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One should certainly cry for Argentina

Kitty Miv, Editor
12 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.

Tax cuts have been few and far between lately, so full marks to Sweden for saying that it is going to cut the rate of corporation tax later this year. Currently the rate is 26.3%, down from 28% five years ago, so the country has lagged behind some of its EU competitors. The UK, for instance, which is in the middle of a program of phased cuts which will leave it with a rate of 23% next year. Traditionally Sweden has been a business-friendly country, hosting a lot of US corporations, and it surely doesn't want to seem out of line with its competitors. A 1% difference doesn't probably matter to most companies, but 3% is starting to be meaningful. And there is always Ireland with its 12.5% rate.

Luxembourg, like Sweden, and unlike most other EU member states, is going to post marginal positive growth this year, and gets its gong this week not so much for having done anything particularly wonderful, but rather for not having done anything negative, and maintaining its pro-business stance through thick and thin, as witness a fairly glowing IMF report. Not that there is anything much 'thin' about Luxembourg: depending on exactly how you measure it, Luxembourg has the highest per capita income in the world, and its investment-friendly rules have attracted stunning numbers of fund managers and wealth managers (we won't call them bankers any more, will we?). I've never been to Luxembourg, or if I have I was probably napping in the back of the car and didn't notice it. But that's what Luxembourg wants: not to be noticed. Probably it's a very serious place, serious about making money, that is. It might not be that easy to have fun in Luxembourg; but then you're only half an hour away from the fleshpots of Vienna or Zurich.

Hong Kong's microfinance scheme is the sort of bureacracy-lite support for small businesses that every country should have in place, especially at a time when banks won't lend because they are so busy shrinking their asset bases in order to minimize the amount of capital they have to raise to conform to new Basle, EU, Dodds-Frank etc guidelines. Government has no business interfering with banks, which should just be allowed to go bust when they want to (and then they wouldn't) but no-one is listening to that story at the moment, so at least we can try to replace their riskier functions with market-friendly solutions like microfinance. Whenever it has been tried, it has succeeded, so Hong Kong is going with the flow. People in the poverty trap through no fault of their own are just as entrepreneurial as you and me. In the West, such schemes usually involve incredible layers of bureacracy and oversight, which first of all turns people off, and secondly saps so much of their strength that they have no energy left to do the business.

What is the matter with Argentina? This has got nothing to do with the Falklands: if I was the British prime minister I would do a deal with Buenos Aires over the oil and gas, and give every Islander enough money to buy a small farm in Scotland, or even a large farm, if they didn't want to become Argentine. No, it's just that Argentina seems determined to do everything possible to irritate and fight with its neighbours. This week the problem being its unilateral and utterly unnecessary abrogation of its double-tax treaty with Chile. This is such a short-sighted, mean-minded, self-destructive action that it is hard to comprehend. What planet are they living on? It isn't one I recognize. Of course, we must be careful here: I have spent quite a bit of time in Argentina, a wonderful country, with wonderful people and the best meat in the world. It's the politicians that are the problem, not for the first time; it's they who have wasted and destroyed a country which was once and still could be one of the richest in the world. It's just very sad, and one should certainly cry for Argentina.

President Hollande and his henchmen and henchwomen (henchpeople? henchman is a word that is evidently doomed to be dropped from the lexicon, irretrievably sexist) are positively revelling in an orgy of new taxes. Every one is greeted with a cry of triumph, just like the heads that rolled from Madame during the Terror. Of course the people doing the celebrating aren't the ones who are going to be paying the new taxes: that privilege is reserved for the wealthy, that's to say the ones who make all the money in the first place. You can blame Nicolas Sarkozy, if you like: his conspicuous consumption and cocky grandstanding were an act of hubris whose nemesis has now arrived, tapping into the vein of republicanism that sits so deeply in the French psyche. Anyway, I have already given two execrations to France for its new taxes; this one on the other hand is for not cutting public spending. Even Mario Monti, who also started off by raising taxes, has come to realize that in the end that there is no answer to national poverty other than reducing the size of the State, and has started to lop off the heads of public servants rather than those of businesspeople. No such thoughts in France, which has an even bigger bureacracy than Italy.

I hate to give the US another minus point, which will push it down into negative territory. It is still the biggest homogeneous market in the world, give or take a few cross-border annoyances like sales tax, and still ranks high up the scale in terms of business friendliness. But would you place an international business in the US rather than say in Ireland or Hong Kong? (What this ranking process is supposed to be about.) From a tax perspective, the answer is a no-brainer. On other criteria, the picture is more nuanced, and one big issue for incoming businesses would have to be economic stability. Here, the dysfunctional Congress and administration is a serious problem. There is the fiscal cliff; there is the large and growing debt; there is the generally anti-internationalist stance of US policy in recent years. You really have to stop and think. Suppose it goes wrong? So from that perspective the tired old dance being carried on between the administration and the Republicans has become a serious negative. How can they be so self-fixated as not to realize the damage they are doing to the investment plans both of existing US businesses and putative new ones, whether domestic or foreign? Yet, it's unfortunately obvious that nothing is going to change this side of the election. So, a bad mark!

Kitty's Encomiums and Execrations

Methodology: each week (this is the tenth) 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 helps the little people

Luxembourg doing what comes naturally (in Luxembourg)

Sweden dares to be brave

And Kitty's Execrations:

Argentina shoots itself in the foot - again - and again - and again

France succumbs to its history

United States tin ears in Washington





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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