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don't go expecting radical change

Kitty Miv, Editor
19 September, 2017

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.

Ironically, for a nation synonymous with neutrality, Switzerland now finds itself in the unwelcome position of international pariah. And this is largely as a result of other things it is synonymous with low taxes for the wealthy and multinationals, cast-iron banking secrecy, and a culture of individual privacy enshrined in law. Such an economic model is now simply incompatible with a world rushing headlong towards transparency, for better or for worse. Otherwise the Swiss authorities wouldn't have to host delegations from the likes of the European Parliament's "PANA" Committee.

Nevertheless, it is a model that has served Switzerland very well. The CIA's World Factbook states that low corporate tax, combined with economic and political stability, exceptional infrastructure, and efficient capital markets "make Switzerland one of the most competitive economies in the world." GDP per head was an estimated USD59,400 in 2016, higher than in the United States, and in the world's top-20.

However, there are signs that the strain is beginning to tell. In the United States, Swiss banks have been on the naughty step ever since the 2008 tax evasion affair involving Swiss banking giant UBS, and the frequency with which Swiss banks are linked to tax avoidance scandals elsewhere in the world, particularly in Europe, must have inflicted some reputational damage on the Swiss banking sector. We cannot draw a certain link between this and declining assets held by the Swiss banking sector, although it's surely more than a mere coincidence. While it's far from a crisis, it remains to be seen how far things will have to change for Switzerland to win international acceptance, and, indeed, how far Switzerland itself is prepared to go.

We go Nordic again this week, and such reputational crises are unlikely to be suffered by Scandinavian nations any time soon. Yet, for a region where fiscal fairness is deep-rooted, and social democracy abounds, there aren't many social democrats to be seen in Scandinavian governments right now. Indeed, conservatism seems to be all the rage.

Denmark, lauded by America's best-known social democrat, Senator Bernie Sanders, is actually ruled by the center-right Prime Minister Lars Lokke Rasmussen of the Venstre Party, which is in coalition with the conservative People's Party, and the libertarian Liberal Alliance.

Meanwhile, Norway has just re-elected its conservative Prime Minister Erna Solberg (albeit with a reduced number of seats in parliament). Her Hoyre Party will govern in coalition with other parties on the right of Norwegian politics.

Over in Finland, Prime Minister Juha Sipila leads the Centre Party, but it's fair to say that as a unit, the governing coalition leans right, not left.

Even in Sweden, the Social Democratic Government lacks a majority in parliament, and must govern with the support of the right.

And the influence of conservative polices can be seen in recent tax developments.

Denmark, as mentioned here recently, has just proposed a package of tax cuts designed to encourage people from welfare to work.

Hoyre's election manifesto was sprinkled with tax proposals cutting taxes for small businesses and investors, and peppered with conservatisms such as "We will restrict the growth in public expenditure," and "stimulate investment, private enterprise, and private ownership," and "Private ownership is fundamental to future prosperity in Norway."

Conservatives in Sweden also scored a major victory for their cause recently, by making the Government drop plans to change the controversial 3:12 tax scheme for small businesses, and include proposals to ease the tax burden on start-up enterprises in return for supporting the 2018 Budget.

Still, conservatism is relative, isn't it? I mean, if you transplanted the Norwegian Conservative Party to the US political environment, they would probably appear somewhere in the middle of the ideological band. Some even say they would be considered center-left. So where does that put Bernie on Scandinavia's political spectrum, I wonder?

Anyhow, don't go expecting radical change in Scandinavia's tax and economic policies for the foreseeable future.

We move from the earthly world of Scandinavian politics to the abstract world of cyber space now, and, as I touched upon last week, there is a certain inevitably about the digitalization of economies. However, the jury remains very much out on the issue of virtual currencies, of which Bitcoin is the most visible (sort of) example.

Bitcoin appears to be gaining increasing regulatory acceptance in some parts of the world. In Australia, for example, the Government recently introduced legislation to ensure that virtual currencies operate on an even tax playing field with "physical" money. Treasurer Scott Morrison hopes that the legislation will make it easier for new innovative digital currency businesses to operate in Australia, and some offshore financial centers are already vying to become leading jurisdictions in FinTech expertise.

On the other hand, regulators and tax authorities in other parts of the world seem deeply suspicious of virtual currencies, given the anonymity they provide to users. A notable example is the United States, where the Internal Revenue Service obtained a court order in December 2016 compelling bitcoin exchange Coinbase to produce records identifying US taxpayers who have used its services.

Indeed, there are some who believe that sooner or later, the whole Bitcoin architecture will come crashing down (virtually speaking of course), leaving owners of bitcoins with little more than worthless pieces of computer code. One of them is JP Morgan CEO Jamie Dimon, who was widely reported recently to have predicted the eventual demise of the virtual currency, likening it to the Dutch tulip bubble of the 17th century. But the banks, whose business very much remains currency of the "real" – as opposed to the virtual – variety, would say that, wouldn't they.

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

Norway stimulates

Australia innovates

Kitty's Execrations

Switzerland pariah



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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