Lowtax Network

Back To Top

Your Lowtax Account

the elephant in the room that everybody wants to talks about

Kitty Miv, Editor
06 September, 2017

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.

Denmark is a benchmark country. It is the archetype of a high-tax, high-spend northern European economy. So, when politicians in various parts of the world debate fiscal policy, they sometimes ask the electorate if they would rather live in a country like Denmark in preference to their own i.e. would they be prepared to put up with high taxes in return for a welfare state in which nobody is left behind economically. Indeed, the small Scandinavian nation, barely twice the size of Massachusetts, became an unexpected focal point in the last election campaign, and was held up by Democratic candidate Bernie Sanders as a model of social democracy.

Those on the right tend to argue of course that prosperity and individual liberty go hand-in-hand with low taxes and a small government. Singapore, for example, would be much closer to their ideal of a classically liberal economy than Denmark.

However, as is usually the case in life, the answers aren't clear cut. Both countries (although Singapore is more akin to a city-state than a country), with their divergent economic models, are rich: Denmark's GDP per capita is well above the EU average; Singapore's is the best in Asia, and one of the highest in the world (although there is a separate debate to be had about how extensively that wealth is spread among the populace).

And, arguably, overall, the inhabitants of each place are happy: Singapore is frequently rated as one of the safest cities in the world in which to live; Denmark is famous for its contented, laid back approach to life, and they even have a word for it – hygge.

What's more – and serving to emphasize that we are living through strange, unpredictable times – recent tax developments in Denmark and Singapore should give politicians pause for thought when debating the merits of Singaporean dynamism and Danish hygge. For while the Danish Government is keen to cut taxes, Singapore is raising its level of taxation, largely to fund more comprehensive public services.

What this shows us, perhaps, is that no system is ever going to be perfect, and that change, both incremental and revolutionary, including in tax policy, is permanent. For its part, the Danish Government is aware that high marginal tax rates, combined with a generous welfare state, is a disincentive to work. Conversely, Singapore appears to have come to the realization that its low-tax, low-spend paradigm cannot generate the revenues needed for high-quality education, health services, and infrastructure.

Ultimately, perhaps the question should be not how much a government can raise in tax, but how well it spends it. I have never lived in Denmark, but I must admit that the prospect of seeing over half my income taken in tax, and my alcohol consumption drastically reduced due to eye-wateringly high prices (mainly due to tax) is not an attractive one. But then, by all accounts, given what they get back in return – in a word, Hygge – the Danes wouldn't have it any other way. So good luck to the Government if it can cut tax without also reducing rates of happiness. Similarly, it will be interesting to see if Singapore can maintain its position as one of the world's premier business and investment hubs, while asking those who run the businesses to pay more tax.

On a similar note, high taxes and high government spending doesn't seem to be working for France at the moment. However, things may about to change.

Following the recent announcement that France's social security burden will be reduced from next year, the French Government has followed up with confirmation that several important tax measures will be included in the upcoming finance bill for 2018. This caps off another good week in this ranking for France, which appears to be making good on its promises to liberalize aspects of a tightly regulated economy, a state of affairs which many agree has been responsible for low growth and periods of economic stagnation.

Of note is the proposal to cut France's corporate tax, which at 33.33 percent is one of the highest in the developed world (in the OECD, only Belgium and the United States have higher corporate taxes), to 25 percent by 2022, and so bring France into the mainstream of countries with corporate taxes of 15 to 25 percent, or thereabouts.

Another notable policy is the dismantling of the CICE tax credit for employment, which was arguably President Holland's flagship tax measure following his tax policy epiphany, and could therefore be considered something of a risky move. Then again, the CICE tax credit always did feel like a complicated solution to a simple problem – that of France's high payroll tax burden. So perhaps business in France would welcome the prospect of lower payroll taxes, as Macron's Government is promising, instead of going through the motions of applying for the CICE credit.

Indeed, in general, tax credits can be a lot more trouble than they're worth. Just look at the billions of dollars wasted in the United States due to erroneous and fraudulent tax credit claims, and the United Kingdom too, where the individual tax credit system has been beset by technical and administrative problems from day one. No wonder tax reformers in the US are so keen to get rid of most of them!

Turning to the UK now, and at least the Conservatives, the party of power since 2010, can blame the problems with the tax credit system on the Labour Party, this being one of former Chancellor and Prime Minister Gordon Brown's signature measures. But as far as the last seven years of tax policy are concerned, they've only got themselves to blame for the huge levels of uncertainty dogging the UK tax regime.

For business taxpayers in the UK, there has been plenty to cheer about tax-wise. This includes the substantial cut in corporate tax, which has fallen from 28 percent in 2010, to 19 percent this year, with yet more reductions to come.

But, undeniably, there has been much chop and change in tax legislation and regulations, thanks largely to the announcement of, in effect, two Budgets per year, and sometimes three. Most taxpayers would probably agree that keeping up with one annual budget's worth of changes is hard enough. And, of course, the decision to leave the EU was made on the Conservatives' watch, which is the elephant in the room that everybody wants to talks about.

Under such circumstances, the UK needs a safe pair of hands in Number 11, the official home of the Chancellor of the Exchequer. Somebody who can keep the excitement level down, and who isn't afraid to be labeled as a bit dull. Enter "spreadsheet Phil" Hammond, who has promised to bring tax stability to a nation rocked to its political foundations by recent events.

But can he be trusted to deliver, or, more fittingly perhaps, to not deliver? Well, he doesn't possess an unblemished track record. His proposed National Insurance contribution hike for the self-employed was, appropriately enough given the Conservative Party's chosen color, a bolt from the blue. And the aftermath, when Prime Minister May pulled rank and had the measure shelved, was hardly Hammond's finest hour. But he has managed to dial back the razzmatazz and rabbit-out-of-hattery that accompanied many of the fiscal announcements of his predecessor, George Osborne.

We must wait for the Autumn Budget to find out. But for a historically sea-faring nation, perhaps maritime phraseology is appropriate here. Steady as she goes is what taxpayers want. Not tacking into the wind, first one way, then the another, only to end up in the middle of the storm.

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

Denmark hygge

France credit

United Kingdom steady

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

 

 

« Go Back to Blogs

Blog Archive

Event Listings

Listings for the leading worldwide conferences and events in accounting, investment, banking and finance, transfer pricing, corporate taxation and more...
See Event Listings »