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The Ineluctable Slide Towards a Grexit Continues

Kitty Miv, Editor
02 August, 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.

Perhaps I shouldn't be rewarding countries for relaxing regimes that should never have been there in the first place, but that would rule out just about 100% of tax reductions, so I'm going to go ahead and award China an encomium for its continued opening up of inward investment, coupled with gradual freeing-up of trading in the renminbi. There are still tight limits on who can invest in the country's financial markets, and how much, and into what; these all need to be removed asap, but in the meantime let us welcome limited progress.

It is no surprise perhaps that the US House of Representatives should have passed a bill which would cancel the upcoming requirement for banks in the US to report interest payments made to non-residents, and it is not correct for me to treat the House as equivalent to the government itself, when it seems unlikely that the Senate or the President will countenance the bill. But in a situation where the Congress is completely paralyzed, any sign of positive activity has to be wecomed, and if the Republicans gain control of the Senate in November then the law will probably get through. Hopefully FATCA will be slung out as well. The interest reporting requirement is so hoary that it is almost invisible behind its whiskers. Orginated by Larry Summers sometime in the last century, it was the US's contribution to the anti-offshore pogrom of the 1990s. Anyway, new or old, it is a Bad Thing and will do lots of damage to US banking.

When I read that the Irish Revenue service claims to have reduced the business taxpayer administrative burden by 25%, I think to myself, well they would say that, wouldn't they. The claim would be a lot more believable if it was in an independent report, if Ireland had a TIGTA as in the States, or a national taxpayer advocate, or even if the Chamber of Commerce said it. On the other hand, it's true that Ireland ranks high up in the World Bank and PwC 'ease of doing business' listings, so I'll give them the benefit of the doubt.

It's unfair to kick a man when he's down, let alone a woman, and countries are female, for some obscure reason, in most languages. But we have to be hard-hearted here and say that, as a home for business, Greece is going from bad to worse. The new government is no more capable of taking difficult decisions than any of the previous ones, so the ineluctable slide towards a Grexit continues. I don't need to remind you that I have been in favour of this outcome for two years at least, and once it has happened, a new currency has been established, and the immediate shockwaves have died down, there will be wonderful opportunities for inward investment, particularly in the tourism and transportation sectors. But that's not yet. Right now, the only possible advice is: don't go there!

What did they expect, the Italian government, when they imposed swingeing new taxes on movable assets such as yachts, Lamborghinis and executive jets, and set the tax police to checking on their owners? Gone away, haven't they, to marinas in Cyprus, airfields in Romania and garages in Germany. Who would go for a holiday now in Rimini or Cortina? Only rich people can afford these places, anyway, and the rich aren't going there any more. So, the net result of this major piece of silliness is to ruin the makers of expensive toys and restaurateurs in holiday resorts. I am confident that the overall tax take will be lower, not higher, as a result. One consolation: Ministers will be able to replace their 'blue cars' (which they are about to lose) with confiscated Ferraris.

The French left is continuing to rifle the shelves of the country's fiscal toyshop, attacking one after the other all of the moderately sensible reforms brought in by Nicolas Sarkozy, and even previous governments. They won't be content until everyone in the country is equally poor. One of the amendments added to the supplementary finance bill, now finally enacted, is a toughening up of the inheritance tax law. There are certain elementary rules of taxation that apply to any country that seeks to be business-friendly, and they are normally observed by right-wing governments as much as they are honoured in the breach by left-wingers. They include encouraging free trade, avoiding confiscatory rates of tax (anything over 40%) and allowing the transmission of business assets between generations. The French socialists are now systematically breaking all of these rules, and they are doing so while failing to get government spending under control. The party can't last, so let them enjoy smashing the place up while they can.

Kitty's Encomiums and Execrations

Methodology: each week (this is the 13th) 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 – 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 last week it got somthing right, so it went back up to – 1.

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. For any country in negative territory, you should think carefully before starting a business there.

 

 

Kitty's Encomiums:

Ireland makes it easier to pay taxes. Oh, goody!

China is becoming more open

In neutral territory:

The United States Congress takes a tiny step towards sanity

And Kitty's Execrations:

France: just make sure you don't die there

Greece slips away

Italy shows how not to do it

 

Ciao

Kitty

 


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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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