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Suddenly, these revenues were no longer going to help fight poverty

Kitty Miv, Editor
18 December, 2014

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.

If there was an award for the silliest tax initiative dreamt up by the unelected Eurocrats in Brussels over the course of the last couple of decades, the savings tax directive and the CCCTB (that's the common consolidated corporate tax base, for the uninitiated) would be up there competing for the top prize. But surely the proposed financial transactions tax would win hands down. It's not that I feel sorry for the banks targeted by this tax. On the contrary; it is because of them that this idea has come about in the first place. I suppose you could say that even without the financial crisis, the Šemetas and Moscovicis of this world (Francois Hollande's former finance minister has now taken over from Šemeta as Tax Commissioner) would be pushing for a so-called Tobin tax, or Robin Hood tax, whatever you want to call it, anyway. But that's by the by. The point is that while Professor James Tobin's and Robin Hood's intentions were altruistic – granted, the latter's idea of redistribution relied on a fair amount of violence – it's not clear who stands to benefit from the EU FTT. And there could be plenty of losers, including the people it was initially intended to benefit. Back in October 2008, a report commissioned by the Ecosocial Forum Europe and presented to the European Council calculated that a 0.01 percent FTT throughout Europe would generate almost EUR83bn in revenues for development projects and other worthy philanthropic ventures in the developing world. However, in September 2011, the Commission's FTT proposal envisaged revenue of EUR57bn. Then a more conservative EUR35bn tax take was included in the draft FTT directive in January 2013. But, suddenly, these revenues were no longer going to help fight poverty. Nope, they would contribute to the EU's "own resources," which is Brussels-speak for the EU budget. But since only just over one-third of the 28 member states are taking part, and there is much uncertainty about where and when the FTT will become due, it is now almost impossible to say how much this tax will bring in. But, again, trying to pin down a revenue figure is ancillary to the central point, which is that the FTT is unworkable in the first place. Yes, it could be argued that the alarmist warnings from finance industry-commissioned reports about the economic fall-out from the FTT are inevitable, and overblown. But it's harder to dispute the tax's legal shortcomings, and there are plenty of those, as the European Council's own lawyers have pointed out (although its conclusions weren't supposed to be made public). Presumably, one of the reasons that the EU11 (or is it 10 now, after Slovenia seemingly came to its senses?) are still arguing over this tax is because most, if not all of them, want a piece of the action for their own "own resources," to fritter away as they wish. According to the Commission, as originally conceived, the FTT was supposed to represent "a fair price" for the financial sector to pay for cleaning up the crisis it helped to start. But what price common sense?

Vladimir Putin isn't lacking in intelligence. Indeed, most of his pre-political career was spent gathering it. But so blinded has the Great Leader become to the negative side effects of his manufactured hostility to the West that he could also be accused at times of making an enemy of common sense. Yet, despite the feeling that Russia's worsening economic problems are self-imposed, Putin has announced one sensible measure: that the country's tax rules should remain unchanged for the next four years. As an alternative, he could have announced tax incentives for foreign investors, and promised to rein in his tax inspectors, who, for years now, have been, as Prime Minister Medvedev put it a while ago, "terrifying" businesses seen to be not playing by the laws of Russia's bureaucratic jungle. But this is the next best thing I suppose. Investors can tolerate fairly high taxes, or find ways to mitigate them. Legal uncertainty however, is probably the multinationals' worst enemy. Whether Putin remains true to his word, only time will tell. It's certainly hard to see how the Government will avoid putting taxes up unless the price of oil rebounds, or – much harder to foresee – the Russian economy begins to grow again.

Continuing the theme of politicians losing their common sense, I could condemn Australia this week for proposing to copy the UK's daft diverted profits tax. But as usual I've spent most of my invective on the EU. So instead the Australian Government gets a bouquet for attempting to tackle distortions in the country's financial services system caused by taxation. It's not the time to get too carried away by this though – it's only a report, and perhaps the Government may lack the appetite to get its teeth into a particularly complex tax reform when there are probably much higher political priorities. But Prime Minister Tony Abbott is at heart a tax cutter – he has swept aside the carbon and mining taxes, despite being forced into raising income tax as a result of the fiscal mess left behind by the previous Labor Government. Recently, Abbott described the Australian tax system as a "dog's breakfast" and the Government is currently working on a Tax White Paper, which, according to Treasurer Joe Hockey, is about "rethinking how and where we raise revenue." Yet, all this does have a familiar ring to it, not just in Australia, but around the world. Governments often think big but act small when it comes to tax reform, and Australia is certainly no exception. Indeed, in recent years, the Australian tax system has been in a near constant state of review. The previous reform drive began in 2008, when Labor commissioned the Future Tax System Review. This led to a 2010 report by former Secretary to the Treasury Dr Ken Henry, which identified 138 areas for reform. It was, however, quietly shunted into a siding where the weeds continue to grow between the tracks. Perhaps the Liberal/National Government will do better with its White Paper, but I'm not holding my breath.


Kitty's Encomiums and Execrations

Methodology: each week (this is the 135th) 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.

Kitty's Encomiums:

Australia reformist

Russia certainty

And Kitty's Execrations:

European Union no Robin Hood




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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