THE PUNITIVE EFFECTS OF PUNITIVE CORPORATE TAX CODE

There is innumerable evidence showing that high corporate tax burden is eroding competitiveness and results in a poor track on investment, growth and job creation. As every economist agrees upon, there is hardly any upward change in output without a rigorous pro-growth economic policy and supply-side feedback.

Instead of the so called aggregate demand, the output growth has been shown to be driven by the long-run engines of growth such as saving, investment, entrepreneurship, innovation and labor supply known as human capital or productive behavior.

The stimulation of output growth through the infusion of expansionary public and fiscal spending has several negative effects such as inflationary pressures, unless the output gap is negative.

Despite thousands of pages of a negative impact of high corporate tax burden on growth and labor market, the politicians obviously haven't yet learned a simple "elementary-school" lesson called the Laffer curve, stating that high tax rate on corporate income has a double negative feedback.

First, the punitive tax rate enables a the outburst of complexity leading to costly evasion and comparably associated administrative cost, such as the education incentive for under-productive jobs that entail a minimum or zero-contribution rate to output growth and instead, hamper growth potentials of firms, forcing them to face higher proportion of additional labor cost that otherwise has enviable and nevertheless attractive alternative investment choice.

And second, the course of economic and tax policy has shown that high tax rates correlate with tax revenue loss (because of high taxes), leading to continually high and unrestrained public spending and external fiscal indebtedness.

As a recent example from Ontario straightly demonstrates, when the output performance is shifting the economy from manufacturing to a reliance on knowledge-intensive services, the labor demand is oriented towards highly productive human capital. One of such areas is the financial sector.

As the economy structurally transforms, the role of financial service sector plays continually nevertheless important role that is essential in boosting the sector's contribution to output growth.

Last year, the sector generated 7.8 per cent of Ontario's total gross domestic product or $36 billion. For Toronto, it contributed an estimated 14.3 per cent or $15 billion of the city's economy.

Table No.1: Real and Nominal GDP Growth in Canada by Province, 2003-2005

Source: Statistics Canada

On the other side, Ontario currently stands at a punitive corporate tax code that is eroding macro and micro-competitiveness. In spite of 14 percent capital tax rate, Federal rate of capital taxation is onerous and one of the highest in the world, undermining the output growth respectively.

The evidence of capital tax as a job-killing one is very to understand. Imagine that you're a corporate manager in Toronto facing a punitive corporate tax code and considering the switch to investment-friendlier territory:

""... if Alberta, for example, completely abolished its corporate taxes, you know it's going to be not too long before a lot of financial services and other kinds of companies may well say `Well look, for the sake of what could be hundreds of millions of dollars in tax, might we have to consider moving our head offices'?" (link)

Stronger investment environment that supports growth could hardly be recognized as that if high tax burden, red-tape, compliance regulation and administrative barriers reduce competitive potentials of the territorial economy to create jobs, increase productivity and output.

Read also:
Parties pressed for growth, Toronto Star, September 15 2007 (link)

DOING BUSINESS: REVIEW AND PERSPECTIVE

The 2008 Doing Business project solidly provided a valuable tool in ranking the economies with respect to the ease of doing business. The quality of the business environment is, by any means, one of the essential supporting components of growth and value creation. Put simply, the greater the flexibility of the business environment and the ease of doing business, the greater the opportunities for the firm to target markets and growth while the foremost advantage of a dynamic business environment is the minimization of external risk, notably macroeconomic risk and the risk emerged from external vulnerabilities such as the failure of the public administration to provide sound entrepreneurial framework and business conditions. In spite of vital importance of dynamic entrepreneurial framework, small-scale economies are, by empirical investigation, affected by the extent of quality of the business environment far more than the economies of large scale according to the share in global economy they possess. That’s why; the first-class quality of the business environment is essential to long-term creation of venture capital and jobs as well as to output growth.

First, let’s take a look at the microeconomic aspect of rating the quality of business environment. Suppose there is a consulting firm with a certain amount of investment from venture-capital fund with an idea to target and invest in emerging markets whether by direct market entry or by indirect market access, i.e. through intermediaries. Firm’s executive board mutually decides to hire local human capital; local labor to reduce the potential risk of firm’s perception of asymmetric information about the local business environment in conducting consulting services to local firms or branches of global firms. Assume that the decision processing is as in usual firm’s entry. The barriers to doing business, in turn, crucially impact firm’s decision for investment location accountably regarding the size and attractiveness of market niches. Suppose the firm is decided to target emerging markets in Central and Eastern Europe and in broader Asian market. Consequently, the firm obtains all available data and information about the particular business environment, varying which one to choose. If a firm jointly varied among Czech Republic, Hungary and Slovenia as a headquarter base, how would the quality of the particular business environment affect firm’s decision where to invest. Suppose each business environment carries-in some strengths and weaknesses. For example, Czech Republic offers sufficient transportation links to the rest of Eastern Europe while Hungary offers a sound and deregulated corporate conditions such as low corporate tax burden and dynamically competitive financial sector (access to attractive financial, capital and insurance services) while Slovenia offers sound access to potential booming markets in South-Eastern Europe. In Asia, the firm varies between sophisticated and growing markets, say between China, India and Vietnam and Singapore and Hong Kong on the other side. Depending on the preferences included in firm’s panel, where would the firm decide to invest in to setup a base for targeting specific markets?

Of course, it is impossible to predict all circumstances of the firm’s decision since information is distributed asymmetrically. But let’s predict the possible scenario with respect to the quality of business environment, assuming that firm’s main decisive objective is to decide for the location with the easiest and most business-friendly environment with least administrative and regulatory burden given the impact of external cost pressures affecting firm’s output and organic growth performance.

Depending on the impact of firm’s strategic decisions regarding the performance of output and supply, the firm would, by rational means, choose the environment with the least regulatory complexity and administrative burden such as the quickness of starting a business, time costs of getting required licenses, the flexibility of labor market, the security of property rights, access to credit information, transparency of transactions, self-dealing liability, shareholders’ suing ability for misconduct and hence, tax compliance and time cost of paying taxes, the costs associated with international trade, contract enforcement, and the legal protection of the deprived party in exchange in case of payment dispute or payment delay and the extent of procedural backlash in case of closing the business.

The quality of the above-listed factors crucially determines the overall attractiveness of a particular business environment as an investment location. Looking globally, Singapore, New Zealand and the United States were ranked among top 25 on most areas except for in the area of the difficulty of paying taxes in case of the U.S. Emerging market countries scored variably. Russia is ranked 106^th, India 120^th, China 83^rd and Brazil 122^nd. From investment decision aspect, high economic growth in BRIC despite the low quality of the business environment is driven by strong investment boosted by remaining influential factors such as low proportion of labor cost attached to manufacturing and the convergence potentials of the GDP in those countries nevertheless. What about countries in transition? As top performers, Baltic tigers par the quality of business environment of advanced countries. Estonia is ranked 17^th, Latvia 22^nd and Lithuania 26^th. In central Europe, the ranking is much less competitive; Slovakia is ranked 32^nd, Slovenia 55^th, Czech Republic 56^th and Poland 74^th. Each year, Nordic countries constantly perform highly competitively. Taking a closer look on Nordic countries, the figures show that a typical Nordic business environment is almost completely free without hampering regulatory burden. Further, sophisticated and competitive access availability of venture and investment capital adds to the ease of doing business together with strong security contract validation and enforcement. Denmark’s flexible labor market free trade ranked it 5^th respectively, Iceland is ranked 10^th, Norway 11^th, Finland 13^th and Sweden 14^th.

THIS IS HOW BELARUS WOULD BE BETTER OFF

Nearly a week ago, I came across an interesting website entitled Economy.by, presenting the project "The Community of Young Economists and Entrepreneurs" which was organized as a reaction to the lowest level of education in Belarus. The project aims to give opportunities to young students in Belarus to support their scientific work. This particular initiative is very ambitious indeed. In fact, Belarus is croaching in Soviet-styled political dictatorship together with poor track on the respect of human rights, civil and personal liberties. Doing business is difficult and the economic environment is embroiled by government involvement, protectionism and widespread corruption. Also, the education system is instilled by staunch ideological propaganda (here and here).

Regarding the practicing of human rights in Belarus, State Department reports:

"Prison conditions remained austere and were marked by occasional shortages of food and medicine and the spread of diseases such as tuberculosis and HIV/AIDS. Leila Zerrougui, chairperson of a UN working group on arbitrary detention who visited the country in 2004, reported that conditions in detention centers were worse than those in prisons because of poor sanitary and living conditions and restrictions on visitation, phone, and mail privileges. According to human rights monitors, conditions in prison hospitals also were poor...The government restricted access to the Internet. Credible reports indicated that the government monitored e-mail and Internet chatrooms. Many individuals and groups could not engage in peaceful expression of views via the Internet, including by electronic mail. During the March 19 presidential election, there were numerous credible reports that the government blocked several opposition campaign and independent media Web sites. Many opposition groups and independent newspapers have switched to Internet domains operated outside the country because of the government's campaign against Internet freedom. There also were credible reports that authorities attempted to block Radio Liberty's Web site in the country during the March presidential elections. On November 7, the NGO Reporters Without Borders again included the country on its annual list of "enemies of the internet," countries that censor independent news sites and opposition publications and monitor the Internet to stifle dissident voices."

Disclaimer: Capitalism & Freedom strongly supports "The Community of Young Economists and Entrepreneurs" in their efforts to pursue the ideas of individual and economic liberty, human rights, international awareness and knowledge development in Belarus.

DOING BUSINESS 2008

The newest World Bank's Doing Business is here.

The top five economies where doing business is the easiest are:
1. Singapore
2. New Zealand
3. United States
4. Hong Kong
5. Denmark
...

55. Slovenia

DEMOCRACY: THE ENEMY OF ITSELF

One of the most strinking thins which can be observed around the world is the misguided connecting of liberty with democracy. Empirically, the effect of full democracy on economic growth is weakly negative.

In political terms, democracy means voting. It means the ability of the voters to elect representatives. There are many dubious side-effects of what is referred to as the "real democracy". In the state of democracy, there are few things that are contradictory to civil, human, political and economic freedom.

Coercion and constraints

1. Coercion. If political leaders are elected democratically through voting, it means that they have a full ability to pursue a particular political philosophy. As Friedrich August von Hayek wrote in The Constitution of Liberty, each extensive political philosophy supposes that the lives of individuals mismanaged by themselves, and thus they should be controlled through any means of coercion and constraint whether it be the taxation of individual income, information-sharing or the government force to agree and respect the disagreeable. Hence, the main determinator in the state of democracy is not the market where wants and goods are compensated by value exchange, but is the majority that casts the demands imposed on political bodies. Depending on the extent of majority rule, the demands will be suited only if they suit the political support over the term. The sum effect of majority rule is thus guided by the sources of political power which is close to the oligarchic rule. Thus, in many particular items, democracy is a self-contradiction governed by the seed of collectivism and by the tyranny of the majority rule as Alexis de Tocqueville wrote brilliantly in his work Democracy in America.

2. Interest groups: to gain support, the political rivals compete on getting votes from particular interest groups such as trade unions and agricultural lobbies to receive private interests on behalf of public good. In the free market, demand and supply are matched and taken as given. The ability to meet the market needs of individuals is determined by the freedom of choice, given the total utility impact. In political market, the ability to meet the needs of voters is determined by the concentration of power in the hands of most influential groups and formations in public whom the priority is given. This is another proof that democracy is perhaps the most notable hidden evidence of discrimination since "everyone-is-treated-equally" is rambled by "you-are-treated-equally-if-you-belong-to-majority".

3. Extensive government: Great Britain was free way before it became democratic. A country can be free and prosperous even without being dichotomously democratic. Singapore has a high degree of economic freedom and is treated as politically hybrid regime. Estonia is among the freest economies in Europe and the world, but its grade in democratic performance is likely marked by the label of flawed democracy. On the other hand, Sweden is known as "full democracy" but its 81,3 percent economically free relative to Hong Kong which is known as the economically freest place in the world.

Democracy - a self-contradiction

Democracy is treated as an untouchable dogma which is supposed to be in the interest of all. Failed and falsified as it is, democracy is neither close to liberty nor minimal state. Classical liberalism is based on the grounds of negative liberty of non-interference as well as on the absence of government coercion. Fundamentally, democracy mischiefs the extent of government coercion. Classical liberal/libertarian pursuit always predicts the individual and political action to reduce (or possibly eliminate) the extent of government coercion while the dogma of democracy takes no notice on the extent of government coercion, but only on the action which is governed by the rule of majority.

Democracy - the slavery of positive liberty

That is why government based on the principle of the minimal state, providing only the fundamental general framework of interaction (the-rule-of-law), functions efficiently and contributes a significant share to the future creation wealth in going for growth and prosperity. Minimal government is the best friend of individual initiative accompanied by the degree of being free to choose, live and create.

Read also:
Denis Bider: Robert J. Barro's Democracy and Growth (link),
Libertarec: Socializem ustvarja vojne (Socialism creates wars) (link)
Libertarec: Zgodba o dveh vased (A tale of two villages) (link)
Greg Mankiw: A question for democrats (link)
Robert Nozick: A tale of the slave (link)

THE SURGE OF CANADIAN DOLLAR

Recent interest rate cuts by the FED and a periodic trade-balance deficit in the U.S. have pushed the strength of Canadian dollar ahead of the U.S. dollar. In February 2002, the CAD hit the all-time low of 62 U.S. cent. Two days ago, the Canadian dollar climbed up to 1,0004 USD.

The relative strength of CAD is fueled by weak U.S. currency and high prices of major Canadian commodities, including oil, gold and wheat, reflecting trade conditions in the world market. An additional push-up of CAD has been powered by continuously optimistic and record-high wholesales data and estimates. Unlike the U.S., Canadian economy maintains a strong budget and current-account surpluses which boosts the position of the Canadian currency in relative terms.

Not surprisingly, Bank of Canada has not yet estimated a possible interest rate cut over the short-run in its policy forecast, unlike the FED's recent benchmark rate cut. As a result, the investors have not predicted such forward-looking expectations an advantageous gain from a favorable yield of higher Canadian interest rates.

On the other hand, the data revealed that Canadian manufacturing sector struggles to maintain profit margin to sustain the competitive edge in the world market. Consequently, dividends have shrank.

Could the opportunity of the strong currency have an impact on labor market and manufacturing sector? Definitely. Strong position of the Canadian currency could reverse the trend of productivity dynamics. Through imported technology, the labor productivity per unit could spark-up and thus the side-effect of productivity growth would have had a greater strength to stimulate the performance of the labor supply. However, the medium-term scenario will depend on the ability of the manufacturing sector to increase sales partly depending on the dynamics of the Canadian currency relative to other currencies. The economic indicators also show strong effective investment activity of the Canadian economy due to recent spark in sold options which is why Canadian banking sector is temporarily soaring.

Of course, oil price benefits sustained at a stronger parity do not neccesarily reflect the permanent robustness of the economy due to periodic fluctuations and changing demand/supply conditions in the world market.

Read also:
Oil puts Canada's currency ahead of the U.S. dollar, Financial Times, September 21, 2007 (link)

KOSOVO: EUROPEAN HONG KONG?

At Blic Online, I came across the article which predicts the model of autonomous sovereignity of Kosovo based on the status which is similar to Hong Kong.

Under such proposal, Kosovo would be able to join the international organizations such as World Bank and International Monetary Fund. Politically, the status could induce the formation of institutions as well as an independent political decision-making among which there is an ability to form the rule-of-law and slash government intervention. As a partly independent region, Kosovo would probably be able to induce the foundations of economic, personal and political liberty to gain the competitive position in the world and pursue the policies in support of economic growth and capital formation.

Hong Kong, which is entitled as the freest economy in the world, generated significant economic growth and structural advancement among which there had been the enforcement of competitive law and the creation of growth-friendly business environment which attracted a significant inflows of foreign direct investment. As a result of pro-growth economic and structural policy, Hong Kong's income per capita skyrocketed over the past half of the century.

Regardless of the solutions, the creation of autonomous region or an independent state is an opportunity to gain territorialy tax sovereignity in the region with sound property rights, openness to trade and investment, and enviable structural environment which would, in turn, energize economic growth and the pursuit of prosperity through economic, individual and political liberty.

BATTLING WELFARE LEGACY IN SWEDEN

In Wall Street Journal there is a good article outlining the implementation of economic and structural reforms on the road to recovery from a typical generous experiment of the welfare state (link).

BELARUSSIAN STATE ECONOMICS

At Economy.by, a Belarussian student explains how Belarussian State University's professor lectures economics to third-year students. During the lectures on Economics of enterprise professor Bainev tells the third-year students of economics faculty that Russians are the superior race, saying that:

"...Russians are the superior race, and the rest of the world in whole, and americans and europeans particularly, are the absolute morons and animals. He insists in a tough way on the fact that the market economy - is an absolute evil with which we should promtly fight. He says that we shouldn’t think about ourselves and our relatives, and should act only in the interests of nation and her the very best child - President of Belarus. He adds that the USSR was the best time, when people were absolutely happy. He alleged that we should do everything to reunite three main countires in the world - Ukraine, Belarus and Russia with a strong leader who will control people’s life."

Source: Lectures in BSU, Economy.by (link)

JAMAICA - TAX HAVEN?

After nearly a decade of cyclical financial crisis and anaemic economic growth, Jamaica sustained a moderate growth. In 2007, the real economy grew by 3,0 percent. In 2008, the economy is expected to absorb its growth mommentum and increase the annual output by 3,1 percent.

Despite high investment in the mid-1990s, Jamaica experienced a low growth. One of the greatest contributions to fragile output performance is concerningly associated with public debt. A significant share of investment was composed by public investment crowded-out by debt service. The inefficiency and failure of public administration to target the efficiency of investment in effective terms, correlates with lagging productivity growth rate. As the study by the IMF shows, Jamaica's economic performance has been subject to macroeconomic uncertainty. Constantly untamed inflation rate revealed the dependence of the central bank in conducting the monetary policy. Macroeconomic policies asserted on the very principle of aggregate demand (resulted in a persistantly high inflation rate which reduced from double-digit rates to 6,2 percent in 2007, using the inflation targeting framework) do not exclude the possibility of financial crisis as Jamaican experience shows. Through the emulation of rules-based and credibility-asserted monetary policy, the reliance on interest rate outdated the direct money control which is an important source of cyclical inflation pressures.

Economist recently crticized Jamaica's past political frictions which led to irresponsible policy decisions and boosted the impolsion of financial crisis. The abovementioned reliance on aggregate demand consolidated the position of the fiscal policy which lacked the scope of consideration of inflation pressures.

But the news from Financial Times about Jamaica seeking to become an offshore financial center is positive and it poses a great measure of challenge in going for sustained growth and improved structural performance whose inadequte and fragile indicators Empirically, the real reason for low taxes is the advancement of general welfare and prosperity and the evidence does not seem to neglect this theorem. According to CIA World Factbook, 5 offshore tax havens and 3 onshore low tax jursidictions are among the world's wealthiest countries in effective terms of GDP per capita (PPP).

Currently, the public debt equals 133,3 percent of the GDP and the experience of lagging economic performance clearly reflects a dodgy profile of Jamaica's international competitiveness. However, with sound and competitive tax policies and first-class business environment, the sustained growth of output is estimated to reach the long-run scope as capital creation and the foreign direct investment inflows will crucially depend on the ability of economic policy and its inclination towards openness and the reduction of macroeconomic uncertainty.

ALAN GREENSPAN'S THE AGE OF TURBULENCE

Here's a new book written by former chairman of the FED, Alan Greenspan (link).

And here is a book review by J. Bradford DeLong published in LA Times (link).

HALL OF FAME

Here is how I voted for the favorite free-market economist, journalist, business leader and think tank leader on the Free-Market Hall of Fame:

Favorite academic economist (past): Milton Friedman
Favorite academic economist (present): Gregory Mankiw
Favorite writer and journalist (past): Ayn Rand
Favorite writer and journalist (present): John Stossel
Favorite business leader and entrepreneur (past): Andrew Carneige
Favorite business leader and entrepreneur (present): Charles Koch
Favorite freedom organization and think-thank (past): Leonard Read
Favorite freedom organization and think-thank (present): Edward Crane III.
Favorite government official (past): Thomas Jefferson
Favorite government official (present): Vaclav Klaus
Hall of Shame (past): Karl Marx
Hall of Shame (present): Hugo Chavez

MEXICO'S ANTI-GROWTH TAX POLICY

The USAToday has published an article describing the populist assertions of Mexican president Felipe Calderon who recently annoucned the launch of aggresive tax hike to raise tax revenue.

Enhanced through the rethorics of populism, Mexian president wants to increase Mexico's tax revenue by one third, roughly $35 billion a year. Among fresh tax policy proposals an extensive corporate income tax based on firm's income from corporate activity can be traced as well as giving tax breaks to state enterprises (Pemex), 5,5 percent gasoline tax and government requirement levied on banks, claiming to deduct 2 percent tax on desposits exceeding the amount of $1,800 USD monthly.

One could claim that despite a relatively low fiscal burden in the share of the GDP and particularly low government spending, Mexico's overall tax revenue equals 10 percent of the GDP, and thus concluding that reducing the aggregate tax burden does not make any sense. However, this particular assertion hardly entails any sufficient arguments and data analysis.

First, corruption in Mexico is perceived as significant. The cost attached to corruptive officials, institutions and politicians negatively affects economic performance and openly enables seeking ways and channels to adopt tax evasion. The negative-side effect of corrupted tax system is that a mantling establishment of the bureaucracy inclines towards seeking additional revenue via loopholes, deductions, exemptions and tax breaks.

Second, despite a moderate degree of economic liberty, Mexico weakly performs in the areas which are essential to sound framework of economic peformance such as the extensive corruption net and discriminatory investment framework. According to World Bank, paying taxes takes 552 hours in Mexico compared to the OECD average of 202,9 hours. This particular indicators purely reflects the complexity and failure of Mexican tax system. Under such conditions, numerous investors prefer to avoid taxes since getting rid of government regulation and directives is less costly than complying with inefficient and onerous tax system.

Here is a brief data on Mexican macroeconomic performance.

The assumption that additional tax revenue measures would induce government's ability to pursue fair redistribution to reduce poverty is false regarding the empirical aspects of income redistribution and research observations on the growth-correlated tax system. Fighting poverty through the prism of government intervention usually returns the opposite results. Instead, there has been much empirical outcome saying that trade liberalization and openness induce poverty reduction. In addition, deregulated labor market and growth-friendly entrepreneurial framework also boost productive behavior which is the ultimate way to avoid and reduce poverty instead of relying on rent-seeking government and tax bureaucracy.

SHOULD BELGIUM BE ABOLISHED?

Sometimes it is right for a country to recognise that its job is done. This is one of the previous headlines in the Economist (link)

The question set in the article "Time to call it a day" is whether Belgium should no longer exist mainly because of the fractions between French-speaking Wallons and Dutch-speaking Flemings. The latest elections thus reflected the revealed political preference of the voters, prefering to vote upon the lines of linguistic roots. In sum, the result was the inability to form the government. The tension heated up as Flemish parliament inevitably considered the declaration of independence. There is a popular quote saying that Belgians have nothing in common except for the king, the football team and some bears. A very delicious chocolate could be added onto that list.

Economically, Brussels could harldy be recognized as a high-tech, free-enterprise powerhouse of Europe. Instead, it gains its strength as a bureaucratic center of Europe, as a city known as a center of government intervention and infamous European-styled central planning and extensive government structure and income redistribution headlined by the European Commission and European Parliament. In spite of the fact that at the end of the World War 2, Belgium was economically far more developed than Ireland, in terms of standard of living as well as in terms of fundamental macroeconomic indicators such as GDP growth and the share of capital formation in the GDP. In 1980, Belgium had a GDP per capita of $9478,99 USD in current prices while Ireland had a GDP per capita of $5746,20 USD. In 2004, after Ireland's supply-side feedback, Ireland's GDP per capita increased five-fold compared to 1980, after inflation adjustment. In contrast, Belgium's GDP increased three-fold between the same period, also after adjusting the GDP per capita with inflation (link).

In the long run, the macroeconomic forecast regarding Belgium is subject to severe structural risk such as ageing population and therefore age-dependency on public retirement schemes and contribution-funded public health care services financed through budget outlays, grabbing a growing portion of the GDP. By 2012, the real GDP growth is estimated to slide down to 0,9 percent (link).

Generally speaking, the splitting-up of Belgium into two separate units could dramatically reduce compliance costs since political decision-making and the ability to fight with long-term demographic pressures originally emerged from labor supply squeeze, and also to fight the disease of onerous government spending and high tax burden. In fact, the benefits of Belgium's abolishment accomplish more openness to individual liberty and the ability to impose the decision-making with fewer painful cost proportions, not just re-assesing the cradle of welfare dependency which has indeed punished the Belgium's international competitiveness compared to high-growing tigers such as Ireland.

Read also:
Libertarec, Time to change Brussels' regime or time to leave (Cas za menjavo rezima v Bruslju ali cas za odhod)

SERBIA: SOUND GROWTH PROSPECTS, BUT STILL MUCH ROOM FOR IMPROVEMENT

Here is report on Serbia's economy written by Financial Times:

"Gross domestic product (GDP) grew about 6 per cent last year, a steady repeat of 2005. Inflation, which dogged Serbia two years ago, has been tamed with the help of a determined central bank, shrinking last month to an annual rate of 3.3 per cent."

U.S. HOUSEHOLD RETAIL SPENDING FALLS AS HOUSING SECTOR SLUMPS

The Financial Times reports about the decline in periodic retail sales in the U.S. presumably to the impacts of the housing market turmoil.

As prices weakened, the lending practice has become far more restrictive, reflecting the experience of sub-prime mortgages. In fact, this particular shock outbursted the sell-off in the capital markets which heated the situation close to panic, leading to price corrections respectively. Despite the recent news about the possible interest rate cuts by the FED, borrowing conditions have become tighter. In turn, immediate market sell-offs sprang out a highlighted price reductions and a downslide of stocks and bonds.

In effective terms, the indicators in the U.S. financial market envisage a high degree of uncertainty in the future, especially due to the aggresive assertions of the interest rate cutting and due to housing and sub-prime mortgage slid. I believe the confidence index will play the major role in regaining the positive outlook of financial markets which crucially determines the dynamics of household spending particularly on retail consumption.

WHY CORPORATE TAXES ARE BAD

PROSPERITY, COMPETITION AND EUROPE

Here is the answer to the question how European economy and society prospered from competition and free exchange:

Johnny Munkhammar, What Competition Has Done for Europe, European Enterprise Institute, 2007 (link)

THE COLLECTIVISM OF THE EUROPEAN TRADE UNIONS

The movement of the European trade unions recently denounced Bulgaria for having one of the least punitive and most growth-friendly tax systems in the EU.

MALAYSIA'S MODEST CORPORATE TAX CUT

Malaysian Prime Minister Abdullah Ahmad Badawi announced another 1% cut in the rate of corporate tax in the Malaysian government budget. In addition, several other measures have been introduced to boost the investment, revenue and capital formation.

By 2009, the corporate tax cut proposal is expected to be reduced by an additional percentage point down to 25 percent. Despite a tax cutting "slow-motion" of slashing the corporate tax rate by 1 percent annually in the last two years, the aggregate corporate tax burden is estimated to reduce. The rate fell by 1 percent to 27 percent this year, and will bring about a further 1 percent cut next year.

Tax news reports that: "...announced a generous package of tax breaks for the investment industry in an attempt to consolidate and build upon Malaysia's position as one of the leading centers for Islamic finance. As a result of the budget measures, fund management companies will be given income tax exemption on all fees received for Islamic fund management activities until the 2016 year of assessment. Furthermore, the government's pension scheme, the Employment Provident Fund (EPF), will channel about 7 billion ringgit (US$2 billion) to be managed by Islamic fund management companies. Also, these companies will be permitted to be 100% foreign-owned, and will be able to invest all their assets overseas."

In addition to a mere modification of the tax system, Malaysian government further deregulation stock-broking licensing procedures by allowing the entry to the companies that can source the investment funds.

However, the new tax proposal seems to be discriminatory to international investors as government decided to slash the entry barriers only to investors from Arab countries and the Middle East. Among other measures, a a 50% stamp duty exemption on the purchase of a house worth less than 250,000 ringgit (US$72,000) has been launched.

Malaysia's currently ranks 48th internationally and 8th regionally in economic freedom, scoring significantly better than Slovenia.