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The Prime Minister enjoyed joking that Kazakhstan was going to be part of Europe

Kitty Miv, Editor
27 December, 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.

By and large, the World Trade Organization has had a good year, with a number of countries joining the organization after what must seem to them to be interminable negotiations. The process involves a new member in reaching agreements over tariffs with all 157 other members, or whatever that number may have become. In fact there aren't that many separate negotiations; they are dealt with in groups, and most of the work is done by WTO staffers; but the trickier relationships are handled individually, so it's no surprise that for instance, Kazakhstan, which expects to join in 2013 has been negotiating since 1996. Most of the ex-Soviet states decided they wanted to join, during the immediate post-USSR years from 1990 to 1995, but when they took a closer look at what was involved many of them turned tail. Even the biggest, and arguably the one with the most to gain, Russia, joined only in 2012. One of the hang-ups has been the desire of the key post-Soviet states to form their own, private free-trade zone rather than joining in with Western equivalents, and that grouping of Russia, Belarus, Ukraine and Kazakhstan has stood in the way of economic progress in many respects. It's still unclear whether this Slavic common market will have legs; mostly it has just got in the way of such processes as the march towards the WTO. I was in Alm-Aty in 1994 on an economic mission and the Prime Minister enjoyed joking that Kazakhstan was going to be part of Europe; but the reality was that the President decided to build a new capital city ? la Brasilia in Astana, which was a retrograde and anti-Western step. The diplomatic corps was horrified at tales of mosquitos as big as hornets and appalling winters. Alm-Aty was seen as being too self-indulgent and too close to China. It still is; but Astana has been built and has a population of 700,000, although everyone who can still lives in Alm-Aty and commutes! Anyway, a star for Kazakhstan for its Long March to the WTO.

And another star to South Korea, for electing a president, Park Guen-Hye, who says she will not impose new taxes and will pay for expanded welfare programs by cutting general government expenditure. It seems that I keep awarding stars to South Korea, but it's not favouritism, it's simply that the country has made a number of good choices during 2012 and is generally very business-friendly, despite occasional lapses like the Lone Star affair. It will be interesting to see whether Park has the good sense to bury that hatchet.

Rounding off this week's prize distribution, which will indeed be the last of the year, we need to include Andorra, which without especially tough pressure from fiscal mastodons such as the EU and the OECD has brought itself up to date in various ways and is now probably safe from major attacks while still offering an attractive fiscal bolt-hole for individuals and smaller corporates alike. It's difficult to know without actually being there whether the government's "opening-up" is as thoroughgoing as it pretends. Andorra was always for the Andorrans, and you have to wonder whether new laws allowing greater and quicker foreign participation in Andorran businesses are as real as they appear. Likewise, this tiny valley in the high Pyrenees claims to have adopted all necessary modern information-sharing laws, but will they really give up banking secrecy so easily, when it has been their main calling-card for the last hundred years? It used to be Andorras's boast that its bank accounts were known only to "the customer, the banker and God." Well, they say it is so, and the OECD agrees; so we'll give them the benefit of the doubt.

Algirdas ?emeta, the EU's Tax Commissioner, must be a very persuasive man since he has convinced Lithuania to join the EU's geometrical suicide pact, otherwise known as the Financial Transactions Tax. Of course it may just have helped that he is Lithuanian himself. I don't know much about Lithuania, although I had a Lithuanian boy-friend once, not called ?emeta, but fairly unpronounceable all the same. As a result I have a Lithuanian dictionary in my library, but it doesn't get much used. Lithuania is not in fact a very high-taxing country: it relies more on indirect taxes than direct ones, which is modern and correct; and it's overall tax take is no more than 30% of GDP. That doesn't seem to square with a Tax Freedom Day in mid-June, although I'm sure clever Mr ?emeta could explain it. Anyway, a black mark to poor Lithuania for mounting the backwards-pointing Tobin horse.

Enrique Pe?a Nieto, Mexico's new president, is something of an enigma. Nominally the PRI is a right-wing party, in the past not always in a nice way, but you can't readily describe Pe?a Nieto as right-wing. Some commentators criticize him as being just a "product", a confection made up to suit the PRI's presentational goals, but this may be unfair: he certainly achieved quite a lot as Governor of the State of Mexico, but it seems to have been mostly by spending money on projects made possible by increasing taxes. The Economist said that he was the least bad choice as President, which is hardly a ringing endorsement. He will have to be judged by his actions, and in my book he is off to a bad start, postponing a corporation tax rate cut and various other improvements which the outgoing, supposedly left-wing government had forced through against considerable opposition.

It seems rather perverse to criticize Belgium for being over-taxed just a week after several famous Frenchmen went there to escape high taxes at home. But standing next to a baddie doesn't automatically make you a goodie, and Belgium's proud announcement this week that it managed to increase tax revenues to 51.5% of national revenue in 2012 (how do they know, anyway, on the 20th of December?) earns them my final kick in the pants for the year. No country should take more than half its citizens' income; in fact, 30% would be a reasonable limit. If I was Mistress of the Universe (and lots of people would tremble at that prospect) I would make it a rule. Really, when you stand back a bit, all of Europe's woes stem from over-spending, over-taxing and over-borrowing, to finance electoral pork of one kind or another. Not to try to open up a doctrinal sermon on the adjournment, I have to point out that 100 years ago in the UK, for instance, government spending represented about 12% of national income, and (excluding war-time peaks) didn't reach 30% until the 1940s. Of course some increase, some redistribution was a necessary thing to counter poverty and ill-health, but the juggernaut of government spending has done nothing but increase over that 100 years, with just a very minor retrenchment under such people as Margaret Thatcher and Ronald Reagan, which has quickly been overwhelmed by the tidal wave of "entitlement." Any 18th or 19th century economic commentator would not regard the OECD members' public spending policies as different in kind from those of the Soviet Union, and would consider that we are all barking mad to think that we can have healthy economies when we owe more than our annual income and have to give half of that to the Moloch that rules us. One day there will come a change, but I fear that I shall never see it.

Never mind, toujours gai, as Mehitabel said to Archie, and a very happy holiday to you all.

Kitty's Encomiums and Execrations

Methodology: each week (this is the 32nd) 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 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, falling back again in week 24 to minus two.

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:

Andorra being as unobtrusive as possible

Kazakhstan in a 17-year marathon

South Korea makes a good choice

And Kitty's Execrations:

Belgium doesn't shine

Lithuania ends the year badly

Mexico hmmm





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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