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The country's millionaires are heading for the exit

Kitty Miv, Editor
16 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.

If Taiwan is interested in joining the Trans-Pacific Partnership, that is certainly a sign of openness to trade on the one hand, and it is difficult to doubt that Taiwan lives or dies by trade, much more than some other countries, but it is also to be seen as a move in the long-running multilateral diplomatic chess-game being carried on between Taiwan, Mainland China, the USA and other interested Asia-Pacific parties. China itself is playing in order to re-absorb Taiwan into its imperial orbit, and can point to its acceptance of Hong Kong's free-wheeling, free-trading quasi democracy as proof that it can be a flexible partner. But progress in re-establishing trading or any other kind of relations between China and Taiwan has been glacial, even if the two 'partners' did sign a long-delayed investment protection agreement this week. This is a show that will run and run. Meanwhile Taiwan's continued independence is a beacon of hope and encouragement to China's own would-be democrats.

It was a vain hope on the part of French right-wingers that the country's constitutional court would strike down any of the tax increases included in President Hollande's monster supplementary finance bill, and I have previously marked down France on account of those noxious taxes; but the constitutional court also waved through the notion of a fiscal debt brake and other aspects of Europe's fiscal compact - that's the deal on budgetary restraint that Britain notoriously refused to sign up to. But most member states are going ahead with it, subject to national legislative approval such as will now be given in France. I am not much of a friend of the EU, but since member countries have shown that they are politically incapable of budgetary restraint on their own, there is now a choice between centrally-enforced rules and dissolution. Mind you, Maastricht was supposed to do the same job and was simply ignored; it remains to be seen what will happen when a country is forced to its fiscal knees by the Brussels bureaucrats. But nowadays the markets have a say, something that wasn't nearly so true twenty years ago, and as long as the ECB sticks to its guns, countries will need the markets to finance their debt. If the ECB doesn't, you can wave goodbye to the euro as a serious currency.

The Dubai International Financial Centre is reorganizing itself to be ready for the next stage of its world domination plan. Only joking, but it has been a stellar performance so far: to have reached eighth-ranked world financial centre in just seven years is scarcely credible. And there is no competition to speak of in the Middle East and Africa. Qatar, perhaps, or Bahrain, which seems to have lost its way. If you are a bank, an insurance company, a regional financial holding company or a family office with interests in the region, why would you go anywhere else? We use the name Dubai, but the 'country' that is getting this right is the UAE, and it has to be thought about in relation to the DIFC as we think of China in relation to Hong Kong: there is always the risk of expropriation in a non-democratic region. But why would either host be crazy enough to kill the golden goose and see all that lovely money drain away in milliseconds?

The Irish treasury is boasting that new tapering rules have allowed it to extract a hundred million euros or so more in income tax from the highest-earning individuals. There aren't many of them, in fact, fewer than 2,000, and it's not as if they are paying super high rates, just a few percentage points more, taking them up to 30% on their income. The problem, of course, is that it takes only a few business leaders to depart and you have lost back that 100m and more. Actually you'll never know whether you lost it or not. If Joe from Cork decides to move to the BVI and put his next electronics factory in Shenzhen, that's 200m of investment you just lost, and the 300 Irish workers who won't get those jobs won't be paying income tax - they'll still be on the dole. Let's hope that Ireland is getting it right; but in my book this is a mistake.

And here's an example of why they're almost certainly wrong: New Zealand's 2001 increase in upper individual tax rates has resulted in less money for the government, and no doubt full planes to Vanuatu and Hong Kong. It's a clearer case than Ireland's, because New Zealand was already in the dangerous territory of over-35% tax, which is about the level at which virtually everyone thinks that reasonable contribution turns into extortion, and therefore everyone's thoughts turn to tax management rather than company management. Whatever lunacy possessed the British government to add a 50% rate is hard to discern. What's not hard to discern is that the country's millionaires are heading for the exit before the Chancellor gets richer than they are.

Kitty's Encomiums and Execrations

Methodology: each week (this is the 15th) 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.

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:

Dubai is the new Hong Kong

France will sign up to the fiscal compact

Taiwan hungers for international recognition

And Kitty's Execrations:

Ireland eats forbidden fruit and

New Zealand reaps the harvest

The UK waves goodbye to its millionaires: Lady Docker left 50 years ago



Tags: Dubai

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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