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what sort of Brexit will it be?

Kitty Miv, Editor
05 December, 2018

On November 26, a legal challenge brought by 13 UK expats against the decision of the EU Council to endorse the start of negotiations with the UK on exiting the European Union was rejected by the General Court of the EU. So is Brexit now an unstoppable force? Perhaps the only question left is what sort of Brexit will it be? Prime Minister May's EU-lite? Canada +++? The Norway option? WTO rules?

The possibility of another referendum on the matter remains, although the chances are slim. What is crystal clear however, is that the waters are now as muddy as ever. So much so that businesses have largely given up attempting to plan for Brexit. At least, that is the conclusion drawn from a survey by accountants Moore Stepehsn of Brexit preparedness within the business community.

According to the firm, since last year's survey, fewer businesses reported having a plan in place to respond to Brexit: 25 percent, rather 56 percent a year ago, with many businesses said to have been deterred from planning extensively due to uncertainty concerning the implications of Brexit.

The firm noted that if the UK does not reach a deal on an orderly withdrawal from the European Union, there will be no transition period that would effectively extend the UK's EU membership until the end of 2020. A transition period would allow time for businesses to prepare, but if no deal is reached the UK will cease to be an EU member state instantly from March 29, 2019. And how does one plan for an outcome that it to a large extent unknowable?

Still, even though there are less than four months to go before the Article 50 clock stops ticking, it is difficult as things stand to look beyond December 11. This is when the UK Government will put its EU withdrawal agreement to parliament, and looks set to be the moment when all political hell breaks loose. At least this might give us some clues as to what sort of Brexit we are not going to see.

Across the Channel (or La Manche, depending on what side of it you're located on) it's all beginning to look very familiar: an increasingly unpopular president and mass protests about his plans for taxes and the economy. This wasn't supposed to happen. French President Macron was supposed to be a breath of fresh air after the stagnation of the Francois Hollande administration. He was going to transform France into the entrepreneurial and economic powerhouse of western Europe by slashing taxes and red tape. But the best-laid plans and all that. It's arguably taken Macron less time to go from hero to zero than his ill-fated predecessor, which is quite a feat.

In another depressingly familiar development, it was also revealed last week in the latest EU tax trends survey that France had the highest tax burden as a percentage of gross domestic product in the Union in 2017, at 48.4 percent. With the 2019 Budget plan including approximately EUR26bn in tax relief, it will be interesting to find out if that figure will be lower this time next year. Unable to quell protests surrounding a rise in fuel taxes, due to increase from next year, the Government decided it had to put these hikes on hold. Whether this will impact its existing tax plans elsewhere remains to be seen, but it might give the embattled President Macron a bit of respite. For him, Brexit must be a blessed distraction!

The upper reaches of the EU tax-to-GDP list was also populated by the usual suspects: Belgium (47.3 percent) and Denmark (46.5 percent), with Sweden, Finland, Austria, Italy, and Greece all having ratios of above 40 percent.

Ironically, in Asia, countries are faced with an entirely different tax challenge to those in Western Europe: their tax burdens are considered too low rather than high. What's more, the fifth edition of Revenue Statistics in Asian and Pacific Economies, released by the OECD on November 29, shows that tax-to-GDP ratios fell in most of the 16 Asian and Pacific economies covered by the report between 2015 and 2016, due in large part to policy reforms and decreasing natural resource prices. If having a low tax burden is indeed a problem, I suspect it's one that President Macron would much rather have.

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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