World Competitiveness Scoreboard 2005

World Competitiveness Scoreboard 2005

The World Competitiveness Yearbook (WCY) is the worldÂ's most renowned and comprehensive annual report on the competitiveness of nations, ranking and analyzing how a nationÂ's environment creates and sustains the competitiveness of enterprises.
- Features 60 national and regional economies
- Overall ranking; rankings by population size; rankings by peer group and regional rankings
- Includes 314 different criteria, grouped into four Competitiveness Factors
- Hard data are taken from international and regional organizations and private institutes
- Survey data are drawn from the Executive Opinion Survey (4,000 respondents)
- Aggregates data over a 5-year period
- Ensures accuracy through collaboration with 57 Partner Institutes worldwide
- Published without interruption since 1989

TAXES AND COMPETITIVENESS – IS THERE ANY LINK?
(All quotes can be attributed to Professor Stéphane Garelli, IMD)

Â"Many business and political leaders intuitively feel that lower taxes sustain competitiveness by boosting investment and personal spending. It may be true. However, the findings of the World Competitiveness Yearbook 2005 indicate a subtler link. The competitiveness of Luxembourg, Denmark, Finland, Norway, Sweden, and Belgium was good in 2004 – the highest economic growth rates in continental Europe – despite a significant overall tax pressure (above 40% of GDP). At the same time, the US, Australia, Estonia, Ireland and the Slovak Republic had remarkable growth rates while relying on much lower taxes (between 25% and 34% of GDP). Finally, Japan and Switzerland have both shown very weak economic growth over the past ten years in spite of low total tax pressure (27% and 30% respectively)! Clearly any link between taxation levels and competitiveness performance is far from evident at first glance.

The first observation is that competitiveness reacts differently to the various types of taxes that are levied. A direct impact is more easily established between corporate taxation and competitiveness than with personal, social or indirect taxes. As a consequence, Northern European nations heavily tax personal income and consumption but spare corporate profits.

The second observation is that taxes are perceived in general as fuelling excessive government spending. Here again, a direct correlation with competitiveness is hard to establish. Sweden, the Netherlands, Denmark, Finland or the UK display high levels of government spending, in excess of 20% of the GDP, and high competitiveness performance. At the other end of the spectrum, only 11% of the GDP of Singapore and Hong Kong goes towards government spending and they also have a top competitiveness performance. It would appear that the efficiency and quality of government expenditure matter more than the size.

So what? Tax policy is no substitute for competitiveness. The level and type of taxation can enhance or hinder competitiveness, but cannot create it. The real Â"enginesÂ" of competitiveness are science, technology, entrepreneurship, finance, logistics and education. Tax still matters in as much as it is part of the overall cost of doing business- one of the major reasons why companies relocate abroad. Thus, the real impact of taxes is on job creation or destruction. A higher cost of business can be somewhat offset by improving the ease of doing business. Thus, it would appear that as far as competitiveness is concerned, the simplicity of the tax system is just as important as the level of taxation per se. In this regard, a simpler flat tax system may be more valuable in the long run than a complex low tax regime.Â"

Ranking
1. United States
2. Hong Kong
3. Singapore
4. Iceland
5. Canada
6. Finland
7. Denmark
8. Switzerland
9. Australia
10. Luxembourg
11. Taiwan
12. Ireland
13. Netherlands
14. Sweden
15. Norway
16. New Zealand
17. Austria
18. Bavaria
19. Chile
20. Zhejiang
21. Japan
22. UK
23. Germany
24. Belgium
25. Israel

Full Ranking : http://www.imd.ch/documents/wcc/cont...erallgraph.pdf

HIGHLIGHTS FROM THE WORLD COMPETITIVENESS LANDSCAPE IN 2005

• 1. The uneven growth rates between Asia, the US, Latin America and Europe, (but also inside regions such as between Eastern and Western Europe) continue to create economic and political tensions.

• 2. Persistent deficits in the US maintain a weak dollar and exacerbate the instability of currencies now divided into three main monetary zones: Dollar, Euro and Yen.

• 3. AsiaÂ's strong appetite for raw materials and the US need for capital increase the prices for commodities and money.

• 4. A rise in interest rates, especially in the US, can in turn jeopardize economic growth and hamper the borrowing capacity of many emerging nations.

• 5. As a consequence, inflation that had completely disappeared because of the intensity of global competition resurfaces as a source of concern.

• 6. A growing gap is also developing between the performance of the global economy, which is good, and the domestic sector, which is less buoyant, especially in Europe.

• 7. A similar disparity occurs between Anglo-Saxon economies, which thrive on consumption, and sometimes debt, and other nations mainly in Continental Europe and Asia, which prefer to thrive on investment and saving.

• 8. A significant disparity in labor costs among industrialized and emerging nations continues to be the main factor for the relocation of activities worldwide.

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