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just about worthy of praise

Kitty Miv, Editor
15 May, 2018

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.

Isn't it strange how governments seek to cut tax just before elections? It's not by happenstance, and something that has happened for eons.

However, it used to be rare that anyone under the age of 40 would be considered for the highest national office. Now, millennials are winning elections left, right, and center, politically as well as figuratively.

Earlier this month the International Monetary Fund warned the Israeli Government to maintain fiscal discipline as elections approach, with cuts to individual and corporate income tax being considered.

And last week the Australian Government showered personal income taxpayers with tax gifts in what could be the last federal Budget before elections to the House of Representatives, where the Government is formed.

There are exceptions to the rule that tax cuts come before elections. For instance, this was the case in Germany. There, the previous grand coalition government promised little in the way of tax cuts prior to last year's parliamentary elections. And the new grand coalition has certainly delivered on that lack of promise.

It emerged last week that personal income taxpayers can look forward to nothing more than tax threshold tweaks to counter the effect of fiscal drag in the next year or so. Yet, it's not as if there isn't scope for tax cuts. Substantial scope in fact. Governments at federal, regional, and local level are awash with tax revenue, thanks to a strong national economy. And according to the OECD's recent Taxing Wages report, Germany has one of the highest tax burdens on personal income in the grouping, a distinction surpassed only by Belgium and Denmark. It's rate of corporate tax is also beginning to look out of step with much of the world, especially after the tax cuts in the United States.

However, thanks to a determination not to let its coffers deplete a second time after bailing out crisis-hit Europe a few years ago, and a belief that tax revenues are extremely sensitive to global events, fiscal conservatism now seems firmly embedded in the psyche of the German Government, at least as far as the Christian Democrats and its leader Angela Merkel are concerned.

For taxpayers, this dogged commitment to prudence is something of a double-edged sword. On the one hand, at least taxpayers can be reasonably confident that nasty surprises won't jump out at them further down the pike. But, on the other, don't hold your breath waiting for a tax cut – at least not a significant one.

It's also worth noting how, in its last report on the German economy, released a couple of months prior to the 2017 elections, the IMF made several references to the need for Germany to now cut taxes on workers, rather than the other way around. That Germany chose to largely ignore the IMF's (rare) advice to cut tax demonstrates that some things certainly don't change!

Australian taxpayers, by contrast, are almost facing the opposite scenario to their counterparts in Germany. There, personal and corporate income taxpayers have been promised fairly significant tax cuts. But, with an election looming large, the risk is that the current Government will no longer be around to deliver them – if indeed it is able to, if reelected.

Because the Liberal/National coalition is a relatively weak government, it is not in a position to deliver sweeping changes to the tax system. Hence, it's propensity to legislate for tax cuts over extended periods, as with the 10-year Enterprise Tax Plan, and its newly announced seven-year personal tax cut plan.

Again, this is an Australian policy that could have drawbacks as well as advantages.These multi-year tax plans allow taxpayers more time to adjust to change, but they also provide the political opposition more time to stop them in their tracks. We've already seen the Enterprise Tax Plan, under which corporate tax rate was supposed to be reduced for all companies to 25 percent by 2026, failing to be approved due to a lack of support in the Senate, where the Government lacks a majority. And with the opposition Labor Party having said that corporate tax cuts are not a priority, it's anyone's guess what's going to happen next. But at least the current administration is trying to cut tax, even if its days are numbered. That's just about worthy of praise, I suppose.

Matters aren't helped by Australia's confusing electoral cycle, with both the lower and upper houses up for re-election, but on different schedules.

Elections for one half of the Senate, representing those members from the states, can be held from August 4, 2018, but no later than May 18, 2019. Meanwhile, the full House of Representatives and the other half of the Senate (representing the territories), must be held no later than November 2, 2019. Unless there is another "double dissolution" like there was in 2016.

Under this procedure, when parliament is deadlocked on a certain legislative issue, the Prime Minister can call for both houses to be dissolved, triggering a full general election.

There's no suggestion that Prime Minister Turnbull will use this constitutional lever a second time with the upcoming elections providing an opportunity for things to be freshened up politically. But it certainly adds to the intrigue. This is unfortunate for taxpayers, who tend to have an aversion to cliff-hangers, preferring to know the plot well in advance. However, with some state elections coming up too, voters in Australia, where voting is compulsory, must be growing weary of trudging to the polling booths, tax cuts or no tax cuts.

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 tries

Kitty's Execrations

Germany unpromising

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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