might need to start upping their game.
Well, I tried my hardest last week not to mention certain subjects. But for a tax pundit like me, US tax reform and Brexit are the gifts that keep on giving.
In the United States, tax reform continues to be as divisive politically after the fact as it was during the legislative progress. Indeed, a recent survey by the Pew Research Center suggests that those whose political sympathies lay closer to the Democrats than the Republicans still oppose the changes, even though a great many of them stand to benefit.
Complain as they might that the TCJA was skewed towards corporations and fiscally irresponsible, there's very little that the Democrats can do at the moment to reverse things. Perhaps this year's mid-term congressional elections may give them more influence over legislation and policy. But, would they really want to start picking off the bits of the TCJA they don't like? Given that the tax cuts are encouraging some of America's largest firms to relocate operations domestically, and that the IMF tacitly endorsed the tax reforms by predicting they would help boost global growth, that could be a very dangerous from an electoral point of view.
The US tax cuts aren't having an impact only domestically; they have reverberated worldwide, with many authorities embarking now on soul-searching on tax policy, knowing that if they put a foot wrong there are some very attractive tax options on offer to investors in the United States.
These competitive pressures are being felt particularly acutely in Europe, where the effect of Brexit is still very much an unknown quantity. The Dutch Government has, however, attempted to mitigate the uncertainty associated with the latter by estimating the potential cost to Dutch businesses of non-tariff barriers associated with a new UK-EU trade agreement.
Ultimately, though, the report may have been more of a hindrance than a help. Intended to hammer home the message that companies should prepare for potentially major changes to the trading environment in the years to come, it's conclusions must have been based to an extent on assumptions and unknown quantities, since the EUUK trade talks have yet to begin. So what exactly should companies prepare for? This scenario? Or a markedly different set of outcomes? It's going to be at least another year before we find out.
But perhaps the message was also intended for the EU as well as the business sector. A little warning, perhaps, that if the EU seeks to "punish" the UK for exiting the bloc, it risks cutting off its nose to spite its face?
Kitty's Encomiums and Execrations
Methodology: each week (this is the 147th) one or more countries are given encomiums and one or more 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 minus 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; 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.
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.
United States growth
Hong Kong vulnerable
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