Monday, October 30, 2006


Recently announced, Danish investment bank Saxo will abolish the minimum ticket fee and percentage commission on Danish stocks. Saxo will therefore become the very first Scandinavian bank to approach to zero-commission online share trading. Improving the financial conditions for shareholders and online traders is definitely one of the key features to gain success along global benefits of free online trading, increased competition and better efficiency among customers in online trading. Global market as a whole is generally headed toward increasingly smaller commissions. According to Christopher Noon from Forbes, Saxo's zero-commission trading extends offer to retail clients as well as new clients with a minimum account balance of 50,000 Danish Krone ($8,393). These clients can trade online with zero-commission up to 50 times a month on the Danish stock market. Saxo's Vice Chief Executive is not expecting to take away business from traditional online traders such as E*Trade, IFX Markets, Charles Schwab and StockTrade. According to his words, only 10% to 20% of e-trade business actually comes from equity trading. Saxo's furtherized ambitious agenda also includes plans to access of the its initiative before exporting the idea across borders.

Monday, October 23, 2006


It seems that U.S. Congress is captured by an unwillingness when it comes to shift from social security programs to ownership-based retirement programs. U.S. Congress actually made a huge failure due to permanently maintain tax reforms that would eliminate the death tax and cut marginal tax rates on capital gains and dividends. In the U.S., the economic growth has been higher for most of the decades than it was overseas. But also editorial pages have been enriched with the words from Milton Friedman and other Chicago guys. They firmly set the intelectual foundation for an economic policy based on low taxation, market competition and individual ownership. However, today you won't find those words written in English. Instead they are printed in Estonian, Hindi and Spanish as well as in other languages where policy-makers decided to shift the wheel of economic policy towards the implementation of free-market ideas. They have been, of course, successfully implemented. It was amazing to see how the idea of Private Retirment Accounts (PRA's) exploded in South America. Chilean labor minister Jose Pinera boldly ran the Chicago vision back in 1981 and the results of this encouragement are still seen in Santiago today. Chile's current national saving rate accounts 21 percent of the GDP. Following the Chilean example, at least 30 other nations followed that way, having replaced benefit pension systems with individual ownership and personal control, including countries such as Denmark and Sweden. Former communist nations in Eastern Europe also enacted pro-growth and free-market economic reforms, wathcing their economies setting the path for future economic growth. Simple, dynamic and low-cost flat tax codes encourage people to work more as well as to expand economic activity more rapidly. Recently, Estonia has reached the edge of economic growth soaring over an amazing 10 percent. In the past six and seven years, the rates of economic growth in Baltic countries, including Latvia and Lithuania, averaged 8 percents consistently. Seeing the situation today, more than 9 countries have adopted the flat tax code, including Russia and Romania. Conversely, the U.S. Congress consumes its days. Instead of debating how to cut public consumption rate and improve macroeconomic situation, Congressmen are rather busy with intensive debates on how to impose taxes on energy profits. While America is still the greatest pillar of newly-born ideas, it is not the leader in tax competition anymore. The U.S. federal tax code is grasply written on 66 498 pages, adding $265 billion compliance costs. Currently, the U.S. Government is facing a long-term problem of how to cut unfunded liabilities in retirement systems such as Social Security and Medicare. Those programs amount to $80 trillion. Therefore, work force is facing a shrinking benefits and higher tax rates while Congress still remains unwilling to impose serious reforms to cut those benefits and provide a decent and sustainable way of living to thousands of Americans in the future. Giving workers the right to choose ownership-contribution retirement system would helpfully replace current massive debt, giving individuals real ownership and control would ensure and secure better financial future for each member of the big hub, namely "taxpayers". Continually prolonged retirement systems based upon massive outlays for Social Security and Medicate programs would, on the long term, result in higher tax rates on income and capital gains, higher public debt while economic growth would start to push the economy towards falling off the cliff. The consequences of this way of spending and economic policy-making would be painful for everyone. Rising taxes on labor and capital formation would cause capital flight, economic contraction and high unemployment. As an output of "socialized results of production" there would be no means to boost productivity and create more value-added goods and services in order to create a society based on soaring productivity through hard-work and anticipated innovative behavior. Other nations have prospered from economic policy based on economic freedom. Global financial markets are about to judge the efficiency of economic policy, not flashing cameras around the enemies of progress and development. If policy-makers in countries such as the U.S., Slovenia, Italy, Germany, France and Spain will not undertake serious structural reforms capital and investment will quickly fly to other nations where the ideas of Chicago economists work and where economic freedom coupled with low rates on capital and income taxation soundly works as future prosperity peaks and opportunities flourish.

Thursday, October 19, 2006


Singapore has made significant economic progress based upon favorable conditions for incoming financial institutions that set-up their assets in small Asian city state such as Singapore. In fact, the economic and financial policy coupled with low corporate tax rates and comparatively modest fiscal burden has created very stable financial environment for incoming capital flows and foreign investors as well. However, Singapore went ahead of other global competitors. Its recent measures were done in order to revitalize the financial marketplace. Policy-makers in a small and highly competitive Asian city decided to furtherly adapt banking secrecy laws, much of its tax and trust policy in a recent drive to reinvest itself. Nowdays, investors in banking industry usually take a closer look at country's secrecy laws, taxation on interest bearing and capital gains and taxation in terms of residency and trust policy. But this is generally speaking not the entire framework of sets of decisions. Investors also pay attention to other general banking measures such as set-ups and set-up speed of banking operation and of course regulation as such. One of the very first measures was to boost banking confidentiality laws by imposing a sentence of $78,000 USD for disclosing information. Singapore has also amended its trust laws to allow incoming foreigners to move away from European state interference which dicatates how inheritance is being carved up. Singapore also completely slashed taxes on profits from foreign investment earned abroad and finally reduced corporate tax burden to attract more dynamic businesses. Singapore has therefore followed the example of many Swiss cantons which also adapted similar measure to foster competitive markets. Unlike in European countries, tax evasion is not a criminal act unless proof of sharp practice is found. Singapore managed to foster more growth by bringing more foreign investors into a small cherry-flavoured Asian tiger. These parts of measures have been very favourable and along with other attractive features, those parts are about to fit the competitiveness of Asian financial markets. Unlike in European countries, in fostering growth and developmental progress, Singapore relied on global financial integration by taking various examples in financial capitals such as London, Tokyo, Sydney, Hong Kong and Zurich. The combinations of measures in each of these examples will result in a higher and more rapid growth of Singapore's and Asian financial markets because businesses itself will be able to rely on sustainable options of crediting and other alternatives to continue an amazing move-up of Singapore's growth of entrepreneurial activity particulary in areas which require strong support from the financial industry. But this is not the end of the story at all. One of the Singapore's main strengths is highly sophisticated infrastructure modelled specifically on creating the ambience in order to invigorate and recreate this small and hopefully Asian peer. One of the foremost infrastructural achievements of Singapore has been converting salt water marina into a fresh water lake. One regulation did not transfer ti Singapore - European saving-tax directive imposed on Switzerland by the European Union. This particulary tax law is levied on Swiss accounts of foreign nationals on behalf of their resident countries to counter tax evasion. However it would be a little bit too soon to expect rapid capital flight from Switzerland to Singapore, emptying from Swiss accounts into Singapore's. Turning the issue to Switzerland, there're definitely some investors who have problems with withholding tax. Will this lead to a major capital flow? Perhaps only a little bit. To make this happen, there should be a big thing that moves the needle. Switzerland will definitely not capture future growth market to the extent that once used to. Swiss banks are still setting-up in Switzerland so the government still benefits through greater revenues as a result of low taxation of corporate income and capital gains.

*The indicators describe three dimensions of investor protection: transparency of transactions (Extent of Disclosure Index), liability for self-dealing (Extent of Director Liability Index), shareholders’ ability to sue officers and directors for misconduct (Ease of Shareholder Suits Index) and Strength of Investor Protection Index. The indexes vary between 0 and 10, with higher values indicating greater disclosure, greater liability of directors, greater powers of shareholders to challenge the transaction, and better investor protection.

Source: World Bank, Doing Business 2006

Wednesday, October 18, 2006


Edmund PHELPS, this year's Nobel Laureate has publish perfectly pin-pointed opinion on the superiority of modern dynamic "laissez faire" capitalism over the so-called social market economy which has primarily taken origins from archaic German and French corporativist models. Institutional protection of interest groups and rent-seekers is now paying the price. Economic growth rates are sluggish, job-creation rarely finds itself productive while international competitiveness of those welfare-based economies (Germany, France, Italy, Slovenia) is falling off the cliff. I recommend you to read the opinion of Edmund Phelps.

"The issues swirling around capitalism today concern the consequences of its dynamism. The main benefit of an innovative economy is commonly said to be a higher level of productivity--and thus higher hourly wages and a higher quality of life. There is a huge element of truth in this belief, no matter how many tens of qualifications might be in order."

- Edmund Phelps

Friday, October 13, 2006


The story of Hong Kong had been the tale of roaring tiger as a shining example of economic freedom. At the end of World War II, Hong Kong was a dirt-poor island with a per-capita income about one-quarter that of Britain's. When laissez-faire economic policy of positive non-interventionism was adopted, Hong Kong’s territory started to wheel the new era of prosperity and business freedom. Hong Kong began to boom. That was a striking demonstration of the productivity of freedom, of what people can do when they are left free to pursue their own interests. In fact, Hong Kong's remarkable achievement, seen in a rapidly growing economy, benefited its neighboring countries as well. It boosted them to move away from central-planning and move towards the reliance on private enterprise and free-market. As a result, both, Hong Kong and China benefited from rapid economic growth. But Hong Kong's current leader Donald Tsang has recently declared the death of the policy on which the prosperity of small and up-beating tiger had been built.

Milton Friedman, the 1976 Nobel laureate in Economics and the most influential economist of the 20th century bemoans the latest Hong Kong's political shift toward governmental interventionism and statist approach that is forgetting the lessons of the policy that lead Hong Kong toward the miracle of free market. You can read it here.

Friday, October 06, 2006


It seems Italy's going to plunge into another serious economic downturn by increasing income tax rates. The country is captured by a fairly unstable macroeconomic situation. Public debt (measured as a percentage of GDP) is the highest in the Union. Italian leftist policymakers chose to cut country's 4,2% budget deficit by increasing tax rates instead of cutting spending habits. Although the budget reduces payroll taxes by EUR6bn in 2007 and EUR9bn in 2008, income taxes are raised immediately by EUR33.4bn, mostly through an increase in the top rate of tax from 41% to 43%, and lowering the floor for the top rate from EUR100,000 to EUR75,000. Lower bands are adjusted to favour the less well-off. This amounts to a savage attack on the middle classes, and is presumably exactly the opposite of what needs to be done if Italians' notorious under-declaration of tax is to be brought under control. Prodi announced measures to punish professionals who don't declare all their income; but successive governments have totally failed in this endeavour and there's no reason to think that the new one will be any more successful. It is completely impossible to create economic growth by increasing taxes and uncutting government spending. Italian general economic picture is everything else but favorable. IMD ranked Italy's Competitveness even below its neighbour Slovenia. Foreign investors face enormous restrictions on operations and ownership as well. Economic freedom of Italy is miserable. Together with France, the country's economic freedom has been kicked-off far below the level of the most competitive economies. Fiscal deficit is huge. Labor market amount indispensable rigidies that produce difficult practices of hiring and firing workers. It takes more than 500 hundred days to enforce contracts while venture capital funds are rarely availible. New tax increases proposed by Prodi's government will make this problematic situation even worse off.

Monday, October 02, 2006


But this was before Europe's deficit fetish spread to Budapest. This past June, concerns over Hungary's public finances came to head given Euro currency adoption requirements, which stipulate a budget deficit of no greater than 3% of GDP. Hungary's deficit is expected to be 10% of GDP this year. As a result, an austerity package aimed to please Brussels at the expense of Hungary's growth outlook was pushed through parliament. The package, which raised taxes and cut spending, was passed in July and Gyurcsany's popularity has been on the decline ever since. The tax increases included an introduction of a 20 percent capital gains tax, the introduction of a bank tax, along with hikes to the VAT, personal income tax and corporate tax rates. Meanwhile, the administration cut social welfare spending and ended free public education. The policy combination was a political double whammy for Gyurcsany.


The Dutch government has pledged to increase the amount of budget budget surplus next year through continually evaluated reductions in corporate tax rates. The rate of corporate income tax will be put down 25,50% in 2007 from 29,1%. This will put Dutch corporate tax rate below the European Union average.