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apologies often sound like empty gestures

Kitty Miv, Editor
12 March, 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.

If you follow politics and current affairs, you tend to hear the word "sorry" uttered at regular intervals these days. Gaffe-prone politicians are often found to be profoundly sorry when unwittingly recorded saying – in a not-very-politically-correct way – what they actually mean for a change. Public institutions are sorry when they screw things up and ruin lives. The bankers of course were also sorry after they nearly brought the world economy to its knees. However, over-used words and phrases tend to eventually lose their impact, and oftentimes the apologies issued by ministers, senior bureaucrats, and bankers just sound like empty, robotic gestures. This leads me to the case of Michel Sapin, France's Finance Minister. Although he didn't actually use the word "sorry" in relation to the latest fudging of France's budget deficit target, he effectively apologized to the rest of Europe for the country's ongoing fiscal indiscipline with his observation that "there's a sort of irritation with France" at the moment. Sapin is confident that this time, France will meet its revised deficit target: 3 percent of GDP by 2017. And apparently the Government won't even need to raise taxes or cut spending meaningfully because existing budget plans will do the job. Really? According to Sapin, himself, France hasn't met any of its fiscal targets, either self-imposed or set by the European Commission since 2003. So his admission of France's recalcitrant ways and his rather blasé assurances that everything will work out in the end somehow don't convince. The problem is France has painted itself into a fiscal corner. Having almost taxed the life out of the French economy already, the Government is reluctant to increase tax further because it knows such a course could amount to economic suicide. The Government has also placed a lot of faith in a campaign against tax avoidance and evasion, the results of which were trumpeted recently by President Hollande. However, this will only make the merest of dents into the deficit. So that just leaves spending cuts. France can't possibly hope to achieve fiscal consolidation when it spends the equivalent of 56 percent of gross domestic product on the state. But the Government is also only too aware that cuts of the scale needed to accelerate deficit reduction would be political suicide, and Hollande has repeatedly said that there will be no Greek-style austerity in France. However, if the markets lose faith in the French Government's ability to deal with its fiscal problems, it may not have a choice.

Is there such a thing as banking secrecy anymore? It's certainly debatable. In Switzerland, still the epicenter of the private banking world, confidentiality laws remain on the statute books. But this fundamental pillar of the Swiss legal system is undoubtedly being weakened as Berne acquiesces to the transparency demands of foreign nations and plurilateral organizations, the latest of which was the joint declaration by Switzerland and Australia on the implementation of automatic information exchange in tax matters. Not that Switzerland can really be condemned for giving ground. It has been surrounded by the massed ranks of the world's tax inspectors for a number of years, and generally it hasn't given in without putting up a good fight. These days the phrase "banking secrecy" is used in a pejorative way, alongside other uncomplimentary descriptors of wealth management and offshore finance, like "tax haven,", and many people would probably denounce me for defending it. But in the hysteria that accompanies each new tax avoidance scandal in Europe, North America, and elsewhere, people tend to overlook the inexorable erosion of individual privacy brought about by each new international transparency initiative. I'd be interested to know how many of the government ministers who routinely praise the work of the OECD in this area have grasped what automatic exchange of information actually entails. Briefly, let me explain: "automatic" exchange of information means the periodic and bulk transmission of personal data between tax and other authorities, as opposed to information sent by one jurisdiction to another on request when there is sufficient grounds to suspect somebody of tax evasion. So it doesn't really matter whether you're guilty of anything or not anymore. Your precious personal and financial information could soon be beamed around the world without your consent, or, indeed, your knowledge. Not only this, we know how easy it is these days for data to leak, by accident, by design or by the sheer incompetence of the authority entrusted to secure the information. Is this a price worth paying to catch what is surely a relatively small number of people determined to evade tax? You probably know where I stand.

As Finance Minister Arun Jaitley observed recently, there is a great deal of curiosity about India among foreign investors. However, India is also famed for its epic inefficiency and bureaucratic inertia, and patience is most definitely a virtue for any investor dealing with the Indian authorities. So the Budget announced by Jaitley recently must have seemed to some like a Government traveling towards reform at warp speed, rather than the customary snail's pace, as corporate tax cuts were lined up and various tax breaks proffered to encourage vital investment in infrastructure and manufacturing. However, perhaps the BJP Government's most commendable act so far on the tax front was its sensible decision to rein in its somewhat over-zealous tax inspectors and drop tax disputes against a host of multinationals based on questionable interpretation of the law. Indeed, India seems to have got its mojo back altogether, with confidence about the economy higher than it's been for a number of years, in great contrast to the depressing pall that seemed to hang over the tail-end of the previous Congress-led Government. Whether this optimism can be translated into real progress remains to be seen. On closer inspection, the 2015 Budget only really just scratches the surface of the efforts needed to really transform India into a global economic powerhouse; by most measures, India is only the world's 10th largest economy, a statistic which demonstrates how it continues to underperform. Taxes were tweaked, rather than reformed. And the new Government has merely tinkered with the amendment to the Income Tax Act that was introduced by the former regime in 2012 to tax foreign companies buying Indian assets – a change that did so much to sour the investment environment. The Government could have just done away with it altogether. It is likely that additional clarification to this crucial piece of tax legislation will be needed, which is far from ideal. Still, as small as they are, these new steps seem to be going in the right direction.


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:

India redeems

And Kitty's Execrations:

France "sorry"

Switzerland under siege



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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