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The Washington Follies at least provided a piece of real news

Kitty Miv, Editor
10 January, 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.

I suppose we are going to have to welcome the last-minute "fiscal cliff" deal in Washington, although the IMF damned it with faint praise, on the grounds that it could have been worse. Yes, some taxes were raised (but could have been raised much more), and yes, a number of important tax breaks were extended, although others, like the payroll tax cut, were not. A much less-heralded law, the US Job Creation and Manufacturing Competitiveness Bill, a compilation of vast numbers of tariff-cutting measures, may do more for US manufacturing pending major changes to the Tax Code, which seem as far off as ever. Strange though that this Bill was introduced on the very day that the much-criticized 112th Congress was to dissolve, leaving it in a kind of purgatory designed for bills that are not sufficiently loved to be passed, but not sufficiently disliked to be abandoned, with no-one knowing whether they will eventually be consigned to the dustbin of history or elevated to glorious currency in the new Congress.

The Washington Follies at least provided a piece of real news during a period of the year when almost every legislator and politician is on holiday, "in the bosom of their family" so to speak, which means that we unfortunate scribes who have to write every week are left scratching around for events. So I am seizing on Martin Sorrell's radio interview in which he explained why he is returning his company to the UK, fiscally speaking, in order to give a prize to the UK government for improving its tax regime for multinationals. But what he said merely underlined the fact that paying corporate taxes is almost completely optional for most multinational businesses. There are some articles in this week's issue about corporate tax behaviour, from different perspectives, and this subject will surely be one of the most talked-about in 2013. But I don't see what can be done, if indeed anything needs to be done. There will be proposals from all sides for "unitary" taxation, which won't get anywhere, and the sempstresses of the OECD will construct ever more finely patterned sets of transfer pricing rules which will be beyond the wits of national tax authorities to implement. Meanwhile corporate tax planners will continue to make good use of no-tax locations like the British Virgin Islands, as in last month's monster Russian oil and gas deal. Curious that a state-owned corporation (Rosneft) should play such games; I suppose the Russkis reckon to get their rubles out of royalties, so they're not too worried about corporation tax. Rosneft proudly states that it is the biggest taxpayer in Russia, which is no doubt the case, but I had to laugh when I looked at their 9 months' financial statements and found that the corporation tax charge is a credit, yes, a credit, of 78 billion rubles!

While the BVI ends 2012 smelling of roses, its companion Caribbean destination the Cayman Islands is smelling of something distinctly less sweet. This traditional hate object for Beltway Democrats seems to be getting it all wrong, and had a simply terrible year in 2012. For all I know, the defenestrated premier is being 100% traduced, but in PR terms the affair has been a disaster for the islands, and at the minimum you have to say that the government has been cack-handed in its running of the economy, with multiple budgets being shot down by the UK Foreign Office, and the imposition of a compulsory recovery regime. There is nothing wrong with the financial sector, which is booming away as usual, but that just makes it all the more extraordinary that the government got itself into such financial trouble. If any one statelet in the world should have money coming out of its ears, it should be Cayman.

Another place which is suffering from self-inflicted wounds is India. Its latest outing into bad reputationsville sees a minister clambering onto the "all citizens are criminals" platform, always a favorite posture for failing administrations. The government's late and inadequate response to the recent terrible attack in Delhi is symptomatic of this administration, which seems to know only how to fail. On the economic front, this year has seen failure to implement the new Tax Code, for the third year running, failure to implement the new GST regime, for the third year running, and the botched attempt to create a GAAR, alongside a retrospective attempt to get back at Vodaphone, which had won its case in the courts over withholding tax, by reaching back nearly 50 years to re-write its tax laws. The gerontocracy in Delhi reacted to generalized outrage among foreign investors by sacking the Finance Minister, so then the new one promptly tore up his predecessor's budget. That's right, when your ship is on the rocks, throw the pilot overboard! At least the place is a democracy, so I had better be careful before comparing it unfavorably to China, but in purely economic terms I know which one is getting it more right.

It has taken the Australian government years to reformulate its superannuation system, through endless rounds of exposure drafts, consultations and you name it, but finally the new MySuper system will come into operation this year. It hasn't been a particularly political process: it began under a center-right administration, and it's ending under a center-left regime. And on the whole the new system is better than the old one. But still and all, this is a socialist government, and it is behaving as you would expect, bashing business and throwing money at poorer people. In the particular context of MySuper this simply means an increase in the headline rate of contribution from 9% to 12%, as from July. Sorry, Julia, but wrong! You can dress it up all you want as necessary social improvement. It's just a tax, plain and simple, and more of it is a Bad Thing.

Kitty's Encomiums and Execrations

Methodology: each week (this is the 34th) 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:

BVI everyone's favorite beach

United Kingdom maybe not so bad after all

United States treads water

And Kitty's Execrations:

Australia more tax for businesses

Cayman plunging ever downwards

India - a bad end to a bad year





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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