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economic growth versus carbon reduction

Kitty Miv, Editor
16 November, 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.

There seems to be no limit on the type of information that governments are now willing to exchange with each other. First it was details about people's bank accounts, then it was company transfer pricing information, swiftly followed by tax authority rulings in the European Union and, now, the EU wants to share information on beneficial ownership.

For the time being, bulk information exchange mechanisms remain restricted to the area of taxation. But what next I wonder? Maybe governments could keep an eye on our eating and drinking habits in their fight against obesity and excess and their associated health problems. They could then tailor their "sin" taxes to the individual accordingly, leaving the more virtuous among us unpunished. Perhaps governments could exchange photographs of vacationers tucking into a hearty supper after lazing on the beach all day. Then again, they wouldn't really need to. People already do that on Facebook.

Anyway, I wish to raise a serious point, something I've warned about before in this column: privacy. Like most people, I support international efforts to crack down on tax evaders, criminals, and corrupt officials, but it seems that governments have blinded themselves to the dangers of near-ubiquitous automatic exchange of information. We know how easy it is for hackers to access supposedly secure electronically stored information of all types. Why does the OECD, for example, think the exchanges under the Common Reporting Standard will be so secure?

I guess the answer is that the OECD thinks the confidentiality safeguards in place are more than adequate. Many observers beg to differ however, including international law firm Withers, which warned earlier this month that the CRS "exposes the great majority of tax-compliant individuals to the risk of data breaches (e.g. hacking) when their data is transferred. This data includes detailed confidential information, such as the name and date of birth of the account holder, the name of the bank and the account number, as well as the account balance."

Partner Filippo Noseda added: "There are also concerns where information is exchanged to countries with low levels of personal security and a number of countries who have jumped on the CRS bandwagon also feature prominently on Transparency International's Perceived Corruption Index. This problem is exacerbated by the fact that a lot of information exchanged under the CRS is irrelevant for tax purposes, which leads to an over-exposure of compliant clients to systemic risks in their country of residence."

It would be very ironic indeed if the CRS ends up providing opportunities for further criminal activity, rather than reducing them.

If automatic information exchange is approaching its tipping point into mainstream acceptance, the same cannot be said for free trade, which has perhaps reached a high-water mark. Trade is a politically sensitive issue, and the merits or otherwise of free trade could be debated ad infinitum. But it seems fairly evident, given recent political developments, particularly in the United States, that times they are a-changing. President-elect Donald Trump has been disparaging – to put it mildly —about the terms of the North American Free Trade Agreement, as well as the Trans-Pacific Partnership, the latter of which is held up by some as the template for a modern, hyper-regional free trade agreement.

It's fairly safe to assume that the US won't be ratifying the TPP anytime soon, leaving the treaty's fate uncertain (although there's nothing to stop the remaining participants from making a decent fist of it, or even plugging into the expanding network of Asian FTAs).

And things aren't entirely bleak for supporters of free trade. The World Trade Organization recently announced that tariff cuts under the expanded Information Technology Agreement are well advanced, especially after China submitted its ITA expansion commitments to the WTO last month. A clutch of major economies has also expressed enthusiasm for doing trade deals with a post-Brexit United Kingdom.

However, for the WTO, the number of protectionist measures imposed by members of the G20 group of leading economies remains "a real and persistent concern." Certainly, the 85 new trade-restrictive measures imposed by G20 countries between mid-May 2016 and mid-October were offset to a large degree by the 66 trade-facilitating measures put in place during this period, according to the WTO's 16th G20 trade monitoring report. However, the overall stock of restrictive measures has increased by 5.6 percent compared with the previous report, with the total number of restrictive measures now standing at 1,263. WTO Director-General Roberto Azevedo said progress in eliminating existing measures remains "elusive," and I think we can expect this number to grow in the coming months.

Indeed, we seem to be in an era of turning points, and I just wonder also if we are seeing opinion start to form against carbon taxes and carbon pricing schemes. This is despite the number of implemented or planned carbon pricing schemes around the world having almost doubled since 2012, and with revenues from them now worth about USD50bn.

The World Bank recently spoke of the "inevitability" of carbon pricing as nations look to fulfill their emissions reduction commitments under the Paris accord. Recent developments suggest that carbon pricing is far from inevitable in certain parts of the world. And again, the election of Donald Trump, a climate change skeptic, is a key development that pretty much assures that there will be no national carbon pricing plan in the US for the foreseeable future.

A Trump White House does not prevent state governments from putting in place their own carbon reductions schemes, and some speculate that the US could end up with a "back door" carbon tax if enough states do so. Yet, voters in Washington state have rejected a proposal to introduce America's first pure carbon tax, and other states hardly seem to be in a hurry to tax greenhouse gas emission either.

We have also seen recently a degree of hostility in the Canadian provinces to Prime Minister Justin Trudeau's proposal to put in place a national carbon tax. For instance, Saskatchewan Premier Brad Wall said last week that the province's economy would be "especially vulnerable" to carbon tax. The Canadian Taxpayers Federation said last month that the national carbon tax plan is little more than a revenue grab, and is likely to have "no substantive impact on global climate change." Even in the home of the Paris accord, the French Government has dropped plans for a carbon tax on energy derived from coal to prevent job losses.

In Canada at least, opposition to the national carbon tax seems to be rooted in the proposal's bad design, rather than concept of carbon pricing per se. However, the theme that is emerging here is economic growth versus carbon reduction. And with many people all over the world feeling increasingly vulnerable economically, perhaps, for a while at least, expedience will trump idealism – no pun intended.


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

China plugged in

Kitty's Execrations

Canada smolders



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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