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Nothing but a Talking Shop

Kitty Miv, Editor
06 June, 2013

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.

For a long time it has seemed that CARICOM, the grouping of Caribbean states including such relatively large territories such as The Bahamas, Haiti and Jamaica as well as minnows like Montserrat, is nothing but a talking shop without the will or even the technical skills to achieve its stated goal of economic and political integration. But there have been some signs recently that it may be getting more serious. This week it signed a TIFA with the US, which will presumably act as a stimulus to some sort of local harmonization of standards, laws and taxes. Then, seven WTO members of sub-grouping the OECS (the Organization of Eastern Caribbean States) which could be said to have made better progress towards at least economic unification, with a shared currency and central bank, are to undergo a trade policy review by the WTO, which will doubtless be thoroughgoing and productive. These are good signs; but more generally, progress towards the CSME (Caribbean Single Market and Economy), which is the name given to CARICOM's intended shared economic space, has been fairly glacial. We will see, but I'm not holding my breath.

A cheer for UK Chancellor George Osborne who says that he will square the country's budgetary circle in 2015 with savings from government departments rather than by increasing taxes. I don 't know what the Treasury gave visiting IMF officials to drink two weeks ago, but it must have been something quite strong with pixie dust mixed in because just for once the IMF didn't suggest raising taxes, and broadly supported the coalition's stance. I say "the coalition," but minority partner the LibDems are facing electoral wipe-out, damaged perhaps beyond repair by the very fact of joining the coalition, in which they have had to support an economic program that is the exact converse of everything they have ever preached. It's wonderful what power does to people's sense of judgment. The Tories probably have little to fear from the LibDems in the next election, and Labour is sinking under the weight of another feckless leader. You would have thought they had learned the lessons of Michael Foot and Neil Kinnock, but no – and they have a serious funding crisis to deal with as well. The Tories' problem is the burgeoning UKIP (UK Independence Party) which is supported by a plurality of the UK population in wanting to leave the EU. If UKIP can manage to shed its unpleasantly racist fringe, a Tory/UKIP government becomes a real possibility, and then there would be a referendum on EU membership by 2018, with a fairly predictable result.

I may have to admit that I was wrong in saying that the Spanish Government was all talk and no walk. Its latest package of support for small business is practical and significant, giving substantial encouragement to people to start and/or invest in businesses. Presumably it has been cleared with Brussels, but if not, it wouldn't be the first time that Spain has gone its own way first and looked for approval afterwards. It's also not quite clear whether the new measures are consistent with the Government's stability program announced at the end of April, which sees a deficit of 6.3% of gross domestic product this year (revised upwards recently from 4.5%), 5.5% in 2014, 4.1% in 2015, and of 2.7% in 2016. Those numbers are in line with the Commission's deficit targets for Spain, although only because the EU, bowing to the inevitable, announced this week that Spain (and France) would be given an extra two years to reach their fiscal targets. It's difficult to see how even these latest targets can be reached without significant savings; let's hope that Prime Minister Rajoy takes a leaf out of Britain's book. Challenging as it is, the only way of saving Europe is to cut bloated state sectors, and cut them hard.

We can't give the EU Commission any brownie points for abandoning the financial transactions tax in its current form – given the barrage of opposition from politicians, the financial sector in general, several unincluded member states, and even from some of the prospective members of the "variable geometry" eleven, it had no choice. In fact we'll give it a black mark for leaking the information via Reuters rather than announcing it. Too shameful, presumably, after it had staked so much on the tax. Heads would roll, if the EU was a properly transparent political space, but it isn't, and there will be a long process of face-saving before the tired old animal is finally led to the knacker's yard. In this column we have been strongly against the tax from the very beginning.

Australia had a very successful week in its campaign to drive multinational businesses out of the country. Assistant Treasurer David Bradbury said that reforms to increase fiscal transparency form "part of the Government's broader agenda to crack down on multinationals." No, OK, he didn't say that, although he just as well might have said it. What he actually said was " . . . . to crack down on multinational profit shifting and tax avoidance." Yawn. Earlier in the week he had delivered a stinging diatribe against the habits of multinationals, calling them "massive money shuffles." He screeches that companies obtain "a competitive advantage" – how awful! Isn't that exactly what they're supposed to do? And naturally he complains that "families" are left to foot the bill. Well, Mr Bradbury, what about the jobs those families live from, and the income taxes and GST etc etc your Government receives courtesy of those jobs? He's only 37, by the way, and was a tax lawyer with a major commercial law firm for some years before being elected to parliament in 2007. He was twice mayor of Penrith. Impressive.

I may be wrong (often am!) but I am suspicious of the Dutch Government's plan to replace corporate apprenticeship tax breaks with "targeted subsidies," because it seems to take decisions out of the hands of companies and puts power to dish out money in the hands of officials. It's not that I would suspect Dutch officials of venality – I am sure that they are impeccably honest and public-spirited; the problem is that the process inevitably becomes less transparent. The Government complains that the current scheme has become too expensive, i.e. that it is successful, and wants to allocate money "on the basis of need." But who is better equipped to decide on the need for apprentices? The firms that employ them, or the Government?


Kitty's Encomiums and Execrations

Methodology: each week (this is the 55th) 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 on + 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.

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:

CARICOM integrating?

Spain walking the walk

United Kingdom makes a save

And Kitty's Execrations:

Australia the stripper

European Union goodbye Professor Tobin

The Netherlands centralizing





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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