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The German Constitutional Court has just brayed very loudly

Kitty Miv, Editor
13 November, 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.

"The law is an ass" we say in English when the strictly correct application of legal principles by a court leads to a result that any normal right-thinking person would think is absurd; and the German Constitutional Court has just brayed very loudly in saying that the country's air travel ticket tax does not offend against the constitutional rights of citizens or the airlines. Maybe so, but it and the Court offend against common sense. All taxes are an offence against citizens' rights when the government that levies them spends the money it collects in a wasteful and unprincipled fashion by providing bread and circuses to voters in order to stay in power, and by that definition most of the money Germany collects is unconstitutional, as is the case in virtually all "advanced" democracies. Well, I won't mount that particular hobby-horse today (next week, promise) but will stay focused on the insanity of a tax which purports to benefit the environment but is an anti-consumer and counter-productive money-grab. As to the environment, which is none of government's business, you won't be surprised to hear me say, study after study has shown that the only environmentally effective way of taxing air travel is to charge by the plane-load, which relates cost to CO2 creation. To give a rare bouquet to the European Union, that is exactly what it tried to do with its Emissions Trading Scheme, which was shot down by an unholy alliance between airlines and competing countries, including the US in particular. The ETS is now in limbo, but a number of individual European countries are feeding at the air travel ticket tax trough. In almost every case, they charge more for longer flights, roughly in proportion to distance travelled, which makes less sense than you might think, given that short flights are far more polluting per kilometre than long ones. Their rationale of course is to keep the tax roughly proportional to ticket cost, but it doesn't work because of the ever-cheaper low-cost airlines. It's everyone's experience by now that the taxes on a ticket are often greater than the travel cost, and it's this that hurts airlines and airports near borders with lower-tax countries. In Germany's case, it is surrounded by such, in particular the Netherlands and Belgium, which abandoned their own ticket tax systems when they saw passengers deserting their airlines in droves. The German state of Rhineland-Palatinate, which borders Belgium, and is a short drive away from the Netherlands, brought the case, and has been rebuffed. The UK, which has the highest ticket tax in the EU, at least has the excuse that it's surrounded by water. But in the end there is no excuse for this damaging and hurtful tax.

Not all courts are silly all of the time, of course, and the Swedish Supreme Administrative Court has dealt a welcome blow to the country's tax authority by refusing to change the treatment of "carried interest." The carried interest saga is running in a number of countries, most notably the United States, where the animosity of the left towards The Masters Of The Universe (investment bankers who get rich in the canyons of New York) has led the Democrats into a 20-year crusade against the capital gains status of their winnings. It's quite simple, at the end of the day: do you want to have a corporate finance industry or don't you? For the anti brigade, all they want is to punish the exponents of "the unacceptable face of capitalism" (that was Edward Heath, a pretend right-wing UK premier who was anything but), and nothing would make them happier than to see off the last banker from Kennedy. Sweden at least has learned from its past mistakes, one of them being the attempted introduction of a financial transactions tax, which nearly destroyed the country's stock market overnight. America's yuppies will be reassured this week after the mid-terms that they have at least another four years to play their games, and probably much longer.

In crisis-bound Italy, I don't know whom to believe any more. On the one hand there is Prime Minister Renzi, who has (predictably) fallen out with the fallen Cavaliere, and fallen into the arms of the country's equivalent of the British Monster Raving Loony party, being the 5-Star Movement led by a TV comedian, and it is no surprise therefore that one side of Mr Renzi's face tells the EU that the country will just about squeeze into the fiscal strait-jacket required by Brussels, while the other side of his face announces EUR25bn of tax cuts (could that have anything to do with the fact that he needs to legitimize himself with an election, now that the comedians have helped him to pass a new electoral law?) On the other hand there are the steely-faced technocrats, currently represented by Pier Carlo Padoan, the Economy Minister, who told parliament this week that the tax take will go up from 43.3 percent of GDP this year to 43.6 percent in 2016. Italy's public spending runs at 51 percent of GDP, so it doesn't take a genius to work out that the country's debt, currently at 134 percent of GDP, can only go in one direction. As to reconciling the two men's pronouncements, that would take some extremely creative footwork. As to which one to believe, I'm afraid for me it has to be Padoan. Luckily for both of them, compatriot Mario Draghi over at the European Central Bank is about to dish out a trillion euros in whatever the euro-speak will be for Quantitative Easing, and which you and I call printing money. Luckily, I say, because that will hold down interest rates: if they were to go up, it would be Madame La Guillotine for Italy. Meanwhile, the hapless tax authority is relying on technology to increase its takings, and is presumably reassuring Messrs Renzi and Padoan that it will be able to bail them out. Knitting while Rome burns might be the right description. What nobody talks about, of course, is cutting public expenditure. Well, OK, they do talk about it, they just don't do it.


Kitty's Encomiums and Execrations

Methodology: each week (this is the 130th) 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 plus 1, 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 and now it's on minus 1 again (until next week).

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:

Sweden sensible

And Kitty's Execrations:

Germany unconstitutional

Italy: Dive! Dive! Dive!




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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