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Out of the frying pan and into the fire

Kitty Miv, Editor
13 April, 2015

Kitty's Kountry Rankings are below, with a description of how they are kompiled. 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.

Does Italy really need another new tax? Seemingly, yes it does. Well, the economy doesn't, but the Government surely does. National Statistical Office figures show that Italy's tax-to-GDP ratio exceeded 50 percent in the fourth quarter of 2014, yet the budget deficit nudged back up to three percent of the economy last year. The Government could of course make a greater effort to cut expenditure, but that's not as easy as raising taxes, or creating new ones. But where do you go next as a government when you've taxed virtually everything in sight already? According to Paolo Grimoldi, a Northern League member of the Chamber of Deputies, you turn the clock back to medieval times and slap a copyright tax on heraldic designs. I had to check it wasn't April 1 when I first read this story. But, alas, it came too late for that, and Grimoldi doesn't appear to be joking. In fact, his proposal won't necessitate the invention of a time machine to bring the money back from the Middle Ages because there are well over 6,000 coats of arms currently in existence in Italy. And it could be a tax that keeps on giving (to the state) because each new generation will have to re-register their coat of arms. As a result it could raise substantial sums of revenue for the Government, says Grimoldi. Not only this, because (presumably) the tax will only affect a handful of rich people, or those with aristocratic pretensions, the vast majority of taxpayers (and voters), in all likelihood, won't be that bothered about it. It's either genius or one of the silliest things I've heard of in a while in the world of taxation. I can't quite decide yet. Still, you could imagine what they're saying in the Finance Ministry: Ministry Official Number One: "I hear this Grimoldi chap from the Northern League has come up with a new tax idea." Ministry Official Number Two: "Oh yes, what's that then? There's hardly anything left to tax, so we're running out of those!" Ministry Official Number One: "He wants us to tax heraldic shields." Ministry Official Number Two, indignantly: "Heraldic shields? What planet is he on?! This isn't the 14th century!" Ministry Official Number One: "Says it could raise a lot of money, though. Apparently, when the head of the family kicks the bucket, the kids will have to pay to keep their cherished coat of arms." Ministry Official Number Two, devious smile beginning to break out: "Really? Hmmm. Interesting. They're all rich aren't they, these people with coats of arms? And even if they're broke, they still won't vote for us anyway. I'll find the minister."

And, so, from Italy we cross into France – in economic and fiscal terms, out of the frying pan and into the fire you might say. If they had any aristos left in France, it's feasible that the mandarins in the French Ministry of Finance would be drawing up a French version of Grimoldi's plan right now. Unfortunately, they guillotined most of them in the 1780s. Anyway, Hollande has promised to stop taxing the life out of the French economy. And not before time. For when a body like the OECD says that, as a country, you take too much off the citizenry and businesses in tax, as it did last week, perhaps it is time to sit up and take notice. The OECD isn't noted for its plain speaking, often going round the houses before it gets to the point it wants to make. But, in this assessment, the Organization was quite strident, criticizing France's "excessive tax burden" and regulations that stifle competition. It's time for the pace of economic reform to be accelerated, said the OECD. The French Government could rightly respond that it is doing precisely this. The CICE employment tax credit is designed to encourage employment and is due to rise to nine percent in 2016 from 7.5 percent this year. And the so-called Responsibility and Solidarity Pact will cut companies' liability to compulsory levies by EUR14bn (USD15.1bn) between 2015 and 2017, according to estimates from the French Court of Auditors. An additional package of tax reforms and incentives was announced by Prime Minister Manuel Valles last week, and described by the Government as "radical." But, will these measures, welcome as they are, be enough to fix the economy? Just as big a problem, if not more so from an employer's point of view, is France's rigid and overbearing labor regulations. It is actually not that difficult to form a company in France; there is no minimum capital requirement, and formation procedures are fairly light. Just don't try and employ anybody. Unless you're a glutton for punishment that is, and wish to immerse yourself in the 3,000-page French labor code. Employ more than 10 people and your workforce will need an elected representative. Employ more than 50 people and 35 additional requirements kick in, including a workers' council and mandatory collective bargaining. Is it any wonder that, according to France's SME association CGPME, there are twice as many companies with 49 employees than with 50? Trouble is that the Government, if it really does want to change things, is up against powerful trade union interests, and it is debatable how much it really wants to take them on. A discussion on France's 35-hour week was shut down almost immediately after recently appointed economy minister Emmanuel Macron suggested the idea last year. This almost-sacrosanct part of French life is non-negotiable as far as the unions are concerned. And with Hollande's stock already low among the electorate – the Socialist Party trailed in third behind the far right in last month's local elections – surely such measures will merely alienate the Socialists further from their support base. So it's difficult to envisage much change in the foreseeable. The most likely scenario is that the Government will stumble on until the next presidential election in 2017, when the Socialists will probably be booted out in convincing fashion. What comes after that is an unknown quantity. A comeback for Nicolas Sarkozy? Or, heaven forbid, an Elysee Palace inhabited by Marine Le Pen? For France, worrying times indeed.

 

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.

And Kitty's Execrations:

Italy overtaxed

France rigid

Ciao

Kitty



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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