the truth lies somewhere in the middle
Kitty Miv, Editor
24 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.
There's nothing rotten in the state of Denmark according to Bernie Sanders, the Democrat long-shot for the 2016 presidential race, who views the Scandinavian country as the sort of socialist utopia that the United States should be aping. His view has sparked one of the most unlikely US political debates of recent times. Naturally, most Republicans think Denmark is just the sort of high-tax, high-welfare, peace-and-love Nordic state that is the very antithesis of the American Way. But, in fact, both they and he are wrong; as is so often the case in such polarized debates, the truth lies somewhere in the middle. Yes, Denmark does spend generously on social programs (total public expenditure was 57 percent of GDP in 2014) and individual tax also exceeds 50 percent in certain circumstances, but it's also one of the most business-friendly countries in world. Its business tax regime is more competitive that America's, certainly. In fact, according to PwC's newly published Paying Taxes Index, it could be said that it's more business-friendly than the US in general. According to this, Denmark's total tax rate (consisting of corporate, labor, and other taxes) on an average-sized manufacturing firm is 24.5 percent. In the United States it's 43.9 percent. In Denmark it takes 130 hours each year to comply with taxation. In the US it takes 175 hours. Hence, Denmark is in 12th place in the index, and is second among EU countries. The US is 53rd. The World Bank rates Denmark the third-best place in the world to do business, with only Singapore and New Zealand rating better. Here the US is a more creditable 7th, but you get my gist.
I'm no climate change "denier" (a term I despise incidentally, with all its unpleasant overtones), but I'm not totally convinced that it's happening either. "Oh my, we are in a provocative mood this week aren't we?" I can almost hear you say. As I've alluded to before in this column, at the same time, I also happen to think that the world would be an infinitely better, healthier place if we stopped burning fossil fuels and switched to cleaner alternatives. I realize that we are undergoing something of a transition towards that end all over the world, and that it's not going to be completed overnight, or probably within my lifetime, but I would argue that governments are making a bit of dog's breakfast out it. The United States managed to send men to the moon with less computing power than is available in your smart phone – and that's because they spent billions of dollars on the Apollo program. Just imagine what could be achieved in the field of renewable energy if similar resources were made available, given how technology has advanced since 1969. But what do we have? A hodge-podge of carbon taxes, most of which get frittered away by some governments on unrelated spending programs, and the withdrawal of support for clean energy schemes by others. Astonishingly, some countries have actually taken to taxing renewables, with Spain, Hungary, and Germany guilty of levying – or trying to levy – charges on solar power. If you're wondering where this is headed, it's headed towards Brazil. I often chastise the Rousseff administration for its woeful record on tax, but it's getting an encomium this week for proposals to expand tax breaks for electric cars. True, it's a small step rather than a giant leap, but it's a step in the right direction.
Now, I'm two countries in, and two encomiums to the good – I need something to execrate. And when you need to dish out execrations, you can always trust the European Union to deliver the goods. So what have the mad Brussels bureaucrats gone and done now? Oh, they've only gone and decided to tax the crowdfunding sector! Well, to be precise, the EU's VAT Committee made the decision, not the Commission or the member states, as a result of a review of the tax treatment of crowdfunding activities. Nevertheless, it's worth pointing out that the Committee is comprised of representatives of the member states and the Commission, and its rulings, while not binding on tax authorities, do tend to be followed at national level. It's not a complete disaster for the rapidly growing crowdfunding sector though, as the decision was mostly concerned with the relatively niche, but increasingly popular, practice of "rewards crowdfunding" where the public can contribute funds in return for products or services, still to be developed by the fundraiser, such as films, software, and consumer products. I suppose if you're looking at this from a purely technical point of view, by the strict letter of EU VAT law, the VAT Committee is right, and it could be argued that allowing reward-based crowdfunding to go untaxed while other business models are subject to VAT is unfair. Nevertheless, this will be of cold comfort to the many crowdfunding projects already off the ground that may now have to register for VAT and may find themselves with unexpected tax liabilities. Indeed, as Richard Asquith, Vice President of Global Tax at tax compliance firm Avalara commented, the VAT Committee's conclusion could "make the economics [of crowdfunding] far less attractive." I expect that the fast-moving crowdfunding environment will adapt its business model in response to the decision. Still, with this act, the EU has only reinforced the opinion held by many that it is out of touch with the world of business, and, whether by accident or by design, it is still seen as the enemy of small businesses and entrepreneurs.
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.
European Union uneconomic
« Go Back to Blogs