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What have the Romans ever done for us?

Kitty Miv, Editor
27 April, 2015

Kitty's Kountry Rankings are below, with a description of how they are kompiled. This week, as every week, I give out Encomiums to countries which have done Good Things, and award Execrations for countries which according to my highly personal and partial views have done Bad Things.

"What have the Romans ever done for us?", Reg, played by John Cleese, asks his fellow anti-Roman insurgents in a memorable and amusing scene from the movie The Life of Brian "apart from better sanitation and medicine and education and irrigation and public health and roads and a freshwater system and baths and public order?" You could ask a similar question when looking at your paycheck or tax return and discovering how much you are paying in tax, i.e. "what has the Government ever done for us?" The answer to that will vary greatly depending on where you live. If you live in Europe, the Government probably does quite a lot for you, regardless of whether you want it to or not. The Scandinavian countries stand out as providing the most comprehensive "cradle to grave" welfare states. But Austria must come pretty close. Indeed, I discovered recently that Austrian families are supported more generously by government than any other country in Europe, to the tune of almost three percent of the country's GDP. Child care for example is heavily subsidized, and parents are encouraged to keep their children in education as long as possible, with monthly credits which can last until the "child" is 26 years of age. And, like neighboring Switzerland, Austria invests heavily in infrastructure. Despite extremes of temperature between winter and summer, the roads don't seem to crumble away every year like they do in some countries with more temperate climates, and, of course, the trains are reliable and punctual. But at what price do trains run on time? A lot of tax, that's what. Indeed, the reason I bring this up is because of a news story on the Government's tax cut plans. I had to read the following fact more than once to make sure I hadn't misread it: you start paying income tax at almost 40 percent in Austria when your salary hits EUR25,000 a year. That means Austria's lowest tax bracket (leaving aside the 0 percent allowance) is at roughly the same as the top rate in the United States. What's more, the 50 percent rate kicks in at EUR60,000, which seems criminally low; the Brits are currently tearing themselves apart about a 50 percent rate on incomes above GBP150,000 (USD225,000). The tax reform bill will ease the tax burden somewhat for those earning up to EUR18,000, but the introduction of six brackets instead of three isn't likely to have much of an effect on everyone and will probably just complicate things. Ok, most Austrians might be content with this arrangement, but boy do they have to pay for it! Reg and his gang had to suffer the iron fist of Roman rule to enjoy some of the benefits of civilization. And so Austria's citizens must suffer some of the highest tax rates around for first-class public services. Too high in my opinion.

Canada has been praised a few times recently in this column for its prudent fiscal and economic management. Unlike the rest of its peer countries in the rich nation club, it didn't have to bail out its banks, and the stultifying hand of austerity barely touched North America's largest country. So impressed was the British Government with Canada's economic track record that they head-hunted Mark Carney to govern the Bank of England. Although, the "macro manure" piling up under the British economy, mentioned here last week, may be beyond even Carney's powers to rectify; he's a competent central banker, not an economic miracle worker. Anyway, back on topic. Canada's latest encomium comes as a result of the announcement in the 2015 Economic Action Plan that the budget has been balanced, and that the Government intends to run a surplus from now on. The budget will be underpinned by a new fiscal law that allows an "acceptable" deficit only in times of war, or natural disaster, or some other exceptional circumstance. The Government is also cutting the small business corporate tax to below 10 percent, a move generally praised by investors. However, I do find myself agreeing with CPA Canada, which stopped short of awarding Finance Minister Joe Oliver an "A grade" because the Budget was rather safe. Perhaps Canada can afford to be a bit bolder, addressing underlying complexity in its tax system, and high individual taxes, which perhaps undermine the policy of low corporate tax rates. But then the Government is unlikely to want to roll up its sleeves and tackle comprehensive tax reform with a general election six months down the track. Still, given that this will be the last Budget before the election, the Conservatives have been quite conservative. You'd think that with votes up for grabs, they'd be tossing tax cuts at various target groups like confetti. Certainly many governments would be, most without really considering the fiscal consequences of their actions. That the Harper administration hasn't done this could actually be construed as another feather in its cap.

Most of us that live in democratic countries are probably thankful that we do. But elections can be a messy business and politicians are apt to promise things they can't deliver, knowingly or otherwise. President George H. W. Bush never really lived down his "read my lips..." pledge after later agreeing to raise taxes, although his detractors do tend to forget that he was rather hamstrung by a Democratic Congress at the time. Still, it serves as a warning to any aspiring leader that you should be wary of promising things that will be difficult to keep. Unless you live in China that is, where the upper echelons of the political elite of the People's Republic don't really have to listen to the people because they're not directly elected by them. This system has allowed the Chinese Government at times to treat the country as a giant laboratory for its tax reform ideas, notably a proposed property tax, which is being trialled in Shanghai and Chongqing, and now free trade zones, also established in Shanghai on a pilot basis, and which will soon be extended to other cities and regions. I suppose the FTZs are a good idea, in that they are designed to encourage foreign investment and mark another milestone on China's slow journey towards economic liberalization. China has a long way to go though. The one-party system is well entrenched and, according to the Heritage Foundation, economically China is still "mostly unfree" with a great deal of ground to make up before it can even be considered "moderately free." As Churchill said, democracy is far from perfect, but it's the best of a bad bunch of systems.

 

Kitty's Encomiums and Execrations

Methodology: each week (this is the 147th) one or more countries are given encomiums and one or more 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 is at minus 2, 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, but reverting to neutral territory in the following week, then dropping to minus one in week 50, and back up to plus one in week 51, then to plus two in week 52. Some weeks ago it dropped a place, but then quickly recovered one step. Etc etc.

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:

Canada prudent

China freeing up

Kitty's Execrations

Austria paying a high price

Ciao

Kitty



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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