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about as commonplace as red buses in Oxford Street

Kitty Miv, Editor
22 March, 2016

Kitty's Country Rankings are below, with a description of how they are compiled. 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.

It's funny how when finance ministers miss their fiscal targets it's always somebody else's fault. According to Chancellor of the UK Exchequer George Osborne, global economic factors are to blame for his latest failure to bring down the UK's public borrowing requirement. And of course, as Prime Minister Cameron's front benchers are wont to point out on a regular basis, if the previous Labour Government hadn't been so spectacularly incompetent, Britain wouldn't be in the fiscal hole that the Tories are currently trying to dig it out of. For Labour's part, the ballooning of the UK budget deficit to double-digit figures in 2008/9 and the mushrooming of the country's public debt was all the bankers' fault. Nothing to do with a half-baked financial regulatory system. Oh, no, no. But then again, Gordon Brown was busy trying to "save the world" back in the dark days of '08 and '09, so perhaps history will forgive him for taking his eye off the ball at home. Then again, probably not.

Anyway, as you've probably spotted, it was budget time in the UK last week. Or perhaps it passed you by. After all, they're becoming about as commonplace as red buses in Oxford Street nowadays. After last December's "Autumn Statement" (to all intents and purposes, a mid-year Budget announced in the winter), last summer's post-election Budget, and the swansong Budget of the former Lib-Con coalition last spring, this is effectively the fourth Budget delivered by Osborne in the space of a year. He must be all budgeted-out by now. We certainly are. Not that the youthful Osborne is showing any signs of becoming jaded. You'd think he'd be running out of ideas at this point, but the rabbits continue to come thick and fast.

However, once again, Chancellor Osborne leaves me in a bit of a quandary. For while there's stuff in the 2016 Budget worthy of praise, as ever with George, it's a case of good and bad – and I dare say ugly as well. If you run a small business in the UK, or are planning to, you're probably quite happy. The additional corporate tax cut was also a surprise, as was the decision to slash capital gains tax. Then again, you can have too much change. A recent survey by KPMG concluded that the UK is now second only to Ireland in terms of tax competitiveness. But that same survey said that tax rates were fairly low on the list of things businesses consider when measuring up the merits of various jurisdictions. First was stability. Second was information about changes. Third was simplicity. Tax rates came in fourth.

There are also nagging doubts about the public finances. The budget deficit, at 4.4 percent in 2015, is higher than Greece's, and some analysts are skeptical of Osborne's claim that the books will be balanced by 2020.

All things considered, the Budget is just about worth an encomium, given the fact that the UK's attraction to foreign investors will probably be further enhanced. But it's a qualified one. Maybe it's time to leave the rabbits in the hat for a while, George, and take stock. And, really, when are you going to get the deficit down?

Another country that feels like it's often in a state of flux is Ukraine, although sometimes this is for much more sinister reasons than the mere tweaking of tax policy. However, just how this unfortunate country will emerge from its tug-of-war between East and West, between Moscow and Brussels, is difficult to foresee at this stage. At the moment, the country has a western-facing Government that is trying to implement long-overdue economic reforms and which has long-term aspirations to become a member of the European Union. The conclusion of an Association Agreement with the EU, which includes the Deep and Comprehensive Free Trade Area, under which the country will align many of its regulations and standards with Europe, represents a major step towards Ukraine's modernization. A newly approved and comprehensive economic reform plan should also help Ukraine along this road.

However, the path is likely to be a long and tricky one. For the seventh year in a row, Ukraine registered Europe's lowest levels of economic freedom in 2016, according to the Heritage Foundation, which also found that corruption is still widespread, and the rule of law patchy to say the least. With the conflict unresolved in the east of the country, economic uncertainty persists, and the economy plunged by 11 percent last year. What's more, the continuing dominance of inefficient state industries hinders private sector growth. These are hardly prime conditions to nurture an economic renaissance, although you can't knock the Government for trying. The key questions is: how long will Vladimir tolerate Ukraine's dalliance with the West?

In more peaceful and less turbulent times, Kiev would certainly seem worth a visit. But maybe I'd go by train. Why? Well, aviation has lost its romance, hasn't it? Now it's just another means of mass transportation. Long gone are the days when you could drink and smoke yourself around the world in comfort aboard a De Havilland or a Dakota. Now they trap you in the airport terminal for three hours before take-off, and subject you to various interrogations and searches. Then they pack you into your Boeing (even the plane names are prosaic) or Airbus like proverbial sardines, and if you're lucky they'll feed you something in a plastic tray, with plastic cutlery. Usually this something is laden with salt and sugar, so no wonder little Timmy is having trouble settling in the seat behind you. I used to marvel at the fact that I was traveling seven miles above the earth at close to the speed of sound. Now I just pray I can sleep through the ordeal!

So, I'm hardly the person to stick up for the global aviation industry, which has had its fair share of troubles since the financial crash. But, I do feel some sympathy for it. Typically, the sector's profit margins are wafer thin, so I can understand the rush to "no frills" flying. And it certainly doesn't help when governments decide to stick ill-thought-through and arbitrary taxes on aviation, more especially on passengers themselves. As reported last week, IATA hit out against Germany's flight ticket tax, which is, ostensibly, an "environmental" tax. However, it's hard to say whether it has stopped people flying from German airports (and, as the theory goes, reduced aviation emissions), because the statistics probably don't reflect those who are now flying long-haul from the Netherlands, or Belgium, or France, or Denmark etc., etc.

Perhaps the most cynical and onerous aviation tax is the UK's APD, another supposedly "green" tax , which has done not a shred of good for the environment but which is netting the Treasury about GBP2bn a year in revenue. This adds up to GBP142 to the price of a ticket for a journey of more than 2,000 miles, and must considerably hike up the cost of a family vacation beyond Europe. Indeed, various Caribbean governments have lobbied the UK hard over this issue, having seen a noticeable dip in tourist numbers.

What is particularly pernicious about APD is that the Government knows it has a captive audience; when you live on an island, there's no nipping over the border to the nearest French or Dutch airport, as the Germans reputedly do. However, this state of affairs may not last much longer, if the devolved Scottish Government exercises its power to reduce or eliminate APD in Scotland. I sincerely hope it does. Glasgow Airport could be about to get very busy.

 

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

United Kingdom attractive

Ukraine trying

Kitty's Execrations

Germany bad tax

 

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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