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the logical extension is for countries to promote themselves on social media

Kitty Miv, Editor
30 November, 2015

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'm not a fan of social media. For me, it trivializes the huge advances that have been made in information and communication technology in recent times. As I mentioned last week, it's technology that we tend to take for granted, but we could only dream of it 50 years ago. And what do we do with it? Show our friends what we're eating for supper, and make amusing videos about our pet cats. For my part, I'm still in awe of video-calling, that I can open my laptop and see loved ones in far-flung parts of the world, as well as talk to them. I'm not, however, that interested in seeing a photo of what they had for dinner last night (a rather mouth-watering Argentinian rib-eye steak if you must know, washed down with a hearty Merlot). But anyway, I'm clearly just an old curmudgeon who is horribly out of step with the modern world.

Nevertheless, what I do recognize is that for businesses of all sizes, from the kitchen table up to the Fortune 500, social media is indispensable, and those that fail to embrace it can expect to reach significantly fewer potential customers than their rivals. And I suppose the logical extension to this is for whole countries to promote themselves to investors on social media. I might be wrong, but I don't think this is an idea that has caught on much yet. Therefore, I'm awarding an encomium, albeit through gritted teeth, to the British Virgin Islands, which has had the forethought to try and gain an edge on its competitors (other offshore financial centers) by launching its own social media campaign. At least the BVI hasn't told us what it's having for dinner tonight. But I imagine it's going to be seafood.

Malta is the smallest economy in the euro zone, yet is has come through the European economic storm in much better shape than many of its more economically powerful fellow member states, and this despite a number of handicaps that might have sunk a country of similar economic stature. For starters, its natural resources are limited, and it imports about 80 percent of its food and most of its energy. And as a small island nation, Malta is highly dependent on foreign trade and relies heavily on tourism. What's more, being situated on the EU's southern periphery, Malta has found itself at the front line of the migration crisis, straining the country's financial resources. However, thanks to its largely sound banking system and efforts to diversify the economy, particularly by embracing e-commerce and e-gaming, Malta avoided the worst effects of the crisis. This has allowed the Government to keep its own debt relatively low, and healthy levels of economic growth have given the Government latitude to cut taxes. Indeed, as noted in the recent assessment of Malta's budgetary plans by the European Commission, personal income tax has been cut in the last three budgets, while the labor tax burden has also fallen.

Doubtless aware of its economic vulnerabilities, Malta has been very proactive in the area of taxation, introducing various tax incentive schemes to attract foreign investors, including a citizenship for investment program. Indeed, it has sailed pretty close to the wind as far as the EU is concerned, because member states have to be very careful these days not to fall foul of state aid rules and other laws designed to prevent member states from distorting the sacrosanct single market. Unsurprisingly, the citizenship program did actually attract an investigation by the Commission. MEPs felt that the scheme “abuses" the rights acquired by the island through its EU membership, and undermines "the very concept of European citizenship." But, somewhat surprisingly, to my eyes at least, the scheme was given the all clear in 2013. However, small island states like Malta, devoid of natural resources, have to take a risk now and again to ensure their economic futures, which is why it gets an encomium.

The idea of a single European market sounds great in theory. But it's very hard to integrate 28 countries into one economic whole in practice. And perhaps if EU member states like Portugal weren't quite so straitjacketed by EU laws designed to protect the purity of the Single Market, they wouldn't have ended up in the mess they did, or at least would have had some policy leeway to respond to unfavorable economic events. But that's almost a moot point now. Portugal isn't going to exit the EU any time soon, and is not much in a position to argue with the EU anyway. More to the point, I can't see Brussels ever wanting to tear up the EU Treaty, certainly not without an almighty fight.

So it's austerity or oblivion for the bailed-out economies of the eurozone. Which isn't really a choice, so austerity it must be. I'm not enamored with this hard-nosed, technocratic approach to economic policy in Europe, which turns a blind-eye to human misery. But countries like Ireland, Spain, and Portugal have done much of the hard work and are showing signs of turning the corner. So would it be wise to change course mid-stream, as appears to be happening in Portugal now it has a left-wing Government in charge? Probably not. That might just prolong the agony. Still, if there's one good thing to come out of this, it's that, as Greece has shown, democracy just about appears to be alive in the EU, much to the annoyance of the technocrats.

Talking of prolonging the agony, it's probably going to be quite some time until Italy's long-suffering taxpayers are given some relief, despite Prime Minister Matteo Renzi's repeated promises to improve the Italian tax system. In PwC's Paying Taxes Index 2016, Italy finds itself in 137th place, giving it a marginally better tax system than the Kyrgyz Republic, Ecuador, and Sudan. Just as shocking is the fact that, according to Paying Taxes, Italian companies hand over almost 65 percent of their profits in income, labor, and other taxes. So clearly, there is a long way to go before meaningful improvements are felt by taxpayers in Italy.

However, that path is now strewn with obstacles, not the least of which is the EU, with its determination to have its say on Italy's fiscal affairs, much to Renzi's chagrin. As a consequence, the Government no longer has sufficient room for a corporate tax cut in 2016, which is hardly going to help Italy improve its appalling ratings in the tax and regulatory league tables. However, no matter how much Renzi curses the EU's interference in national matters – as he has on numerous occasions in recent months – there's not a lot that he can do about it. Italy's economic problems manifested themselves long ago as a result of mismanagement by successive governments. So unfortunately Italy has made its fiscal bed and must now lie in it.

 

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

BVI connected

Malta proactive

Kitty's Execrations

Portugal unwise

Italy straightjacketed

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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