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state coffers seemingly filled to the point of bursting

Kitty Miv, Editor
30 October, 2014

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.

Isn't it about time that Germany's long suffering taxpayers got a bit of relief? As with much of Northern Europe, there is a consensus in Germany that if you want some of the best and most efficient public services in the world, then you have to pay for them through taxation. Even so, it is no secret that Germany is one of the world's most-taxed nations, and yet the Government has steadfastly refused to offer even the most modest relief despite state coffers seemingly filled to the point of bursting by successive increases in tax revenues, including, as official figures show, an almost 5 percent year-on-year rise in September 2014. The Government's stance on tax cuts was reaffirmed by Finance Minister Wolfgang Schäuble back in May this year when he said that, apparently, the Government doesn't have enough fiscal room to even raise income tax thresholds, a perennial gripe of German taxpayers. The Government's absolute priority, said Schäuble, is balancing the budget by 2015. And when you look around the eurozone and see the basket case that various parts of it are becoming economically, I suppose you can't blame the German Government for this fiscally conservative stance. It was Germany after all that financed a substantial chunk of the Greek bail-out, and recent economic data from the Eurozone must have sent a few shivers down the spines of the Finance Ministry's top brass. Then again, perhaps releasing the fiscal brake a little might actually help a Germany economy slipping into stasis.

On a similar note, after Finance Minister Nhlanhla Nene warned recently that additional revenue measures will be required in the 2015 Budget, South Africa's taxpayers must be wondering what the Government has been doing with all the extra money it has coined over the past few years in what must represent the largest and swiftest enlargement of a tax base in modern history. The drive to increase the number of people and businesses (which are essentially the same thing, as Margaret Thatcher pointed out in the 1980s) in South Africa paying tax has been remarkably successful. In 1994, there were only 1.7 million registered taxpayers in South Africa. By 2010, this had swelled to 6 million. Growth in the number of corporate taxpayers has followed a similar trajectory. Meanwhile, the South African Revenue Service maintained a compound annual growth rate in tax collections of 13.2 percent from 1994-95 to 2011-12. It is undeniable that South Africa has some unique problems as attempts to unite the country racially continue 20 years after the abolition of Apartheid, and the State has an important role to play here. But while governments are good at spending, history tells us that they are not the wisest of spenders – natural enough when you are spending other people's money, and not your own. The Government has no plans to cut spending though, and with a 4.1 percent budget deficit having opened up, the books will only be balanced through increased taxation. With economic growth slipping, the signs are beginning to look quite ominous for South Africa.

Surveying this week's news output, I'm struggling to find any real positives for taxpayers. I was going to try and give a qualified encomium to Hungary after Minister of National Economy, Mihály Varga, reaffirmed the Government's commitment to implementing a flat rate of corporate income tax and to shifting the burden of taxation away from income and onto consumption, which is generally agreed to be a more growth-friendly way to raise taxation. But I decided not to because the qualification probably outweighs the good news. In addition to restating the Government's long-term tax goals, Varga said that it intends to expand the range of "sectoral" taxes that Hungary is using as part of its "economic stabilization" plan, including an extension of the special tax on telecommunications to include the internet. With the advertising industry already up in arms about a special progressive tax on turnover up to a steep 40 percent, and the special bank and retail taxes having attracted the legal eagles of the European Commission, it is fairly obvious that the internet tax, whatever form it takes, will be challenged too, fueling uncertainty about future tax policy. Lower income taxes are a nice idea. But I've seen too many Governments have nice ideas, only for them to turn nasty when the ambition doesn't quite match the reality. Perhaps it would have been better to keep aspirations more in line with present fiscal conditions.

So this week's sole encomium is awarded to Australia, for its apparent efforts in hacking back tax and regulatory red tape on small businesses. I say "apparent," because again, it comes with a qualification. Australia is already highly rated on the various measures of how easy it is to do business and pay taxes in various jurisdictions around the world. In this year's Doing Business report by the World Bank, Australia is ranked 11th out of 189 nations in its Ease of Doing Business league table, and it is 4th overall in terms of how simple (or nightmarish) it is to start a business. So the Australian Government deserves some praise for going the extra mile to make the country better still as a place to run a company. But it would be interesting to hear the views of business owners on the ground to see whether they agree with the Government's claim that a veritable forest's worth of legislation and regulation has been felled and has made a difference to their everyday lives. Many Governments like to claim they are on the side of the SME, and they tend to elevate the hard-working self-employed tradeswoman or aspirational entrepreneur to near-hero status (remember Joe the Plumber?). But rarely do these platitudes translate into real action. Some British taxpayers for example might recall the much-vaunted Office of Tax Simplification (OTS), created by the Coalition Government in 2010. Others might have only a rather hazy memory of it because the OTS seemed to float gently out of consciousness sometime in the past couple of years. In the main, it is Governments' instinct to legislate, rather than to de-legislate, so it wasn't surprising to learn earlier this year that, according to the Association of Chartered Certified Accountants, the UK's tax system has become more complex since the OTS was launched, rather than less. The huge volume of anti-avoidance legislation passed in the last four years must have something to with this, as the UK scrambles to bring its budget deficit under control. And Australia is similarly on its fiscal uppers at the moment, so it will be interesting to see whether Tony Abbott's Government is still as committed to its simplification and anti-red tape agenda when the end of its current term approaches.


Kitty's Encomiums and Execrations

Methodology: each week (this is the 128th) 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 plus 1, 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 and now it's on plus 1 again.

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 simplifies

And Kitty's Execrations:

Germany scrooge-like

Hungary misguided

South Africa where's the money gone?





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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