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the forces of radical change might be about to visit France

Kitty Miv, Editor
05 December, 2016

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.

I don't know why countries bother to sort out their trade spats through the World Trade Organization's dispute resolution mechanism. Typically both sides will claim victory irrespective of what the WTO panel decides. The most recent example was last week, when the European Union claimed a comprehensive victory against the United States in the latest round of the long-running saga over tax breaks and subsidies for aircraft production on both sides of the Atlantic.

From reading the European Commission press release on the matter, you'd think it was a pretty open-and-shut case. Especially as the Office of the US Trade Representative hasn't commented on the ruling, at least not through the medium of its website. But then you get to Boeing's comments, and actually it's a pretty solid win for the state of Washington and the US after all. No wonder free trade is under threat! This is also ominous for the United Kingdom, which considers "WTO rules" as a fallback option if it fails to negotiate a suitable Brexit settlement with the EU. What "WTO rules" exactly?

Staying with confusing matters, it emerged last week that the Scottish Government is proceeding with legislation that would give it responsibility over elements of individual income tax policy, under the negotiated agreement on tax devolution with the UK Government. For me, this process all feels a bit ad hoc and messy, and likely to put taxpayers into a tangle. But perhaps I should stop being so skeptical about these arrangements.

Revenue figures relating to taxes already devolved to Scotland make for interesting reading, and suggest that Revenue Scotland, the body charged with collecting the devolved taxes, appears to be doing a good job. According to these statistics, GBP572m (USD718m) was collected from the Land and Building Transaction Tax and Scottish Landfill Tax in the first full year of the new tax department's operation. To me, this sounds like quite a lot, given that the population of Scotland is less than 5.5m and that these are two relatively minor taxes. When added to the revenues from the Scottish Rate of Income Tax, Scotland's tax revenues could grow to be fairly substantial, perhaps signaling the end of the complex block grant system which has traditionally financed Scottish public spending. Having said this, Revenue Scotland had better hope that Scots continue to make liberal use of their trash cans.

However, perhaps the most interesting development in the past couple of weeks has been the primaries for the French center-right Republican Party, which Francois Fillon won with room to spare. And what's so interesting about Fillon? After all, having served in high office…he hasn't run on an "anti-establishment" platform like, say, Donald Trump. However, his policies jar hugely with the tradition of French statism, including EUR50bn in tax cuts for corporations, de-regulation, EUR100bn in government spending cuts, and the laying off of half-a-million public sector workers. And, as if these proposals weren't controversial enough, he wants to finally scrap France's sacred 35-hour working week. What's more, at a time when we're seeing populations turn against political and corporate elites, Fillon is all for the established order of globalization, and is a firm Europhile.

Therefore, a Fillon presidency sounds like a recipe for strikes, protests, political paralysis, and more economic pain. Surely France would sooner restore the monarchy than vote for the reincarnation of Margaret Thatcher? They might even welcome Francois Hollande back. Yet, he's somehow become favorite for the top job. Why? Because the Socialist Party is effectively broken and in need of a savior, and his main rival is expected to be the highly divisive leader of the far right nationalist party. There is a long way to go between now and the elections. But the forces of radical change might be about to visit France.

Once again, this column concludes Down Under. And as you can probably guess, I'm not going to finish on a very amicable note. Indeed, Australia's rap sheet of tax-related misdemeanors grew yet longer in the past few days. First, we had further backpeddling on the backpacker tax, followed by the news that Australia is forging ahead with a UK-style diverted profits tax, a BEPS-inspired measure  that has made even the OECD a little uneasy. Then the OECD itself was on the Government's case for repeated failures to follow through on tax reform pledges.

There was one bright spot though, and it came in the form of an announcement by the Australian Tax Office that it would issue "tax certainty" letters to taxpayers, guaranteeing them that, as far as the tax man is concerned, they are fully tax compliant and that they need not fear checks or audits. However, given the upending of the tax ruling systems in other parts of the world, namely the EU, taxpayers might be forgiven for treating such promises with a pinch of salt.


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 Execrations

Australia guilty

United Kingdom messy


IFrame

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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