The Chancellor of the Exchequer George Osborne has floated the idea of a lower than 15 percent business tax rate in the UK as an attempt to offset the costs associated to leaving the European Union, which would bring it down from the current 20 percent and put it very close to the 12,5 percent tax rate that is applied in Ireland.
The newly intended corporate tax rate would place it substantially lower than the average 28.7 percent corporate tax rate as applied in the G20 world’s leading economies.
There is no doubt whatsoever that, in case the tax downward revision would take place, that will not please at all countries like Germany, France and other EU
member states.
Of course, one cannot consider that entirely in abstract. Reduced fiscal revenue will require an examination of where alternative revenues may be required or where spending cuts need to be made.
In this context, it could be interesting to recall that in 2015, the United States had the third highest corporate income tax rate in the world at 39 percent and, which is certainly much more damaging to the U.S. home based corporates, it had the highest corporate income tax rate among the 34 industrialized nations of the Organization for Economic Co-operation and Development (OECD) and was 16 percentage points higher than the worldwide average of 22.8 percent and a little more than 9 percentage points higher than the worldwide GDP-weighted average of
29.8 percent.
It will be interesting to see, from an investor’s standpoint of course, if we’ll really get serious actions of lowering U.S. corporate taxes after the elections.
Coming back for a moment to the Brexit sage, I had to think back at what “Yogi” Berra, who was one of only five players to win the American League Most Valuable Player Award three times used to say, “It ain’t over till it’s over,” when on Sunday, one of London’s biggest law firms “Mishcon de Reya LLP,” which has offices in London and New York, gave a
press release wherein it informed it is taking legal steps to ensure Britain does not trigger Article 50, which formally begins the process of leaving the European Union, without an Act of Parliament.
I touched this subject here a week ago by pointing at the legal position of UK’s Parliament, which is
“Omnicompetence of statute.”
Kasra Nouroozi, a Mishcon de Reya LLP partner said: “We must ensure that the Government follows the correct process to have legal certainty and protect the UK Constitution and the sovereignty of Parliament in these unprecedented circumstances … the outcome of the Referendum itself is not legally binding and for the current or future prime minister to invoke Article 50 without the approval of Parliament is unlawful.”
I cannot read what is written in the stars and I certainly don’t say investors should now have doubts that Brexit couldn’t happen, but the legal action undertaken by the London law firm could have the potential, which doesn’t mean the probability, of a considerable surprise that could upset markets in a big way in case it would happen. And yes, always, one is always better warned beforehand than being caught by surprise after things have happened.
Meanwhile in the Euro area we had producer price inflation (PPI) that remained in deflationary territory and which, on a yearly basis, fell 3.9 percent in May for the total Eurozone industry and, excluding energy,
fell by 1.2 percent.
PPI deflation does matter, especially if one strips away the energy prices because the deflation of producer prices represent weaker pricing power for listed companies, and is a far better indicator for profits than what consumer price inflation (CPI) does.
In Australia, the final result of the general election is still unclear. Not all the votes have been counted and it seems too close to call. However, it seems unlikely that any one party will hold the majority on the basis on the votes counted so far.
The media is focusing on the fact that the two main parties have the lowest share of the votes since 1943 as being a signal of
anti-establishment politics.
We are living in interesting times where the abnormal seems to have become the new normal, which is of course an arrogant and dangerous way of life.
Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles,
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