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the bitter stubble of seven years of left-wing Labor rule

Kitty Miv, Editor
22 May, 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.

There is a tale of two countries Down Under this week, with both New Zealand and Australia launching their annual budgets. Both have right-wing governments, but whereas New Zealand is reaping the harvest of four years of sensible, low-key, pro-business taxation policies, turning in annual surpluses as far as the eye can see, Australia's equally pro-business government is left with the bitter stubble of seven years of left-wing Labor rule, and is forced into a tax-raising budget to try to repair some of the damage done to the economy by Labor's spendthrift policies. The Australian Labor Party did occasionally make gestures in the direction of business, but that's all they were – virtually every substantive measure taken by the last government was either populist or overtly negative for the economy.

One other important difference between the twin countries, one much bigger than the other, obviously, is that whereas New Zealand has a unicameral Parliament, with no upper house and no competing provincial legislatures (there used to be both, but they were abolished, in the 20th and 19th centuries, respectively), Australia has a real dog's dinner of a legislative constitution, with an upper house (the Senate), elected on a different timescale to the lower house, and with extensive possibilities to change or impede a government's legislative program if it doesn't have a majority in both houses. In addition, the states of the Commonwealth of Australia have significant legislative powers of their own, including over some aspects of taxation. Given the lengths that the framers of the Constitution went to in order to deal with potential stand-offs between the chambers, it's obvious that they were aware of the dangers, so you have to ask yourself why they persisted. Yet they did, and the result is a situation in which an elected majority in the lower house can be completely hamstrung by an antipathetic Senate (does this remind you at all of another large, English-speaking republic?) The constitutional solution prescribed, after the upper house has twice defied the will of the elected parliament, is a "double dissolution," in which both houses are dissolved and new elections take place, and that's what we seem to be heading for now, given that the Senate has dug itself into a position of entrenched enmity to some of the Government's tax proposals. "Checks and balances" are all very well, but this just doesn't seem to be a sensible way to run a country; Australia's current experience seems to bear out the evidence coming from the United States that in modern, over-politicized countries, 19th century legislative contraptions are past their sell-by date, and need root and branch reform. Blame the media, I suppose. One problem (or advantage, depending on your perspective) that Australia doesn't have is a President, since, like New Zealand, it has a (totally powerless) Queen. Canada's constitution, for the record, is closest to that of Australia in legislative terms, but with the crucial difference that the Senate is appointed rather than elected, constructive rather than destructive, you might say.

It would be a brave girl who asserted that she understood the economic situation of Egypt, except to say that it is dire; but it seems a reasonable proposition that the IMF (from which the government is hoping to borrow USD15bn or some such number) was behind this week's five percent increase in the top rate of tax. Individual well-off Egyptians are round about 99 times cleverer than any government they have had in the past 50 years or are ever likely to have, so this has to be regarded as a piece of window-dressing. But other IMF prescriptions this week also follow the usual tax-increasing path: in Luxembourg it's VAT and property taxes; in Lithuania it's property taxes and vehicles; in Latvia it's the flat tax thresholds. And here is a particularly abysmal example of first world high-taxing double-speak applied to a troubled third-world country: "eliminating tax exemptions that have little benefit for production but undermine growth-enhancing spending and constrain vibrant private sector growth." If these weasel words are capable of any translation into understandable English at all, they seem to be saying that giving tax incentives takes away from government spending. Excuse me, but there is no such thing as "growth-enhancing spending." All spending is bad. What planet does this person live on? I am reminded of The Gipper's famous joking words: "I'm from the government, and I'm here to help."

I have to admit however to being slightly conflicted over the IMF, given that, as part of the Troika, it is playing a useful role in controlling the spending of bankrupt EU countries that have proved unable to manage themselves. I suppose that, like the OECD, another sprawling, undirected organization, the IMF has good bits and bad bits. Trouble is, we only seem to hear from the bad bits: the horny-handed sons of toil working away at the coal-face persuading Finance Ministers to stop spending money get no recognition, while the Article IV tax-and-spend brigade get all the kudos. Which side is the management on, I'd like to know?

Attacking the IMF may be a fairly futile exercise in the short term; but the OECD seems more vulnerable. Its recent "BEPS" propaganda onslaught against multi-national businesses has started to run into the buffers, with a growing chorus of negative responses to such idiocies as translated country-by-country reports and the proposed separation of digital business from non-digital business for tax purposes (at least we now know which century they're living in, and, hint, it isn't the 20th or the 21st). They are living in the century of nation states, which is of course an accurate reflection of their membership. With any luck, we will find that they have over-reached themselves, and they will implode. I continue not to understand why the business world has failed to create a countervailing organization to fight against the OECD's statist doctrines. But perhaps the ever-wise bosses of the world's MNEs have simply calculated that the OECD, in its overweening arrogance, will bring about its own downfall, leaving behind an international community of nations even less coherent than it was before the OECD's arrival on the world stage.

 

Kitty's Encomiums and Execrations

Methodology: each week (this is the 105th) two or three countries are given encomiums and two or three 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 neutral, 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 in a corner

New Zealand steady as she goes

And Kitty's Execrations:

Egypt clutching at straws

 

Ciao

Kitty


Tags: Government


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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