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Wake me up when something exciting happens

Kitty Miv, Editor
28 February, 2019

Frankly, I expected a lot more excitement from South Africa's latest Budget. This is a country in fiscal trouble, with tax receipts unable to keep pace with expenditure, and a budget deficit growing by the year. Therefore, I was anticipating pulses racing in the business community, as South Africa's already high rate of corporate tax was hiked against the international grain. I expected hand-wringing from politicians as the Government imposed that most regressive of tax increases in the form of another VAT hike. I predicted gasps from the professional and entrepreneurial community as the Government clobbered those on high incomes with more tax rises. And I thought there would be howls of anguish from investors as the Government piled tax on capitals gains and dividends.

In the end, the 2019 Budget was something of a blink and you'll miss it affair. The only significant announcement was that a carbon tax will be introduced this year. But we've known that for a while already. Wake me up when something exciting happens.

Now from a jurisdiction which could have easily introduced extensive tax reforms but didn't, to one that is trying to overhaul its corporate tax code, but can't: Switzerland. The Swiss Government has invested a lot of energy and political capital into its efforts to make the Swiss corporate tax regime more internationally acceptable at the same time as appealing. But unlike the vast majority of other countries – perhaps unlike all other countries – on this matter it is answerable not only to parliament, but to the people.

Given recent events, referendums tend to mean one thing for governments, and that's trouble. The less said about Brexit the better. But Switzerland has had a rather unhappy experience with referendums in the not-so-distant past too. The Government's previous corporate tax reform legislation, CTR III, was shot down at the last hurdle in a referendum, and the recent news that the reforms proposed as a replacement to CTR III will also be subjected to a public vote couldn't have filled the Government with massive confidence.

Of course, the spiel on the Federal Finance Department's website about the new tax reforms suggests that the Government is indeed confident that it has addressed all the issues that led to the rejection of the previous tax reform bill by the public. But apart from some of the detail, can it be said that the replacement tax reform plan is materially different from its predecessor? Anyway, we'll find out on May 19, when the tax reform referendum is due to take place. That is if Europe still exists by then, and hasn't imploded into a Brexit-shaped black hole.

Speaking of which (honestly, I tried to avoid the subject), member states are stepping up their preparations for the day when the United Kingdom ceases to be a member of the EU and becomes merely a "third country." In Germany, as with the tax-lite South African Budget, I'm also rather surprised at the lack action being taken at the highest levels of government in Germany to prevent the hardest of all Brexits in the first place.

Maybe the Brexiteers are right, and March 30, 2019, will be akin to one of those scenarios where everyone in the vicinity of Europe will be ducking with their fingers in the ears, waiting for the ticking time bomb to explode, only for it to turn out to be dud. Then again, even if "Project Fear's" claims are widely exaggerated, it's difficult not to envisage at least some disruption on B-Day +1 (no toilet humour intended).

If this is the case, it won't be just the UK that experiences difficulties. Germany sells an awful lot of stuff to the UK. In 2016, the UK was Germany's third-largest export market, according to data from Germany's Federal Statistical Office. That's a lot of cars and high-end fridges. Indeed, as a regular visitor to the UK, I can testify that the nation's streets and highways are clogged nose-to-tail by stationary vehicles largely of German origin. So, it's not surprising that, by all accounts, German industry is sweating over Brexit.

However, maybe there's hope after all. As I write, I hear that Mrs May and Frau Merkel are talking Brexit in Egypt. The choice of venue could be strangely apt. Merkel's nickname is, after all, "Mummy." A good omen? Perhaps. At the very least, something might get done now the women are in charge.

Tags: Euro | Government

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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