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in a contest of radicals, how about a victory for the bland

Kitty Miv, Editor
27 February, 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.

It is frequently said that governments give with one hand and take back with the other with tax policy, particularly at budget time. And the greatest trick of the finance minister is to do this without anyone really noticing. They don't always pull it off though, because some clever so-and-so in the media, or whose job it is to hold governments to account, usually notices such creative budgetary accounting and broadcasts it. But still they try.

Italian taxpayers must be getting used to this game of give and take. There, the Government is desperate to deliver meaningful tax cuts in line with its policy of reducing economy-strangling tax and regulation. But it's struggling to deliver. Spending must be cut, not only for the health of the Italian economy, but also under EU fiscal rules designed to prevent runaway deficits. But spending cuts are very unwise things to do for governments clinging on to power with their collective finger tips. They therefore turn to those time-honored devices, which collectively can be classified as "stealth taxes," and which are often used by finance ministers to dig themselves out of fiscal holes. These are things like sin taxes on booze and tobacco, excise taxes on fuel, etc., and various fees and charges for government services and the like. The sort of tax that most people know is there, but that can't really be seen. Eventually Italy may see meaningful tax cuts. But, all the while the country flirts with fiscal crisis, Italians will probably pay the Government back for its generosity in other ways.

Now to a country grappling with similar economic and fiscal problems: France. And like Italy, it is crying out for some firm and decisive leadership following President Hollande's troubled time in office, which was so often marked by divisions, u-turns, and gaffes.

Political punditry has become a hazardous business these days when it comes to predicting the mood of the voters. But in an era when politicians are often accused of being bland facsimiles of one another, the French election is certainly gearing up to be a colorful one. Indeed, you could say that the full spectrum of the political rainbow is represented, from a candidate on the left who wants a 90 percent income tax, to a candidate on the hard right who wants to tax foreign workers.

Controversy and radicalism also abounds in between, from Benoit Hamon's brand of utopian socialism, to Francois Fillon's distinctly Anglo Saxon fix to France's economic problems. However, perhaps the one to watch is anchored in the middle. Emmanuel Macron.

Macron describes himself as neither left nor right, and as such he could be accused of trying to please everyone, proposing to cut taxes and spending, yet increase the size of the social security net. As a former banker, at least he should be good at making things up – sorry, that should have read making things add up. Although, frankly, these days, "banker" isn't the best thing to put on your job resume's employment history when beginning a career in politics.

Macron is also staunchly pro-EU, and a supporter of free trade and globalization – the sort of views, in fact, that are more likely to get one unelected these days. Heck, he wasn't even a member of a political party until he recently started his own, so surely he doesn't stand a chance!

Certainly, Macron's background and lack of experience may count against him, but this could also be a virtue in a world growing weary of career politicians. And while he does have some political clout having served as Economy Minister for two years, he's risen rapidly from rank outsider to a front-running candidate in the space of a few weeks (remind you of anyone?).

We're all expecting France to lurch to the right in one way or another. But, if recent political trends are anything to go by, that's exactly what won't happen! Not that I'm trying to call the result. But in a contest of radicals, how about a victory for the bland!

If only life was as simple for Italy and France as it was for Hong Kong and Singapore, which have recently announced their respective 2017 Budgets. No need for major fiscal surgery in these places. Just a bit of tinkering with the tax laws here and there, to ensure their economies remain in rude health.

It's almost as if being a small, densely populated ex-British colony, preferably in the Asia-Pacific region, is a pre-requisite for economic success. Indeed, some of the similarities between Hong Kong and Singapore are quite striking. Hong Kong is six times the size of Washington, D.C., while Singapore is just 3.5 times larger than the US capital. The former's population is about 7m, and the latter's not far off 6m. Hong Kong's GDP was just under USD430bn last year, the world's 46th highest, and Singapore's was USD487bn, 41st. They are the world's freest and second-freest economies according to the Heritage Foundation.

Income tax rates in Hong Kong and Singapore are quite similar, at 16.5 percent and 17 percent, respectively, for incorporated companies, although the latter provides more opportunities for much lower effective rates. Top rates of personal income tax are 17 percent and 22 percent, respectively. PwC says Hong Kong has the third-best tax system for businesses, while Singapore is the second-best place on the planet to do business, according to the World Bank. Both legal and economic systems are largely based on English common law.

Even their long-term fiscal policies are heading in the same direction. Governments in both jurisdictions are increasing spending on health, education, and infrastructure, and are considering rises in taxation to pay for it. BEPS and new international tax transparency standards are also making themselves felt on the two territories' tax frameworks. But will rising taxes and spending mean that, eventually, Hong Kong and Singapore will become, well, just like most other high-tax, high-spend developed economies? Possibly. But such a transformation, if it happens, is likely to be a long way into the future. There's certainly no danger of Hong Kong and Singapore resembling France or Italy any time soon!


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

Singapore free

Hong Kong freer

Kitty's Execrations

Italy gives and takes

France all or nothing



Tags: Asia | Economy

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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