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an unpalatable fact of the modern, globalized world we live in

Kitty Miv, Editor
18 April, 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.

I didn't think it was possible for the US tax system to get me much worse, but according to the American Action Forum, that is exactly what has happened. In the United States (and elsewhere), an astonishing amount of time is wasted on compliance; headline findings from the AAF report (released with depressing timing to coincide with tax filing season in the US) include the announcement that the total "paperwork burden" relating to tax compliance has increased in 2016 to 8.9bn hours, costing beleaguered taxpayers in the region of USD1.8 trillion. Not exactly a great use of resources!

Abroad meanwhile, the response of the major powers to the leak of the Panama Papers has been as depressing as it has been predictable, typified by Germany's "10-point Plan" and France's call for yet another blacklist – because they've worked wonders over the last 20 years, haven't they! Needless to say, it has largely been a knee-jerk, ill-considered response, which plays to the gallery of an angry public braying for blood.

Another, more worrying thought occurred to me as I considered the fallout from the Panama leaks: perhaps we are truly heading for an age of total transparency. The thought sent shudders down my spine, and still does. But there is a kind of dark logic supporting the idea.

We have seen some of the world's largest and most sophisticated organizations, including multinational companies and governments, succumb to computer hackers in the recent past. And such data breaches are on the rise. According to online security firm Symantec, almost 430m personal records were stolen from computers last year. However, the really disturbing finding was that the number of companies refusing to disclose whether they had been hacked jumped 85 percent, so it is likely that the real figure is much higher.

There has already been talk in certain countries, including in the UK, that tax returns – traditionally that most private of documents, next to one's medical records – should be made public. It happens in Norway, and they seem pretty happy about it. But why don't we go the whole hog and make everything transparent. Perhaps if things were made more transparent, there'd be fewer opportunities for hackers.

So, to lighten the mood a little, 50 economists walk into a bar – what happens next? Honestly, I don't know, but it sounds like there's a good joke in there somewhere. Maybe they start putting the law of diminishing marginal returns to the test on the proprietor's finest single malt. Ceteris paribus, of course. Anyway, there was in fact a bit of a joke involving economists in the news recently. The one involving a letter signed by 50 of them imploring the Australian Government not to cut corporate tax. This in a country which now has an unfashionably high rate of corporate tax, at 30 percent, and is beginning to trail the pack of leading industrial and developing economies by some margin, the OECD average now being about 24 percent. Not that Australia should cut corporate tax just because it's the trendy thing to do. It should do so in order to keep apace.

Of course it's also easy to make the case for the opposite, as the aforementioned economists have, that this is a matter of fairness, and that the Government should put the vulnerable in society first, and not, as the letter argues, give tax cuts to big business. All of which sounds wholesome and worthy, but Australia is in a bit of an economic and fiscal hole at the moment, having suffered particularly badly at the hands of the commodity price collapse. It needs investors – investors who will pay taxes and employ people who will pay taxes – but they are unlikely to come if taxes are too high to begin with, and that is just an unpalatable fact of the modern, globalized world we live in.

It has actually been the Liberal/National coalition Government's intention to cut corporate tax, but they have been hamstrung for most of their current mandate by very limited fiscal space and the lack of a majority in the Senate. However, I get the feeling that Prime Minister Malcolm Turnbull won't be the slightest bit moved by the economists' pleas given what he has been saying recently about promoting investment and creating a more diversified Australian economy.

 

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

Australia diversifies

Kitty's Execrations

Germany knees jerk

United States complex

 

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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