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People Start Businesses in Order to Make Money

Kitty Miv, Editor
30 May, 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.

Amid complaints from businesses in particular about the horrors of the US Tax Code, and in an interval between the ongoing shenanigans on the Hill over attempts to change things, it is pleasant to be able to report that US investors have the world's best investment regime in terms of transparency, fees and choice; and this despite the fact that the US scores low on the taxation front, with higher taxes on savings and investment than most other countries. Perhaps I shouldn't be including investment in a business friendliness review; but people start businesses in order to make money, and if they weren't successful they'd stop and get a job, so it's important that they are able to put their money somewhere it will be safe and productive.

Mrs Park seems to have gotten off to a good start since her party's unexpected return to power, and trade is not the least of the dossiers which is receiving rapid attention, with her deputy announcing this week that South Korea will resume trade talks with Russia, suspended in 2008. Other trade-related developments recently have included the country's participation in a recent meeting of The Association of Southeast Asian Nations (ASEAN) member states in Brunei to start detailed negotiations on the Regional Comprehensive Economic Partnership (RCEP), a free trade agreement with Turkey which went into effect at the beginning of the month, an early-May free trade agreement negotiating round, the fifth, with China in Harbin (China), and, in April, in Seoul, a 3-day meeting between China, Japan and South Korea which encompassed the first round of negotiations on a proposed trilateral free trade agreement, and which were said to have been successful. Given the success of KORUS (the South Korea/US free trade agreement) and the country's FTA with the European Union, it may be fair to rank South Korea alongside Canada in the top rank of free traders.

The nutmeg capital of the world? How many of you knew that it was Grenada? Nutmeg ranks high in my consciousness because it is an essential ingredient of mulled wine, which is a vital prophylactic if you spend time in the winter in a death-trap like the United Kingdom. I suppose that doesn't quite entitle Grenada to a star in this column, but what does do so is the island's energetic response to its recent tribulations, which included severe hurricane damage early in the century, and major setbacks in the all-important tourist sector during the debt crisis. We also shouldn't forget the Cricket World Cup, which may not seem to have much to do with business, but whose success reflected a go-for-it mentality and left behind much improved facilities on many levels which are now helping the island to make progress.

Only in France: when the French budget minister revels in the fact that many wealthy French people are paying more than 100 percent of their income in taxes we may fairly call the French Government uncomprehending, along with a number of other negative epithets. As even the President of the National Assembly's Finance Committee says (admittedly a right-wing politician), it is scarcely surprising that better-off citizens choose to leave, walking David Cameron's red carpet across the Channel to do business in the United Kingdom. There are no believable statistics for how many French actually decamp for greener pastures, not least because they open themselves to even more penal taxation by admitting to an "exit." The Government says that 120 people made exit declarations in 2012, incurring tax on EUR1.4bn of capital gains – better I suppose to cough up now if you are leaving, so that at least future gains can take place under a more appealing regime. Actually most of the 120 went to Switzerland (this was the year in which the 50 percent top tax rate applied in the UK) and only 17 to the UK. But this doesn't square with anecdotal evidence from London, and I don't entertain such a low figure for one moment.

Italy remains paralyzed, politically speaking. There was a moment of hope when the protest 5-star party led by Beppe Grillo gained 25 percent of the vote in February elections, but its mostly young deputies have proved ineffective due to their inexperience and in-fighting within the party. Faced with a political vacuum and an economic crisis, the conventional parties reappointed the already ancient President Napolitano to another term and cobbled together a coalition which is riven with disagreements and can truly be said to be fiddling while Rome burns. The price of coalition demanded by Berlusconi (right-wing) was the abandonment of the contentious tax on housing created by Mario Monti's "technocratic" government last year, but he must know very well that the loss of that EUR5bn of revenue makes the extra 1 percent of VAT from July 1 inevitable, so he calculates that the electoral tide will turn in his favor and will bring down the Government at a moment of his choosing later this year. Meanwhile the Parliament is doing little except playing with a new electoral law to replace the current system, known cynically as "Porcellum" (pigsty) and which makes strong government next to impossible. Whether Berlusconi is playing these games so as to avoid conviction in his various trials (the popular theory, at least among the intelligensia) or whether he truly sees himself as Italy's savior through another term in charge is known only to him. Since neither the existing coalition nor a strong Berlusconi government would change anything for the better, a financial collapse or crisis of some sort seems inevitable. I said to a friend over lunch yesterday that Italy needed either Margaret Thatcher or the Troika, and that didn't go down at all well! But it's true.

If Italy's travails may make the death of the Euro noticeably more likely, the week's major event in Europe was a non-event – the failure of the European Council to discuss the Financial Transactions Tax. Or perhaps they did discuss it and found it so prickly that they decided to pretend they hadn't. The week had begun with Luxembourg nailing its colors to the anti-FTT mast, and as good as saying that it would follow the UK in protesting the scheme to the ECJ. Instead of addressing what is plainly a major existential threat to the functioning of the European economy (not that there aren't others, of course) what they did do was to enjoy themselves chuntering on about tax evasion and affordable, sustainable energy. They are simply in denial. Or rather, perhaps they understand that there is nothing they can to save a hopelessly uncompetitive continent, so they divert attention by riding current band-waggons for all they are worth. It doesn't amount to a hill of beans.


Kitty's Encomiums and Execrations

Methodology: each week (this is the 54th) 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:

Grenada spicy

South Korea trades on

United States helps favors investors

And Kitty's Execrations:

European Union under attack

France unspeakable

Italy sinking





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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