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the countries with the lowest tax rates are the ones with the least debt

Kitty Miv, Editor
13 March, 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.

As usual during this period of fiscal stress for countries across the world, we look in vain for any cuts in taxes. But at least in Malta they are trying to improve matters for businesses through simplification of the tax system and throttling back the impositions of government. As I say that, I can already hear the offended wailings of the anti-brigade: oh, but Malta is offshore, it is a tax haven, it steals revenue from big "respectable" countries like Germany by helping banks and gaming companies with low tax rates, so that they can't get the revenue to help their poor, huddled masses to survive the rigors of the nuclear winter we are all trying to survive. Let's be clear: the "nuclear winter" is a direct result of the debts taken on by those countries' politicians in pursuit of electoral advantage, and their disgraceful use of taxpayers' money to prop up or outright take over their pals' banks which had over-reached themselves, indeed mostly by lending to those selfsame governments. Well, now then, isn't it a strange thing that the countries with the lowest tax rates are the ones with the least debt and the least-burdened citizens? How do you explain the fact that Malta, Ireland, Switzerland, and even debt-challenged Cyprus, not to mention the truly "offshore" European jurisdictions such as the Channel Islands, manage to keep their citizens in the style to which they have become accustomed with national tax takes between 20 percent and 30 percent, while spending behemoths like Germany and the UK struggle to keep their take below 40 percent and still get deeper into debt every year? Not having the OECD's budget, I don't visit all of these countries all of the time, but my personal observations certainly don't support any idea that Brits, Frenchies or Germans are richer or happier than the Maltese or the Swiss. On the contrary: entitlement breeds discontent; nanny government saps willpower and initiative, and when adversity comes, as it has now in Italy and Spain, leaves people without the weapons or the skills or the desire to better themselves. That is the deadly legacy of fifty years of "social partnership," misbegotten daughter of Beveridge and the welfare state. Amazingly, after 100 years of modern economic experience that amply demonstrate the bankruptcy of social welfare philosophy, there isn't even one shred of understanding of these basic home truths about human nature among modern-day European politicians. If anything, we are going in 180 degrees the wrong direction, attempting to preserve an unsustainable set of expensive and ruinous social policies in the face of economic reality. It's a case of mass hysteria, I am afraid, and it's going to end in disaster.

Well, having got that off my chest, let's turn to something a bit lighter, which can be the competitive, chest-beating agonizing of Hong Kong and Singapore about hypothetical fiscal problems in 20 or 50 years' time. Not for them the misery of coping with rising interest rates: Hong Kong has a budget surplus and cash reserves of about USD300bn; Singapore is coy about admitting its position, but most estimates also suggest reserves of USD300bn. Bring on the interest rates! So what can explain their self-abasement? Perhaps it's a defensive strategy: if they pretend to be poor, perhaps the non-rich goliaths of the OECD will be less horrid to them? Hmmm, don't buy it. Perhaps it's something more sinister? Maybe the bosses have already crumpled under the "rich" countries anti-low-tax blitzkrieg and need to ramp up their tax-raising credentials with their populaces prior to doubling tax rates? No, don't buy that either. Ah! I've got it! There's going to be a takeover battle between Hong Kong and Singapore; either they're planning to buy each other, or maybe they're after Shanghai? No, OK, that's silly. So then all that's left is that there is an outbreak of common sense among Asian politicians. But of course that's even sillier. The mystery is unresolved.

Common sense you surely needn't look for in the European inheritance tax labyrinth, demonstrated this week by the latest twist in the French/Swiss farrago. I'm not even going to try to opine on the combatants' positions. It's obvious to everyone (me, that is) that inheritance tax ought to be abolished. It's immoral to tax money that has already been taxed; and it's doubly immoral to get in the way of inter-generational transfers. The relationship between parents and children is fraught enough already without government stepping between them. Of course it cuts in all sorts of unexpected directions: Joe hopes that his Dad's first wife, Isobel, dies before his Dad does (bad); but he hopes that his Dad outlives her (good); but his step-sister Madeleine is conflicted because she stands to get more through her mother's will than directly from her Dad if he doesn't die first. It can make for quite funny meetings if people are laid back (better than being laid out); but often they aren't. And there is an awful lot of pretending. "How are you Joe?" That's to say, are you going to peg out any time soon? Then there's the question of where to die. It shouldn't matter, but it does, because it has to do with where you're domiciled. Joe has a house in Greece, where Isobel lives, so it's best for him not to die in the UK, because he never got round to transferring the deeds into her name, and anyway the Land Registry is so incompetent that they still haven't been issued twenty years after the purchase. Madeleine is married to a German nobleman, but they are separated and she lives in Cyprus and has cancer. There is a real danger that she might die before Joe in which case her marriage settlement (a large slice of Silesia) will accrue to him and it will be more important than ever that no-one tries to get probate in the UK. That's one good thing about foreign languages anyway: the tax authorities can't understand each other. The OECD hasn't thought of that yet. Better try to keep Google away from them, then.


Kitty's Encomiums and Execrations

Methodology: each week (this is the 95th) 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:

Hong Kong on its uppers

Malta on the right path

Singapore penniless

And Kitty's Execrations:

Switzerland puts the gloves on




Tags: Euro | Asia | Shanghai | Business

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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