Paying the bill_onderzoek_stimuleringsmaatregelen

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Hopes are high, and indications are promising, that the global recession that began in 2008 is technically now over. And, like all the similar global economic crises that have preceded it, it casts a long shadow.



The consequences for public finance and taxation are challenging, as governments work to manage and reduce the debts that many have incurred in their stabilization efforts.



KPMG commissioned an international study, examining the views of businesspeople around the world on the succes or failure of their governments' economic stimulus programs, and on the best way to deal with the resulting public debt.



KPMG spoke to nearly 600 senior corporate decision makers from 26 countries. Their response revealed a clear divide between the US, Europe an the Asia-Pacific countries on the value of government intervention.



This report summarizes the results of this survey, and offers some insights into the possible future direction of public revenue policy around the world.

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  • 1. TAXPaying the Bill kpmg.com KPMG INTERNATIONAL
  • 2. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 3. ContentsIntroduction 2 The European Experience 29 Belgium 30Commentary  3 Czech Republic 31 A Global Success Story? 3 France 32 Big Spending no Route to Popularity 4 Germany 33 Government as Partner vs. Government as Burden 6 Hungary 34 Ireland 35Paying the Bill 8 Italy 36 The Case for Tax Rises 10 Netherlands 37 Value for Money 11 Poland 38The Americas Experience 12 Russia 39 Argentina 14 Slovakia 40 Brazil 15 Spain 41 Canada 16 Switzerland 42 Chile 17 United Kingdom 43 Mexico 18 United States  19The Asia-Pacific Experience  21 Australia 22 China 23 Hong Kong 24 India 25 Japan 26 Singapore 27© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 4. 2 | PAYING THE BILLIntroductionHopes are high, and indications are promising, that the These views on taxation are important, because theyglobal recession that began in 2008 is technically now represent the considered opinions of influential people,over. And, like all the similar global economic crises that who governments often turn to for advice. The extent tohave preceded it, it casts a long shadow. The potential which they will be reflected in actual policy decisions isconsequences of the recession in reduced opportunities something that can only emerge over time.for growth, lost jobs, new and increased regulatory This report summarizes the results of our survey, and offersframeworks and a simple reluctance on the part of many some insights into the possible future direction of publicpeople to boldly seize opportunities and risks that only two revenue policy around the world. We hope it will be of valueyears ago they would have considered a minor matter, will to policymakers, businesspeople, tax directors, CFOsbe with us for some time. and commentators, indeed anyone with a keen interest inThe consequences for public finance and taxation are the future development of global commerce and the roleequally challenging, as governments work to manage taxation should play in it.and reduce the debts that many have incurred in theirstabilization efforts.To coincide with KPMG’s latest European Tax Summit1,we have commissioned an international study, examiningthe views of businesspeople around the world on thesuccess or failure of their governments’ economicstimulus programs, and on the best way to deal with theresulting public debt. The effect on future tax initiatives isat the core of this discussion.Our researchers spoke to nearly 600 senior corporatedecision makers from 26 countries. Their responsesrevealed a clear divide between the US, Europe andthe Asia-Pacific countries on the value of governmentintervention, but much agreement on what tax and Ernst Gröblspending policies governments should adopt in future. Head of Tax, EMEA Region1 The 2010 KPMG EMEA Tax Summit in Prague, September 29 to October 1, 2010. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 5. PAY I N G THE BIL L | 3CommentaryA Global Success Story?By the standards of past international economic crises, the range of industry sectors, with annual revenues rangingresponse of governments to the global crisis that broke in from less than US$ 1 billion to more than US$ 5 billion. The2008 was swift, effective, and broadly successful. In varying countries represented were:degrees around the world, governments stepped in toincrease public spending, boost the supply of money in the Argentina Irelandeconomy and guarantee the health of important commercial Australia Italyenterprises. It was a concerted wave of public interventionin economic life that has not previously been seen outside Belgium Japantimes of war. Brazil MexicoThe immediate results are apparent in the speed with Canada Netherlandswhich many economies have returned to growth, or have Chile Polandresumed something approaching the levels of growth that China Russiathey were enjoying pre-2008. But even for the most resilientof economies, there is a price to be paid for government Czech Republic Singaporeintervention on this scale, in public debt that must be France Slovakiaserviced and ultimately repaid. Germany SpainFor many, especially those who are not convinced that Hong Kong Switzerlandgovernment stimulus programs were indeed a majorcontributor to avoiding depression, this price may be too high2. Hungary UK India USAs the generators of wealth from which the means to paythis price must come, businesses across the world clearlyhave an interest in what happens next. So, to discover what This report summarizes the responses we received. Itview businesspeople are taking of the efforts that their provides some insight into the views businesspeople aregovernments have made to keep their economies afloat, taking of the effectiveness of interventionist policies, andand how they think the resulting debt should be handled, their expectations for future policy on public revenues andKPMG’s Global Tax practice commissioned a research taxation.project covering nearly 600 senior corporate decision-makers in 26 countries.Independent researchers carried out telephone interviewsin April and May 2010. Their respondents were chiefexecutives and senior officers of companies in a wide2 I n this document, we use the phrase “government stimulus programs” to include all forms of government-led intervention with the aim of maintaining or boosting economic activity to counteract the effects of recession. This includes increased borrowing to support increased spending and bridge deficits as well as more formal intervention programs. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 6. 4 | PAYING THE BILL39% Big Spending no Route to Popularity Last year, in an international study governments had an important role to of business strategies for managing play, were much more likely to see a and surviving recession3, we found route to recovery through businesses that there was a clear divide between consolidating, regrouping and expandingEuropean businesses who the businesses of Europe and North into new markets.believe they are out of America, and those of the Asia-Pacificrecession, 39 percent say If the increase in public debt over 2008 countries.this is due to a recovery levels is a measure of the size of thein exports, and a further Put simply, Europeans and Americans stimulus programs that governments39 percent believe it is saw the crisis as a matter primarily put in place, then it seems thatdown to a recovery in needing decisive government governments broadly shared the viewsconsumer spending. action, while Asians, Chinese, and of their businesspeople. Singaporeans, although they thought Change in net debt as % of 2008 level4 80 73% 70 69% 60 53% 51% 50% 50 44% 41% 40 31% 30 25% 24% 20 18% 16% 14% 14% 14% 15% 15% 12% 10% 10% 11% 10 8% 8% 5% 0 0% -10 -20 -30 -35% -40 Chile Hungary Japan Czech Republic Argentina Belgium Germany Australia India Brazil China UK Switzerland Italy France Spain Russia Netherlands Slovakia Ireland Mexico Poland Hong Kong Singapore Canada USA 3 “  Never catch a falling knife” KPMG International, 2009 4 S  ource: Economist Intelligence Unit. The EIU is the source of all public net debt information in this document.© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 7. PAY I N G THE BIL L | 5The countries with the largest increases interventions would bring them some recovery for 45 percent, followed byin net debt are those where government support, they were sadly mistaken. This reduced interest rates, chosen byintervention was most demanded: year’s survey shows that among the 41 percent. Government stimulusIreland, Spain, the UK, Australia, the European businesses who believe they packages came third, chosen byCzech Republic, and the US. China, are out of recession, 39 percent say this 34 percent.Japan, Singapore, Russia and India is due to a recovery in exports, and a Among Asia-Pacific respondents,seem to have been relatively restrained further 39 percent believe it is down to however, government action is thein their spending, matching the less a recovery in consumer spending. Only clear winner, chosen as the maininterventionist preferences of their 24 percent attribute recovery to their contributor to recovery by 74 percent ofbusinesses. government’s stimulus package. respondents, with consumer spendingBut if the governments of Europe and In the Americas, increased consumer second, on 48 percent, and exportthe US thought that the size of their spending was the main contributor to recovery third on 41 percent.In EMEA and Americas the private sector has driven growth. 74% of ASPAC companies feel the recovery isdriven by their governments’ stimulus packages5Europe Asia Pacific Americas Recovery in exports 39% Government stimulus package 74% Consumer spending recovery 45% Consumer spending recovery 39% Consumer spending recovery 48% Reduced interest rates 41% Reduced interest rates 28% Recovery in exports 41% Government stimulus package 34%80 80 80 74%70 70 7060 60 6050 50 48% 50 45% 39% 39% 41% 41%40 40 40 34% 33% 32%30 28% 30 29% 30 24% 23% 19%20 20 20 12% 13% 10% 11%10 10 9% 10 6% 5% 6% 6% 3% 5% 4% 1% 1% 2% 2% 2% 1% 1% 1% 0 0 0 Recovery in exports Consumer spending recovery Reduced interest rates Government stimulus package Change in value of the currency Housing market recovery Market recovery Other Political change None/nothing Access to credit DK Government stimulus package Consumer spending recovery Recovery in exports Housing market recovery Reduced interest rates Change in value of the currency Political change Market recovery Other Access to credit None/nothing DK Consumer spending recovery Reduced interest rates Government stimulus package Recovery in exports Housing market recovery Change in value of the currency Political change Market recovery Other Access to credit None/nothing DKSource: Q. What have been the most important factors driving this recovery?5Base: All who believe they are out of recession (283) © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 8. 6 | PAYING THE BILL Government as Partner vs. Government as Burden It is possible, of course, that about the levels of public debt their respondents from the Asia-Pacific governments have incurred, we might countries are reacting favorably to their expect low levels of support for stimulus governments’ actions precisely because programs and a clear desire for them the impact on levels of public debt has to be brought to a close as rapidly as been relatively low. possible. This is especially true if they are not thought to have been particularly Many of these countries were touched successful. relatively lightly by the effects of the recession, and some are now reporting This hypothesis is partly borne out by growth rates comparable with those our research, but not completely. There experienced pre-2008. If people in the are high levels of concern about public Asia-Pacific countries are seeing good debts in most of the large European results from relatively low levels of economies and the US. Concern is additional public expenditure, then we generally much lower in China, India, might expect them to approve of this Russia and Singapore (Argentina and and want it to continue. Japan stand out as exceptions, most likely due to their particular histories of Conversely, in those countries where major economic difficulty). businesspeople are most concerned Percentage of respondents very or extremely concerned about public debt levels6 80 75% 75% 70% 70% 70% 70 65% 60 55% 55% 56% 53% 50% 50 45% 40% 40 35% 35% 35% 30 25% 25% 25% 20% 20% 20 10% 10% 10 5% 5% 5% 0 Chile India Spain USA Switzerland Hungary Poland UK Singapore Canada Italy Ireland Russia Mexico Argentina Slovakia Hong Kong Australia France Czech Republic China Belgium Germany Netherlands Brazil Japan 6 Source: KPMG International, May/June 2010© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 9. PAY I N G THE BIL L | 7But when we asked people how soon in favor of keeping these programsgovernment stimulus plans should be going for a year or more once growthwithdrawn following a return to growth, had returned. In the US and Canada,a subtly different picture emerged. In there were majorities in favor ofIndia, China, Russia and Singapore, as withdrawing them immediately.we might expect, there were majoritiesSlovakian and US businesses are most keen to remove the fiscal stimulus quickly on returning to growth –Russia and Ireland prefer to wait the longest7100 5% 5% 9% 10% 15% 20% 80 25% 25% 25% 28% 30% 35% 35% 35% 35% 37% 35% 25% 38% 45% 55% 70 32% 48% 40% 55% 55% 55% 65% 60% 40% 35% 25% 60 75% 5% 30% 35% 25% 35% 50 19% 25% 30% 35% 30% 30% 20% 27% 48% 40 20% 25% 10% 15% 15% 5% 10% 30% 30 15% 40% 5% 35% 55% 45% 10% 10% 30% 30% 25% 33% 20% 30% 23% 24% 15% 5% 40% 20 25% 5% 30% 20% 30% 15% 25% 30% 30% 20% 15% 5% 5% 5% 25% 10 10% 10% 20% 10% 20% 10% 5% 5% 13% 3% 5% 10% 10% 10% 10% 10% 10% 10% 7% 6% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 0 Total Slovakia USA Canada Australia UK Germany Czech Republic France Netherlands Hungary Belgium Brazil Japan Argentina Switzerland Spain Italy Poland Chile Mexico Hong Kong India China Singapore Ireland Russia Other, None/Nothing, DK 12 months after a return to growth Immediately following a return to growth Two years after a return to growth 6 months after a return to growthIn many European countries, however, on recovery of a rapid withdrawal of anything that might possibly contributethere was significant support for government support. to future growth.keeping government support programs It’s interesting to compare this with European businesspeople doin place for six months or longer, despite our earlier finding, that European understand the cost of this approach,the high levels of concern expressed in respondents place their governments’ but given the perceived threats to theirthese countries over public debt. There stimulus packages only fourth in the list prosperity from new competitors inis clearly an ambivalent view among of factors promoting recovery. Perhaps Asia Pacific and declining markets inEuropeans, who do not welcome the this result reflects a general lack of the US, it appears to be a price they areprospect of higher taxes or public confidence in the prospects for further prepared to pay.spending cuts to pay down public debts, recovery, and a wish to keep in placebut are anxious over the possible impact7 Source: KPMG International, May/June 2010 © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 10. 8 | PAYING THE BILL Paying the Bill54%Public spending is morepopular among Asia-Pacific Raising revenues outside the tax systemrespondents, but even For those who wanted governments to concentrate on raising revenueshere, 54 percent chose outside the current tax system, the most favored option globally andcuts in spending as their regionally was to sell off public assets. This was chosen by 38 percentpreferred method of in Europe, 48 percent in the Asia-Pacific countries and 36 percent in thereducing public debts. Americas. A popular option was to increase levies on foreign companies. This was the second most popular choice globally, and was equal first in the Asia-Pacific countries alongside selling public assets. Third most popular globally was increasing direct fees for public services, chosen by 37 percent. Other options, including increasing cost efficiencies and raising exports, were not popular solutions, possibly because they were seen as too long term to be of much help in dealing with the immediate need for revenues, or things that governments should be doing anyway. The overwhelming message from Cuts in defence spending were respondents to our survey is that surprisingly popular, but it is hard to they do not want to pay down public draw any general inferences from debt through increased taxes. Seven this, since so much of a country’s out of 10 said that debt should be perceived need for defence arises reduced primarily through cuts in public from local circumstances and history. spending, rising to 77 percent among Nevertheless, it’s interesting to note that Europeans. the Irish were again most keen on this form of saving, with 83 percent in favor, Public spending is more popular among followed by the Swiss on 82 percent and Asia-Pacific respondents, but even respondents from the UK on 75 percent. here, 54 percent chose cuts in spending Least in favor was Argentina on only as their preferred method of reducing five percent, followed by Brazil on 11 public debts. percent, Russia on 18 percent and India Asked which aspects of public spending and Italy on 20 percent. should be cut, public sector pay is Support for public investment in the most popular option, chosen by infrastructure held up well in most 53 percent globally, followed by defence countries. There were majorities spending (47 percent) and welfare in favor of maintaining this area of payments (34 percent). spending in all countries except Japan Votes for and against cuts in public and Hong Kong, where views were sector pay were balanced fairly evenly evenly split for and against reductions among countries, with Ireland scoring in spending, and in China, where a a remarkable 100 percent in favor, and remarkable 61 percent wanted to see only 12 percent choosing this option infrastructure investment cut. among the French.© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 11. PAY I N G THE BIL L | 9Where should the spending axe fall?8 Public infrastructure investment Public sector pay Welfare payments Defense spending Respondents Country % Respondents Country % Respondents Country % Respondents Country % 411 Total 24% 411 Total 53% 411 Total 34% 411 Total 47% 18 China 61% 18 Ireland 100% 18 Ireland 83% 18 Ireland 83% 10 Japan 50% 16 Mexico 94% 24 USA 58% 11 Switzerland 82% 6 Hong Kong 50% 7 Singapore 86% 18 China 56% 32 UK 75% 7 Singapore 43% 10 Japan 80% 11 Switzerland 55% 8 Chile 75% 11 Russia 36% 32 UK 78% 32 UK 50% 17 Spain 71% 17 Spain 35% 19 Hungary 68% 7 Singapore 43% 7 Singapore 71% 18 Ireland 33% 18 Brazil 67% 15 Czech Republic 40% 16 Mexico 69% 24 USA 33% 15 Poland 60% 18 Netherlands 39% 18 Netherlands 61% 19 Hungary 32% 10 India 60% 17 France 35% 27 Germany 59% 10 India 30% 15 Australia 60% 15 Poland 33% 24 USA 58% 32 UK 28% 20 Slovakia 55% 15 Australia 33% 12 Canada 58% 15 Czech Republic 27% 13 Belgium 54% 19 Hungary 32% 13 Belgium 54% 17 France 24% 6 Hong Kong 50% 13 Belgium 31% 20 Slovakia 50% 18 Netherlands 22% 17 Spain 47% 10 Japan 30% 15 Australia 47% 11 Switzerland 18% 11 Switzerland 45% 17 Spain 29% 17 France 41% 12 Canada 17% 11 Russia 45% 19 Argentina 26% 15 Czech Republic 40% 27 Germany 15% 12 Canada 42% 20 Slovakia 25% 6 Hong Kong 33% 13 Belgium 15% 27 Germany 41% 12 Canada 25% 10 Japan 30% 15 Italy 13% 15 Czech Republic 40% 15 Italy 20% 18 China 28% 16 Mexico 13% 19 Argentina 37% 10 India 20% 15 Poland 27% 15 Australia 13% 15 Italy 33% 27 Germany 19% 19 Hungary 21% 19 Argentina 11% 24 USA 33% 16 Mexico 19% 15 Italy 20% 20 Slovakia 10% 18 China 33% 18 Brazil 11% 10 India 20% 15 Poland 7% 8 Chile 25% 11 Russia 11 Russia 18% 18 Brazil 6% 18 Netherlands 22% 8 Chile 18 Brazil 11% 8 Chile 17 France 12% 6 Hong Kong 19 Argentina 5%Source: Q. You said that revenues should be diverted to debt repayments from public spending, which areas of public spending do you think should be cut?Base: All selecting Code 5 at Q12 (411)Calls for cuts in public spending are hardly a new phenomenon factors in the development of international commercial life inin times of economic difficulty. But in some countries, the the past decade. It is arguable that these influences have notstrength of opinion shown here in favor of reducing public been equally felt in the corresponding public sectors.sector remuneration packages is remarkable, and it is While business was booming, this was perhaps not a majorinteresting to look for a correlation between this and the priority for businesspeople. But with business poor andchanges that have taken place in the private sector in these public debt a growing issue, it appears that businesspeoplecountries. in these countries are now looking for governmentFor many in these countries, labor force reductions, changes employees to implement the same improvements inin contracts resulting in reduced job security, improvements efficiency and reductions in cost that they have had toin efficiency and increased competition have all been major accept in the recent past.8 Source: KPMG International, May/June 2010 © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 12. 10 | PAYING THE BILLThe Case for Tax Rises Raising revenues from the in Europe (chosen by 70 percent) and in the Asia-Pacific countries (59 percent). But, again, it was not a favored tax system option in the Americas, supported by only 26 percent of respondents, who ranked it alongside raising tax rates Among the small number of respondents who thought that on personal incomes and introducing new taxes on revenues should be raised through existing tax systems, consumption, environmental damage and land use. the clear priority was to explore all options before resorting If taxes do need to be raised, then the preferred option in to increases in tax rates or new taxes. Asia–Pacific and Europe is new or higher indirect taxes Globally, seven out of 10 chose closing exemptions (62 percent and 63 percent respectively), followed by taxes and loopholes in existing tax legislation, and increasing linked to the environment (47 and 46 percent). Higher taxes enforcement action against tax evasion, as their top priorities. on corporate profits were chosen by 37 percent in Europe, 32 percent in Asia-Pacific, and 30 percent in the Americas, These two options were especially popular in Europe, making it the most popular tax-raising option among chosen by 83 and 80 percent of respondents respectively, American respondents. but although they were the most popular options in the Americas, the level of support was much lower, at Higher taxes on larger personal incomes were relatively 57 percent for more action against tax evasion, and popular in the Asia-Pacific countries, chosen by 44 percent 43 percent for reducing exemptions and loopholes. There and well ahead of a more general rise in income taxes, which are a number of possible explanations for this; different attracted support from only 18 percent. But elsewhere, experiences that businesses in these two regions have higher taxes on higher incomes were the least popular had in their dealings with the tax authorities could be one. option, chosen by 26 percent in Europe and only 13 percent in the Americas. A focus on taxing the rich is clearly not seen More international co-operation on challenging tax havens as a sensible solution to public debt issues in these regions. and scrutinizing transfer pricing was also a popular optionThis enthusiasm for public spending There was a moderate amount of This group may be a small minoritycuts presents governments with a support among our respondents for tax among their peers and competitors, butdifficult political problem. Spending cuts rises if these were ring-fenced and used they do seem to be well-attuned to theare always hard to implement, especially specifically to pay back debt. Globally, thinking of many governments on taxin democracies and particularly when 19 percent supported this idea, making policy. A majority (55 percent) of thosethose having to bear the main impact it third most popular option after cutting in favor of a rise in taxation preferred aare the government’s own employees. public spending and finding means rise in indirect taxes to all other options, other than increased taxation. and it appears that this view is shared byFor many of the countries surveyed, governments.Ireland, Spain, the UK, the US, The countries most keen on this optionFrance, Italy and Japan among them, were the UK (65 percent in favor) and Over the past decade, KPMG hasit is far from clear that reductions in Japan (60 percent in favor). Least keen, documented a slow global move awaypublic spending would be enough, with no support at all for this idea, were from taxes on corporate incomesby themselves, to make significant the Netherlands, Italy, Poland, Russia and towards indirect taxes. That movereductions in levels of public debt. and Slovakia. seems to be accelerating this year. As at the beginning of August 2010,Unless governments are comfortable But a general tax rise was not a popular we have noted plans by 10 countriessimply accepting current levels of debt choice for any of our respondents. Only to increase their rates of VAT or GST.and working to meet interest payments one percent globally chose this as an A further two countries, China and India,(an option which was favored by acceptable means for governments to plan to introduce new consumption tax16 percent of respondents to our manage their debts. systems between 2010 and 2013.survey), they will have no choice butto raise taxes in one form or another.© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 13. PAY I N G THE BIL L | 11 Tax rate preferences Views in the Americas were more focused, with 36 percent opting for 20-30 percent and an average of 24 percent. This For all the debate that rages around the world on compares with an actual average rate for the Americas of where countries should set their tax rates to be fair and 27 percent. competitive, the broad consensus among the respondents On consumption taxes, a majority of Europeans (55 percent) to our survey seems to be that rates in their country should opted for a rate of 15-20 percent with an average of be more-or-less where they are now, or perhaps a bit lower. 17 percent. In the Asia-Pacific countries the largest This view emerged from answers to three questions, group (48 percent) chose 5-10 percent with an average asking what people thought was the most appropriate rate of 9 percent, and the Americans were split between of corporate profits tax, consumption tax (VAT or GST) and 5-10 percent, and 15-20 percent, with an average of higher rate personal income tax for their country. 12 percent. Taking corporate taxation, 39 percent from the Asia- The rates chosen for higher personal taxes told a slightly Pacific countries said it should lie between 20 percent different story. Europeans were happy with rates of 40 and 30 percent, while 38 percent opted for 10-20 percent. percent plus, while Americans chose a wide range of The average preferred rate was 22 percent, just a options from 10-40 percent. Those in the Asia-Pacific little lower that the actual average among Asia Pacific countries were clearly in favor of lower personal taxes, countries which, at the time of the research, stood at with the largest group (34 percent) choosing a maximum 27.5 percent9. of 10-20 percent. In Europe, there was an equally wide range of views, The evidence suggests that the basic contract between with 76 percent of respondents choosing something government and business is much the same in different between 10 percent and 30 percent. The average chosen parts of the world, in terms of levels of service provided for was 24 percent, a fraction higher than the actual EU an acceptable level of payment. The differences arise when average corporate tax rate of 23.2 percent. we consider what different cultures believe it is appropriate for governments to do, and how this activity should be funded.Value for MoneyIt is rare that we get such a strong taxes, and likely to include newresult from an international survey environmental levies, real estateof businesspeople. The vote against taxation and possibly increased personalgeneral increases in taxation is as clear income taxes as well. The arithmeticas it can be. Unfortunately, there is of public finances demands it. Butevery indication that businesses are as a price for avoiding the worldwidegoing to be disappointed in their desire depressions that have wrought havocfor the bulk of revenue raising to come in the past, some might say that, donefrom public spending cuts. fairly and with restraint, this represents very good value.The world seems to be set for a periodof tax rises, focused on consumption9 All actual average figures taken from KPMG’s Corporate and Indirect Tax Rate Survey 2009 © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 14. 12 | PAYING THE BILLThe AmericasExperienceThe Southern American states in our survey which seems to have played a very influentialseem to have come out of the problem years in role in keeping many economies, not justreasonably good shape. that of the US, from more serious recession. Investments in the US auto industry, forChile has the lowest level of public sector debt example, are now seen to be reaping benefits,of any of the countries we have polled, and a and the backing provided for US financialcomparatively high level of satisfaction with institutions has played a major part in promotinggovernment action. Argentina, given its history stability.of financial difficulty, is showing good signs ofrecovery, and Brazil is thought to be on course However, US businesspeople are realistic into become one of the five largest economies in their assessment of the burden of public debtthe world. they will have to deal with, and many do expect higher levels of taxation in one form or another.But the closer we get to the US, the strongerthe effect of that economy’s difficulties on the Just as the US stimulus program has hadsurrounding countries. Both Mexico and Canada an impact on economic activity beyond itshave stayed relatively untouched by recession, borders, so we might expect the US solutionbut both have been adversely affected by the to the problem of elevated public debt to haveproblems experienced by their most significant an influence elsewhere. The particular blendneighbor. of spending and fiscal measures that the US eventually chooses to help manage its problemsThere is admiration in many corners of the world is of profound interest to the rest of the world.for the US Government’s stimulus program,© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 15. PAY I N G T HE BIL L | 13 Argentina Brazil Canada Chile Mexico United States© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 16. 14 | PAYING THE BILL Argentina14%The Government’sstimulus package is Despite being one of South America’s largest economies, Argentina has been buffeted by some exceptionally difficult economic challenges in recent years. Yet it has managed to retain its place as one of the G20 largest economies in the world.credited by just 14percent of businessesas having an impact According to 79 percent of Argentinean There is less consensus when it comeson the recovery. businesses, a revival in exports has to exactly where these cuts in public driven the country’s recovery out of spending should be made. The most recession – only Hungary has a more popular area (37 percent) is public optimistic view of the effect of exports sector pay, while 26 percent want a on recovery. reduction in welfare payments. Public sector infrastructure is the target for An upsurge in consumer spending 11 percent of businesses, with only five is seen as a significant contributor percent wanting the Government to cut by 43 percent of respondents and spending on its defence programme. 36 percent welcome the reduction in interest rates. The Government’s stimulus package is credited by just 14 percent of businesses as having Q: What have been the most an impact on the recovery. important factors driving this However, there is ambivalence recovery? towards the fiscal stimulus, in that 79 that respondents still want to retain it, at least in the short term. 30 percent want to see the package remain in place for at least another year, although a similar number (35 percent ) believe 43 the stimulus should be withdrawn as 36 soon as the recession ends. Argentina’s current debt level stands at 48 percent of GDP a figure that has , 14 remained level since 2008, and it is absolutely clear what businesses think the Government should do about this. Most of the respondents (95 percent) Recovery in exports would like to see cuts in public spending Consumer spending recovery and 25 percent want the Government to service the debt and look to meet Reduced interest rates interest payments at the same time. Government stimulus package It is interesting to note that all the respondents agree that the ‘do nothing’ Base: All who believe they are out of option is not desirable. recession (14)© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 17. PAY I N G T HE BIL L | 15BrazilWith exports continuing to boom, Brazil is expected to become oneof the five largest economies in the world in the coming decades.It is surprising therefore, that only 18 percent of businesses in Brazilbelieve that rising exports are the reason for the strength of theeconomy.Greater credit is given, by 41 percent want public spending to be cut, ratherof businesses, to the impact of the than increasing taxation, while onlyGovernment’s stimulus package. five percent want the Government toHowever, an even higher percentage merely concentrate on meeting interest(53 percent) believes it is the resurgent payments.housing market that is driving growth. According to 67 percent of BrazilianThis confidence in the performance of businesspeople, public servants shouldthe economy is reflected in the views be targeted for pay cuts, while 11 percentof 35 percent of Brazilian businesses, believe that the country’s welfarewho believe that the Government should commitments should be reduced. Aquickly move towards withdrawing decrease in defence spending is alsofiscal stimuli and allow the economy to called for by 11 percent of businesses.function normally, now that the worsteffects of the downturn have receded.Only 10 percent of businesses indicatea more cautious reaction is required, Q: What have been the mostbelieving that these supporting important factors driving thisinterventions should be maintained for recovery?at least the next two years. 53Despite this confidence, there is still 41a good deal of concern over the levelof public debt in Brazil. A significant 29number of respondents (40 percent) 24see this as a reason for concern. TheBrazilian public debt in 2010 is estimatedto be in the region of 44 percent of GDP ,an increase of 14 percent against 2008levels. This compares favorably withmany of the world’s leading economies, Housing market recoverybut Brazilian business clearly wants to Government stimulus packagesee further improvement. Reduced interest ratesThe prevailing opinion that this debt Consumer spending recoveryshould be actively and aggressivelymanaged by the Government. An Base: All who believe they are out ofoverwhelming 90 percent of businesses recession (17)© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 18. 16 | PAYING THE BILL Canada Canada is one of the world’s wealthiest G8 nations and is also one of the top 10 trading nations in the world. However, due to the global recession, from 20 percent of respondents, which the Canadian government decided that suggests that increased tax revenues a stimulus package for the economy are a natural product of growth in the was necessary for sustained growth. economy which will automatically lower the debt. This economic stimulus is generally applauded by the Canadian respondents However, the largest vote, from 60 to the survey, as 40 percent credit it with percent of respondents, is for public steering the country away from the risk of spending cuts. There is a body of recession. House prices have remained support amongst Canadian respondents steady throughout the period and this is (58 percent) for further cuts in defense highlighted by 30 percent of respondents spending. Public sector pay cuts are in Canada as a contributory factor in the sought by 42 percent of respondents; recovery. 25 percent would like to see welfare payments cut and 17 percent would cut A reduction in interest rates and an public infrastructure investment. increase in consumer spending are two further market moves recognized by 40 percent and 20 percent of respondents respectively as important recovery drivers. Q: What have been the most important factors driving this On the question of continuing the recovery? economic stimulus, 55 percent of 40 40 Canadian businesses are happy to see an immediate withdrawal of the fiscal 30 stimulus measures, while 30 percent 20 believe they can end once six months of growth has occurred, and only 10 percent would prefer a withdrawal after 12 months of growth. Currently standing at 74 percent, the Government stimulus package public debt is 15 percent higher than its Consumer spending recovery 2008 level, and this is of considerable concern for 25 percent of respondents. Housing market recovery There are some calls, from 25 percent Reduced interest rates of businesses, for taxation to be increased to pay back the national debt. Base: All who believe they are out of But there is also a school of thought, recession (10)© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 19. PAY I N G THE BIL L | 17ChileChile has performed better than any other Latin American countrythrough the latest recession and, in terms of national debt, isout-performing the rest of the world.The major free-trade agreements which be used to service the debt. 15 percentChile has signed with countries including believe taxation to be unnecessary, butChina and India, which have done much think the Government should decreaseto drive significant economic growth. the debt through other means.While the increase in Chilean exports is Where cuts in public spending arecredited by 36 percent of businesses as a called for, it is in defence that mostfactor in fighting the global recession, the businesses believe the Government axereduction in interest rates is recognized should fall. 75 percent of respondentsby 50 percent of respondents as one of want defence spending to be reduced,the most important factors. The Chilean a figure surpassed by only two otherGovernment’s fiscal stimulus plan has, participating countries in our survey,according to 43 percent of businesses, Switzerland and Ireland. Public sectoralso contributed to the recovery. The pay is also targeted by 25 percent ofother major factor pointed to by 36 respondents, but there is no desire forpercent of businesses is the increase in spending on either public infrastructureconsumer spending. projects or welfare payments to be reduced.Such has been the success of theGovernment stimulus measures thatmany businesses (40 percent) want Q: What have been the mostthis to remain in place for at least the important factors driving thisnext year, with five percent believing it recovery?should remain for the next two years. 50However, 25 percent of businesses 43think that the Government should 36 36withdraw these measures immediately.National debt in Chile currently standsat three percent, an impressivedecrease of 35 percent comparedto 2008. Not surprisingly, Chileanbusinesspeople appear satisfied withthis situation, with only five percent Reduced interest ratesindicating major concern. Government stimulus packageHowever, opinion is split as to how theGovernment should deal with the debt. Recovery in exports 35%40 percent of Chilean businesses would Consumer spending recoverylike to see a cut in public spending,while 20 percent advocate an increase Base: All who believe they are out ofin taxation, the proceeds of which can recession (14) National debt in Chile currently stands at three percent, an impressive decrease of 35 percent compared to 2008. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 20. 18 | PAYING THE BILL Mexico70%This reduction ininterest rates is Economic reforms, which have included a determined effort to reduce public debt, have enabled Mexico to come through the global recession relatively unscathed.perceived by A sizable cut in interest rates has but 40 percent disagree, preferring70 percent of Mexican supported the financial sector, alleviating other means of raising revenues.survey respondents much of the pressure on the country’s However, the most popular means ofas one of the most economy. repaying the debt is, for 80 percent ofimportant factors in respondents, a cut in public spending. This reduction in interest rates issteering the country perceived by 70 percent of Mexican Public sector pay is the target for theout of recession. survey respondents as one of the most vast majority of Mexican businesses important factors in steering the country – 94 percent, one of the highest out of recession. Economic recovery in percentages across all countries Mexico, inevitably, will be influenced surveyed. 19 percent believe the by how the United States fares in country’s welfare program should be the coming years, but the increase in cut, whereas spending on homeland Mexican exports is a good indicator of defense is the preferred option of sustainable growth, a fact highlighted by 69 percent of respondents. 60 percent of respondents. The rise in the strength of the Peso against the US Dollar has also helped in the recovery, Q: What have been the most according to 40 percent of Mexican important factors driving this businesses. recovery? A low level (20 percent) of respondents 70 acknowledge the effectiveness of 60 the Government fiscal stimulus measures. Nevertheless, 80 percent of businesses want it to remain in 40 place, with only 15 percent advocating an immediate withdrawal once there 30 is a return to growth. 35 percent want the measures to continue for six or 12 months, and 10 percent think two years would be safer. Today, public debt stands at just under 40 percent of GDP which represents , Reduced interest rates a 10 percent increase on the 2008 Recovery in exports level. The Mexican Government has done much to reduce this debt, yet Change in value of the currency 35 percent of Mexican respondents Consumer spending recovery are very or extremely concerned about this. Taxation increases are necessary, Base: All who believe they are out of according to 20 percent of respondents, recession (10)© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 21. PAY I N G T HE BIL L | 19United StatesIn 2007 the United States faced immense challenges in its ,financial sector with the collapse of the sub-prime housing market.The financial fall-out spread quickly around the world. Urgent fiscalsupport measures were introduced to stabilize the economy andthese have been maintained by the new US administration.The US continues to play a leading role whereas 28 percent would like non-in coordinating the global response taxation measures to be adopted.to the recession, as well as helping to But the largest group, 60 percent ofshape new international rules on bank respondents, call for public spending cuts.supervision and regulation. US military commitments overseasAlthough 41 percent of US business are enormous, but 58 percent of therespondents believe their Government’s US business community want to seestimulus package has been an important cuts in the defense budget. A similarfactor in recent growth, a greater percentage argue for reductionspercentage (77) suggest that the in some of the country’s moreincrease in consumer spending is a key controversial social welfare programs,driver of recovery, while 45 percent of while 33 percent propose cuts to publicrespondents point to the reduction in sector pay and spending on publicinterest rates as a contributing factor. infrastructure projects.The steady growth in the housing marketis cited by 18 percent of US businessesas a recovery factor, with 14 percent Q: What have been the mostciting an increase in export activity. important factors driving thisWith the US economy showing signs of recovery?stabilization, if not recovery, 65 percent 77of respondents want the stimulusmeasures to be stopped immediately,although some (23 percent) advocatea delay of six months, and 13 percent 45would like to see them in place for 12 41months.Currently standing at 54 percentof GDP public debt has been kept , 18under reasonable control by the USadministration, although this is 44percent higher than at 2008, a fact ofgreat concern to 70 percent of thosesurveyed. Consumer spending recoveryViews on how the debt should be Reduced interest ratesreduced are varied. 10 percent of Government stimulus packagerespondents want the government Housing market recoveryto do nothing, 18 percent want to payinterest payments only. The same Base: All who believe they are out ofnumber favor increased taxation, recession (22)© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 22. 20 | PAYING THE BILLAustraliaChinaHong KongIndiaJapanSingapore© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 23. PAY I N G THE BIL L | 21The Asia-PacificExperienceThe countries of the Asia-Pacific region have Given the high levels of spending onbeen relatively lightly touched by the recession. infrastructure that exist in many countries in theGrowth has slowed, but is now picking up, to the region, particularly China, we should probably notextent that China was reported in August 2010 be surprised that this very visible form of publicto have overtaken Japan as the world’s second expenditure is high on the list of spending thatlargest economy. business people want to see cut. Public sector pay, which seems to be an issue in all parts ofEconomic support from governments has been the world, is also a popular area for spendingsubstantial in each of the Asia-Pacific countries reductions.we have surveyed, and is expected to continuefor some time. Government involvement is Tax increases are not high on the priority list formuch more popular in this part of the world than Asia-Pacific businesses, and observers mightin either Europe or the Americas, and is thought be forgiven for thinking that businesspeople inby many of our respondents to have played a the region would be surprised to be presentedmajor part in keeping their economies in good with a higher tax bill in the short to mediumhealth. term. Only time will tell whether or not their confidence is well-founded.Since public debt levels are generally lowby world standards, concern over this issueamong businesspeople is also relatively low.Nevertheless, in each of the countries in oursurvey there is a sizeable minority that is veryconcerned about levels of debt and wants tosee action to bring them down.© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 24. 22 | PAYING THE BILL Australia51%There are concernsover the rapid rise Unusual among the countries in our survey, the Australian economy has not suffered a recession. The economy slowed down, but a government stimulus program assisted in cushioningin levels of public the downturn and maintaining growth.debt; Australian net Nevertheless, Australian businesses public spending cut, focusing ondebt has increased take a mixed view of the value of their public sector pay (60 percent) andby 51 percent government’s economic stimulus defence spending (47 percent). Assince 2008. program. Just over half (53 percent) in many other countries, tax rises to acknowledge that it has had a beneficial raise additional revenues were very impact, making the program the largest unpopular. Even those designed factor in driving growth, after a revival specifically to pay back debt were in exports (33 percent), and reduced supported by only 15 percent. interest rates (27 percent). Australia held a Federal Election on There are concerns over the rapid rise 21 August 2010 and neither the Labor in levels of public debt; Australian net Party or the Coalition gained enough debt has increased by 51 percent since seats to govern. Currently, Australia 2008, placing it fourth in the world in is facing its first hung parliament in terms of debt increase, after the UK, 70 years and the prospect of a lengthy Spain and Ireland. period of political uncertainty. But this still leaves Australia with debts at a relatively low 22 percent of GDP , Q: What have been the most placing it alongside China towards the important factors driving this bottom of the global league table. recovery? Only 35 percent of Australian respondents 53 said they were very or extremely concerned at the level of increase in their country’s debt, and 45 percent did not 33 see this as a problem at all. 27 27 Despite this, Australian businesses do want to see some action to reduce public debts. There was no support for the suggestion that the debt should simply be accepted, but 30 percent Government stimulus package thought that increases in tax revenues as a result of a revival in economic Recovery in exports activity would automatically provide the Reduced interest rates means to pay back loans, so no specific action was needed. Consumer spending recovery A more active response was demanded Base: All who believe they are out of by 75 percent, who wanted to see recession (15)© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 25. PAY I N G THE BIL L | 23ChinaPublic debt is not a major problem for the Chinese economy, andalthough the economy has yet to resume the very high levels ofgrowth that were achieved in the years prior to 2008, Chinesebusinesses are reported to be enjoying levels of demand andprofitability that other economies would struggle to match.It is clear from the recent history perhaps reflecting some anxiety overof Chinese economic development the sheer scale of the infrastructurethat Government and business are creation, renewal and improvementclosely intertwined. So it comes as no deemed necessary by the Governmentsurprise that two-thirds of our Chinese if China is to continue to grow.respondents see the Government’s Despite the relatively low level ofstimulus program as the main factor social security support in China,driving recovery, and 85 percent want it 56 percent opted for a reduction into continue for at least six months. welfare payments. A third opted for aHowever, two-thirds also saw a recovery reduction in public sector pay, and 28in consumer spending as equally percent chose a reduction in defenceimportant in the Chinese recovery. It is spending.possible that some were referring hereto a recovery in consumer spendingoutside China, but only 33 percent cited a Q: What have been the mostrecovery in exports as a significant factor. important factors driving thisThis suggests that the Chinese recovery?Government’s drive to increase 67 67consumer spending among its ownpeople as a potentially strong source ofdemand is meeting with some success.If it is this program that is encouraging 42consumers into the arms of Chinese 33businesses, then it is no surprise thatGovernment support should be sowidely welcomed.Chinese net public debt stands at19.3 percent of GDP having increased ,by a modest 20 percent over 2008 Government stimulus packagelevels. Nevertheless, some sectorsof business expressed high levels of Consumer spending recoveryconcern over these debts, and Housing market recovery90 percent wanted to see cuts in publicspending. Recovery in exportsOf these, 61 percent wanted cuts in Base: All who believe they are out ofspending on infrastructure projects, recession (12) © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 26. 24 | PAYING THE BILL Hong Kong Businesspeople in Hong Kong seem even more enthusiastic about their Government’s economic stimulus program than their colleagues on the Chinese mainland. Fully 81 percent of Hong Kong of those in favor of spending cuts. respondents said that the Government Of these, half are looking for cuts in stimulus package had been the most infrastructure spending and half for cuts important factor in their recovery (second in public sector pay. only to Singapore in their approval of On this evidence, Hong Kong seems Government actions) with 56 percent to be confirming its long-held reputation citing a recovery in consumer spending as an entrepreneurial hub, but with and 50 percent pointing to a recovery in significant added confidence from the the housing market. economic support provided by the Although 10 percent want the stimulus Chinese Government. program to end rapidly, twice the proportion on the mainland, 30 percent would like it to remain in place for a year, Q: What have been the most and 15 percent want it to continue for at important factors driving this least two years. recovery? There is no evidence of high levels of 81 concern over public debt among Hong Kong businesspeople, with only 10 percent saying they are very or extremely concerned. This is despite a 41 percent 56 rise in net debt as a percentage of GDP 50 44 since 2008, bringing Hong Kong’s public debt up to 19.5 percent of GDP very , close to the 19.3 percent figure for the mainland. This relaxed view extends to ideas for Government action on tax. Just over a third (35 percent) think that no action is necessary, and tax revenues will pick up Government stimulus package as the economy grows. There is some support for increasing public revenues Consumer spending recovery outside the tax system (45 percent) but Housing market recovery little for an increase in taxes (15 percent). Recovery in exports Only 30 percent would support cuts in public spending, placing Hong Kong Base: All who believe they are out of firmly at the bottom of the league table recession (16)© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 27. PAY I N G THE BIL L | 25India2009 saw a significant slowdown in India’s economy, as well asa large deficit in GDP But the Indian Government’s economic .stimulus program, combined with a revival in domestic demand,has meant that the country has escaped relatively unscathed fromthe worldwide recession. GDP is reported to be growing by sevenpercent by the end of the 09/10 financial year.81 percent of Indian businesses see revenues through means other thanthe fiscal stimulus as the key driver of taxation.the economic recovery. Other factors Half of Indian businesses want publichighlighted as significant contributors spending to be cut, with public sectorare the upsurge in exports and greater pay being the target for the majorityconsumer spending, which are thought of respondents (60 percent). Anotherby 44 percent of respondents to be 30 percent call for a reduction in publicimportant elements of the recovery. infrastructure investment. With IndiaAlso credited with aiding the resurgence currently investing heavily in a wideare the reduction in interest rates and a range of infrastructure projects, asre-energized housing market, as seen well as the pressures generated by theby 38 and 31 percent of businesses continuing growth in population withinrespectively. all the major cities, this may proveAlthough the signs of economic problematic.recovery seem clear, there is still adegree of caution being shown by Q: What have been the mostrespondents to the survey. Only 20 important factors driving thispercent believe that fiscal stimulus recovery?measures should be withdrawnimmediately, while 45 percent would 81prefer the Government to maintain thepackage for at least another year. Somewould prefer an even longer periodof financial stimulus, with 10 percentwanting a two-year package following 44 44the end of the recession. 38Public debt currently stands at 60percent of GDP an increase of five ,percent against 2008 levels. The debtappears to be one factor in the apparent 60%caution of Indian businesses, with 25percent of respondents being veryconcerned about the level of debt in Government stimulus packagethe country. 20 percent present a more Recovery in exportssanguine attitude, believing that debtshould be dealt with through greater tax Consumer spending recoveryrevenues as the economy grows, and Reduced interest rates Half of Indian businessesthat the country should focus more on want public spendingmeeting its interest payments. However, Base: All who believe they are out of to be cut, with public40 percent want the Government to raise recession (16) sector pay being the target for the majority of respondents (60 percent).© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 28. 26 | PAYING THE BILL Japan18%The increase inconsumer spending Japan has suffered in recent years from one of the deepest recessions in post-war history. But there is evidence of a measure of recovery, driven by the combined effects of the Japanesein Japan is an Government’s fiscal stimulus measures and an upsurge in exports.important factor 73 percent of Japanese respondents to by making cuts in public spendingfor 18 percent of our survey believe the Government’s which is advocated by 50 percent ofrespondents. stimulus package is a key driver behind respondents. Dealing with the debt the economic recovery, with 55 percent as a long-term burden with a focus on suggesting that the increase in export meeting interest payments is favored sales has fuelled it. The increase in by 35 percent, while 30 percent want consumer spending in Japan is an the Government to raise revenues important factor for 18 percent of through non-taxation methods. respondents. But only nine percent of Public sector pay levels are given the Japanese businesses see the reduction highest vote for cuts, with 80 percent in interest rates as an important believing this to be the best means, contributor to the recovery, probably although a good many (50 percent) because rates have been very low for want to see reduced funding for public some years, so further reductions are infrastructure investment, with defense not thought significant. and welfare payments being highlighted In response to the question of how by 30 percent of Japanese businesses long the Government should maintain as worthy of spending cuts. the stimulus measures after a return to growth, 30 percent of businesses are in favor of retention for a year, with Q: What have been the most 30 percent preferring withdrawal of important factors driving this support after six months following recovery? a return to growth. 35 percent of 73 respondents, however, suggest it should be withdrawn as soon as Japan is out of recession. 55 Japan’s public debt is the highest in the world, currently standing at 199 percent of GDP a 16 percent increase on the , 2008 level. This is of very great concern to 65 percent of our respondents in 18 Japan, a relatively small number given 9 the size of the debt, but possibly explained by the fact that much of Japan’s public debt is held internally Government stimulus package rather than by overseas investors. Recovery in exports How the Government should manage this large debt appears to be more Consumer spending recovery problematic for our respondents. Reduced interest rates Extra taxation is the most popular means, supported by 60 percent of Base: All who believe they are out of Japan’s business community, followed recession (11)© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 29. PAY I N G THE BIL L | 27SingaporeDespite being geographically small, Singapore’s economy isranked among the world’s most business-friendly, with manymulti-national companies having bases there. It has even beensuggested, by the BBC, that Singapore could become theworld’s fastest growing economy in 2010.The Singaporean business community The largest single holder of government Q: What have been the mostgives great credit to the government debt in Singapore is the Central important factors driving thisstimulus package, with 87 percent of Provident Fund Board (CPF), which is “a recovery?respondents stating this as a major social security savings scheme jointly 87factor in Singapore faring well during the supported by employees, employersglobal economic downturn. 73 percent and the Government. CPF members 73believe it is the level of consumer are employees and self-employedspending that has boosted the economy persons in Singapore.10 ” Otherand 53 percent put the recovery down holders of Singapore Government debt 53to a boom in the housing market. A include financial institutions requiredreduction in interest rates is also cited to purchase it as part of their prudential 40by 20 percent. norms.But the businesses of Singapore throw It is therefore hardly surprising that 45doubt on whether the government percent of Singapore businesses wantstimulus should now be withdrawn, the government to do nothing furtherwith 55 percent of respondents wanting to lower the debt, believing that taxthe package to remain in place for the revenues are likely to rise, which willcoming 12 months, and 32 percent reduce the debt automatically. An equal Government stimulus packagebelieving it is only needed for another percentage of respondents are not insix months. Only nine percent call for an favor of raising taxes. Consumer spending recoveryimmediate withdrawal. Housing market recovery Nevertheless, the survey suggestsSingapore national debt currently stands 23 percent would like to see the Recovery in exportsat 110 percent of GDP an increase of , government focus purely on meetingten percent on the 2008 level, but this interest payments, with 32 percent Base: All who believe they are out ofappears not to be a problem for the calling for public spending cuts. The recession (15)Singapore business community, with most popular target for 86 percent ofonly five percent registering concern businesses is public sector pay. Defenceover this level of public debt. spending is also too high, according to 71 percent, while reductions in publicThis may be because the national infrastructure investment and welfaredebt figure needs to be set alongside payments are suggested by 45 percentSingapore’s strong fiscal balance sheet, of respondents.11substantial accumulated balances andlack of foreign debt as a measure of thecountry’s economic strength.10 Source: CPF website11 I t should be noted that in Singapore there is no public welfare system per-se. Welfare payments primarily comprise payouts from the CPF accounts of its individual members, who are required to participate in this social security savings scheme. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 30. 28 | PAYING THE BILLBelgiumCzech RepublicFranceGermanyHungaryIrelandItalyNetherlandsPolandRussiaSlovakiaSpainSwitzerlandUnited Kingdom© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 31. PAY I N G THE BIL L | 29The EuropeanExperienceAs we might expect with such a diverse set This is despite the cost of these schemesof economies, the experience of recession in increased public debt, which has beenin Europe has varied from a relatively mild particularly high among the European countries,reduction in growth in Poland, through to quite possibly greater in proportional terms thansevere recessions in Ireland and Spain. anywhere else in the world.The reactions of governments to these problems In the following country-by-country reports, wehas been equally mixed, ranging from the very look closely at the results of our survey for theextensive and prolonged interventions in the European states. There is clearly a majority ineconomy that have been seen in the UK and favor of cuts in public expenditure, as there is inGermany, to predominantly fiscal programs in the rest of the world, but Europe stands out forthe Czech Republic and Italy. its apparent willingness to accept higher levels of taxation, especially indirect taxation, thanWe noted in the main commentary that we have found elsewhere. We believe it is verythere seems to be an ambivalent attitude to likely that taxation will play a significant part ingovernment intervention among European Europe’s medium to long term response to thebusinesspeople, with many sceptical about the recession.value of intervention programs but neverthelessreluctant to see them withdrawn.© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 32. 30 | PAYING THE BILL Belgium35%Belgian businesses areunsure as to when the Belgium was hit hard by the global financial crisis. The economic downturn led to the Belgian government putting fiscal stimulus measures in place to support its important financial sector.government should The country has since seen a general manage the debt. The majority, 65withdraw its stimulus election which was won by the Flemish percent of those responding, want topackage, with Nationals and the (French-speaking) see public spending cuts. Taxation is35 percent in favor socialist party. 40 percent of the not a popular option. Only 5 percentof an immediate respondents believe it was the outgoing support an increase in taxation, whilestoppage government’s fiscal stimulus measures the remaining 20 percent, believe thatfollowing a return that have ensured a return to economic other means should be sought.to growth. stability. A high percentage (54 percent) believe Belgium is a large exporting nation, Belgium’s defense budget should be principally in the auto industry, and cut, and a similar percentage advocate the recovery in export sales is seen lowering public sector pay, while by 40 percent of respondents as an reductions in welfare payments are important driver of recovery. An equal called for by 31 percent of respondents. number of respondents consider the fall in the value of the Euro, followed by a strengthening of the Euro against the US dollar, as an important contributor. Belgian businesses are unsure as to when the government should withdraw Q: What have been the most its stimulus package, with 35 percent important factors driving this in favor of an immediate stoppage recovery? following a return to growth. 30 percent 40 40 40 suggest the government should wait at least six months, 20 percent argue 30 for 12 months and 10 percent prefer to leave the measures in place for two years after a return to growth. Compared to other nations surveyed, Belgium’s national debt levels are high and this has hampered recovery. It Government stimulus package currently stands at 100 percent of GDP a, Recovery in exports 12 percent increase on the level in 2008 and this appears to be of major concern Change in value of the currency to 35 percent of respondents. Consumer spending recovery Opinion is split within the Belgian Base: All who believe they are out of business community as to how to recession (10)© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 33. PAY I N G THE BIL L | 31Czech RepublicThe Czech Republic’s entry into the European Union has donemuch to stabilize the economy, with recent growth being led byexports to fellow EU countries, most notably to Germany.Although not totally immune to the option of 10 percent of Czech businessglobal financial slowdown, an increase respondents, with 10 percent wantingin Czech consumer spending and increased taxation to pay back the debt.generally low inflation and interest However, 25 percent argue againstrates have kept the country away from taxation and advocate other means ofserious economic troubles. raising revenue.The upsurge in exports has helped to As far as public spending cuts arebalance the country’s trade deficit and concerned, an even split of 40 percentthis is credited by 56 percent of Czech of the respondents are in favor ofbusinesses as a factor in the country’s reductions in public sector pay, welfareperformance, while 11 percent put it payments and defense spending,down to consumer confidence. A similar while 27 percent call for less moneypercentage see the reduction in interest to be spent on the country’s publicrates as a significant contributor. infrastructure.Respondents are generally ambivalentabout the fiscal measures that theGovernment adopted at the outset of Q: What have been the mostthe global recession and 55 percent important factors driving thisof them call for an immediate end to recovery?the measures now that growth has 56returned.However, some urge greater caution,with 15 percent believing the measuresshould stay in place for at least six 22months or a year and five percentsuggesting a continuation for two years. 11 11The Czech Republic’s public debt hasincreased 50 percent from the levelin 2008 and currently stands at Recovery in exports40 percent of GDP and this is of ,concern to 75 percent of respondents. OtherWhen asked what the Government Reduced interest ratesshould do about the debt, none believed Consumer spending recoverya “do nothing” attitude should prevail.Servicing the debt through interest Base: All who believe they are out ofpayments alone was the preferred recession (9)© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 34. 32 | PAYING THE BILL France A large public sector and relatively high levels of Government involvement in business are familiar characteristics of French economic life, so it is possible that the comparatively modest increase in Government spending in the country will not have registered particularly strongly among those businesses that responded to our survey. Only nine percent chose the Government’s public spending, but France stands out stimulus package as an important factor as the country of all those surveyed that driving recovery, placing this a poor is least keen on a cut in public sector fourth after a recovery in consumer pay, supported by only 12 percent. Only spending and in the housing market 24 percent would like to see less public (both on 36 percent), and a reduction in infrastructure spending, 35 percent the value of the currency (18 percent). want cuts in welfare payments, and 41 percent would choose cuts in Nevertheless, more than half (55 percent) defence spending. of respondents wanted to see stimulus measures withdrawn immediately the The French Government would appear economy returned to growth, placing the to have a very difficult task ahead if it is French second only to the Dutch among to meet the demands for debt reduction those in the larger European economies and at the same time maintain the levels anxious for rapid Government cutbacks. of public spending businesspeople feel are necessary. At 84.4 percent of GDP French net debt is among the highest in Europe. It has increased by 25 percent since 2008, more than Germany, Italy or the Netherlands, but less than half the Q: What have been the most increase experienced in the UK or Spain. important factors driving this High levels of public debt have been a fact recovery? of life for French businesspeople for some 36 36 time, but even so 55 percent described themselves as very or extremely concerned at the increase in debt since 18 2008. They do want to see Government 9 action to bring debt levels down, as evidenced by only 5 percent saying that the Government should simply seek to service the debt, and none at all choosing Consumer spending recovery to rely just on increased tax revenues Market recovery arising from general economic recovery. Change in value of the currency Increased taxation is not a popular Government stimulus package option, supported by only 15 percent. The favored choice, selected by Base: All who believe they are out of 85 percent of respondents, is a cut in recession (11)© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 35. PAY I N G THE BIL L | 33GermanyWith the largest economy in Europe, and the fourth largest in theworld, Germany was hit very hard by the global financial downturn.But, helped by a massive economic stimulus plan by theGovernment in early 2009, and the country’s enormous underlyingexporting power, steady recovery is being achieved.30 percent of German respondents there is no need to do anything furtherto our survey credit the stimulus and that the debt will automatically bepackage as an important driver of the reduced as growth is maintained.recovery, but 70 percent believe it is Cuts in the pay of public servants isthe rapid rise in export sales that has the target for 41 percent of Germanaccelerated growth. respondents, while a higher percentageThe last 12 months have also seen (59 percent) want cuts in the defensean increase in consumer spending, budget. There is also some support foracknowledged by 50 percent of cuts in welfare assistance (19 percent)German businesspeople, while it is and public infrastructure investmentthe fluctuating fortunes of the Euro (15 percent).that is the key factor in the recoveryfor 30 percent of respondents.Now that the worst of the recessionis over in Germany, 48 percent ofbusinesses believe an immediate Q: What have been the mostwithdrawal of the stimulus plan important factors driving thisis necessary, although a more recovery?conservative approach is called for by 7025 percent of respondents who thinka six-month delay would be prudent,with 20 percent suggesting withdrawal 50in a year’s time.Although business confidence 30 30is relatively high, the level of thecountry’s public debt is of deepconcern for 56 percent of thosecompleting our survey. Currentlystanding at 78 percent of GDP this is ,an 18 percent rise over the 2008 level. Recovery in exportsTo manage the debt, 68 percent 68%of respondents want to see public Consumer spending recoveryservices cut. Others (23 percent) see Government stimulus packageextra taxation as the best course of Change in value of the currencyaction, while 18 percent oppose thisand want revenues to be raised by other Base: All who believe they are out ofmeans. 13 percent of respondents feel recession (10) To manage the debt, 68 percent of respondents want to see public services cut. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 36. 34 | PAYING THE BILL Hungary68%But public sector paylevels appear the As one of the newer members of the EU, Hungary has continued to demonstrate economic growth, although it suffered a severe setback during 2008-09 in the wake of the global financialmost popular means slowdown. However, recovery has begun, driven mostly by strongfor 68 percent of exports in the opinion of 80 percent of respondents to the survey.respondents. In agreement with the IMF and the EU, would prefer other revenue-generating the Hungarian Government delivered methods instead, and 10 percent argue a rescue package to restore financial for meeting interest payments only. stability, but this is not considered a As to where the cuts should come, factor in the recovery by any of the 32 percent of businesses target public respondents. Rather, it is the reduction infrastructure and welfare payments, in interest rates that is more beneficial, with 21 percent choosing defense according to 60 percent of those spending. But public sector pay levels surveyed. appear the most popular means for The Hungarian Forint has generally 68 percent of respondents. performed well against other currencies and is another factor contributing to the recovery for 40 percent of respondents, and this has increased consumer confidence, according to 20 percent. Q: What have been the most important factors driving this There is no clear consensus as to how recovery? long the Government’s fiscal stimulus measures should remain in place. The 80 most popular view, favored by 45 percent of the Hungarian business community, is for it to be removed quickly following 60 the return to growth, but 20 percent suggest that a delay of six months would 40 be safer, and 10 percent advocate a delay in withdrawal for another year. Yet this is obviously an uncertain proposition 20 for some, with 20 percent not putting a timescale on this at all. The Government has done well in keeping public debt at 51 percent of GDP a level only 11 percent higher than , Recovery in exports in 2008, yet this is still a problem for Reduced interest rates 25 percent of respondents. Nonetheless, it is clear how the majority (95 percent Change in value of the currency of respondents) want the debt to Consumer spending recovery be reduced: through cutting public spending. Taxation is not a popular Base: All who believe they are out of course of action for 50 percent who recession (5)© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 37. PAY I N G THE BIL L | 35IrelandThe Irish economy was one of the first to experience the effects ofglobal recession following several years of strong growth. As wasthe case in a number of countries, an overheated property marketand rapid credit expansion have been cited as the primary reasonsfor the economic downturn in Ireland.As a consequence, the Irish government The universal challenge of tax increaseshas faced the twin challenge of both in the face of weak consumer demanda steep decline in tax revenues and is as applicable in Ireland as anywherethe need to make significant cuts in – with 45 per cent of those surveyedpublic spending. Notwithstanding expecting further tax raises. In termsprogress to date (widely applauded by of where government should focus itsa range of international commentators) efforts in reducing public expenditure,inevitably there remains a significant an emphatic 100 percent indicate abudgetary deficit. In positive contrast, preference for public sector pay cuts.a strong performance in foreign direct Meanwhile 83 percent support cuts ininvestment has helped sustain exports social welfare payments and 33 percentand maintain high skills employment opt for a reduction in public investmentin many sectors. With Ireland now in infrastructure.officially out of recession exactly onethird (33 percent) of respondents give Q: What do you think will becredit to the Irish governments actions the most important factors inin moving quickly to address the determining when there is a returneconomic situation. to growth?However, it is a recovery in consumer 82 82spending, which 67 percent ofrespondents see as most significantin determining the extent to whichthere is a sustained return to growth. 53 47The housing market, after a sharp fallin property prices, is now showingsigns of some stabilisation and this,together with a continued strongexport performance is seen by a third(33 percent) of respondents as beingfundamental to continued recovery.The continuing need to address Ireland’s Recovery in exportspublic debt liabilities is seen as crucial Consumer spending recoveryto sustained growth. Currently standingat 76 percent of GDP (and significantly Continuation of the governmenthigher than in former years) this is stimulus packageclearly an issue for our respondents, Housing market recovery70 percent of whom register deepconcern about the level of the deficit. Base: All who do not believe they are out of recession (17)© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 38. 36 | PAYING THE BILL Italy Italy has been hit badly by the recession, due both to a sharp fall in exports and also to the effect of the recession on its main trade partners. Beleaguered by the country’s high debt. This is a major topic of political public debt, and conscious of the need debate, and standing at 121 percent to keep debt and budget deficits under of GDP and up 14 percent on the 2008 control, the Italian Government has been level, it is of considerable concern to cautious and has put in place a limited 53 percent of respondents. fiscal stimulus package. Among the But raising taxes to reduce the debt most significant measures has been is opposed by Italian companies. an extension of the existing scheme to Cuts in public spending are the most supplement low level wages (the Cassa attractive proposition for 71 percent Integrazione Guadagni) to help tackle of businesspeople, while ten percent unemployment, and an expansion of want the Government to focus more on Government sponsored loan schemes meeting interest payments. Only five for small and medium enterprises. percent of Italian respondents believe There have also been some measures to the current steady growth will produce support the country’s important financial sufficient tax revenues to cut the debt sector, but in general, Italian banks directly. are thought to have weathered the Answering the question of which areas of recession reasonably well. A reliance on public spending need to be cut, the main more traditional banking practices than target, for 33 percent of respondents, is have been seen elsewhere has meant public sector pay, followed by defense that the banks have needed relatively spending (20 percent), welfare payments little assistance . (20 percent) and public infrastructure Despite its limited nature, this stimulus projects (13 percent). package is thought by 20 percent of respondents to our survey to be a key factor in Italy’s economic recovery, but a higher proportion (40 percent) of Q: What have been the most businesses think that lower interest important factors driving this rates is the most important driver. recovery? The same number point to the steady 40 40 increase in consumer spending in Italy as one of the key elements in the country’s recovery. 20 20 Although the level of fiscal assistance provided by the Government has been low, 33 percent of Italian respondents felt it should stay in place for at least another Reduced interest rates year. A higher percentage (38 percent) believe it should be withdrawn straight Consumer spending recovery away, now that the economy is growing Government stimulus package once more. Only 10 percent would like it to stay in place for a two-year period. Other There is much more to worry Base: All who believe they are out of businesses in the high level of public recession (5)© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 39. PAY I N G THE BIL L | 37NetherlandsOver the past decade or so, the Netherlands economy – the16th largest in the world – has had a GDP well above the Europeanaverage. However, the country has suffered during the globalfinancial downturn, with falling export sales and a weak Euro.To stabilize the economy, the support from 90 percent of DutchGovernment has intervened to prop up businesses for public spending cuts tothe financial sector. While 17 percent be administered.of survey respondents deem this to At the beginning of August 2010, thebe an important contributory factor Dutch Government withdrew its troopsin the country’s recent recovery, the from Afghanistan and this might havesame number of respondents identify prompted 61 percent of the businessmarket recovery and other factors as respondents to the survey suggestingkey drivers. Conversely, 17 percent cuts to defense spending. 39 percentdo not see any specific reason for the want to see a reduction in welfareimprovement. payments, while 22 percent believe cutsThere is more agreement on the in both public infrastructure projectsimportance of the increase in levels and the pay of public servants areof consumer spending and this is necessary.welcomed by 33 percent of Dutchrespondents.While there is a general desire amongthe business community (60 percent)for the Government stimulus packageto be immediately withdrawn now Q: What have been the mostthat growth has returned, there is still important factors driving thisa proportion (30 percent) who believe recovery?the stimulus should be maintained for 33another year to further embed growth.The Netherlands public debt in 2010 17 17 17stands at 66 percent of GDP an increase ,on the level in 2008 of 14 percent.While this compares moderately withother surveyed countries, it is still ofconsiderable concern to 20 percent of Consumer spending recoverythe Dutch respondents. Government stimulus package 33%Apart from ten percent of respondents Market recoverywho want to see the Government Otherfocus on meeting its interest paymentswhile accepting the public debt as an Base: All who believe they are out ofinevitability, there is overwhelming recession (6) There is more agreement on the importance of the increase in levels of consumer spending and this is welcomed by 33 percent of Dutch respondents.© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 40. 38 | PAYING THE BILL20%Poland elected a newpresident in 2010, Poland Uniquely, Poland is the only EU country to have avoided going into recession during the latest global downturn. It has continued its GDP growth, with steady exports and a healthy domestic market.a political changethat 20 percent However, Poland has suffered from a Poland’s debt level, currently standingof respondents knock-on effect as the recession has at 51 percent of GDP (15 percent up onbelieved has had a hit its trade partners and neighboring 2008), is a worrying factor for 50 percentpositive effect on countries, and the Polish Government of respondents, yet there appears tothe economy. has had to introduce specific fiscal be no appetite for extra taxation to measures to counter the threat of deal with this, with 45 percent wanting recession. means other than taxation. Cuts in public spending are advocated by 75 percent As a country that has yet to adopt the of Polish respondents, while 20 percent Euro, 40 percent of Polish respondents view the debt as repayable simply to the survey cite the strength of the through a strengthened economy. Zloty against other global currencies and its popularity among foreign exchange Cuts in public sector pay is the favored markets, as a factor in Poland’s stability. target of 60 percent of respondents, This strength has encouraged the Polish with 33 percent calling for Poland’s Central Bank to follow the European welfare commitments to be reduced, and global trend towards lower interest and 27 percent wanting to see defense rates. This pleased 40 percent of Polish spending cut. businesses, while another 40 percent cited the buoyant housing market as a significant factor in maintaining economic health. Q: What have been the most Poland elected a new president in 2010, important factors driving this a political change that 20 percent of recovery? respondents believed has had a positive effect on the economy. Another 40 40 40 40 40 percent suggested that continuing export success is an important factor. There is a difference in opinion as to when the fiscal stimulus measures introduced by the Government should be lifted. 30 percent of respondents argue for an immediate withdrawal, Reduced interest rates now that sustained growth has returned, while others (25 percent) Recovery in exports would like them maintained for a further Consumer spending recovery six months. Interestingly, 30 percent Housing market recovery of Polish businesses counsel caution and want the measures to stay in Base: All who believe they are out of place indefinitely. recession (5)© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 41. PAY I N G THE BIL L | 39RussiaSince the collapse of the Soviet Union, Russia has made a rapidtransition into a market-based and globally integrated economy.Growth has averaged seven percent annually for over a decadeand GDP is the sixth largest in the world.Russia has suffered in the latest global A more favorable option, for 30 percent ofrecession and respondents to the respondents, is to raise revenue throughsurvey have identified what they see other means and, while 10 percentas the most important drivers of recovery. assume tax revenues will reduce the debtEqual numbers of respondents automatically, 55 percent believe public(29 percent) have highlighted four key spending should be cut.factors: an upturn in exports; the Russian A reduction of investment in theGovernment’s significant fiscal stimulus country’s public infrastructure isin 2009; the Government’s decision to suggested by 36 percent of Russianlower interest rates; and a change in the business respondents, with 18 percentvalue of the currency. calling for a scale down in defense14 percent of businesses say it is a spending. But the highest percentageresurgence in market activity that is (45) of respondents believe that publiccontributing to the country’s more sector pay levels need to decrease.buoyant economic standing, togetherwith greater access to credit andincreased consumer spending.Russian businesses remain cautioushowever, about how long the fiscal Q: What have been the moststimulus measures should stay in place. important factors driving this35 percent of respondents argue for recovery?another 12 months and 25 percent 29 29 29 29advocate a six month wait following areturn to growth, while 25 percent areunsure as to exactly when the measuresshould be withdrawn.The Russian public debt is low incomparison to many other countries, Government stimulus packagecurrently standing at seven percent ofGDP a figure only eight percent higher , Reduced interest ratesthan 2008. Russian business appears to Recovery in exportsbe reasonably happy with this, as just Change in value of the currency10 percent show real concern over thislevel of debt, yet it is clear that extra Base: All who believe they are out oftaxation is an attractive proposition. recession (7)© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 42. 40 | PAYING THE BILL Slovakia Slovakia is one of the newest members of the EU, joining in 2004. Having adopted the Euro as its currency in 2009, the country’s GDP is expected to grow (according to the estimates of the National Bank of Slovakia) by over 1.5 percent in 2010. An increase in exports is seen as the cut public spending in order to address key driver in the country’s recovery the national debt. The only alternative from the global recession by 42 percent course of action considered by our of Slovakian respondents. 25 percent respondents was raising revenue believe a rise in consumer spending is a through means other than taxation, major contributory factor and the same and this only by 10 percent. number consider market recovery to be 55 percent of Slovakian businesses important in driving economic strength, target public sector pay as an area with industrial production returning to where these spending cuts should fall. almost pre-recession levels. Only eight A reduction in defense spending is the percent of businesses see the stimulus choice of 50 percent of respondents; package put in place by the Government 10 percent call for public infrastructure as having a telling impact on recovery. spending to be cut and 25 percent With the country seemingly coming would like to see a reduction in welfare out of recession, Slovakian businesses payments. are very keen for the government to cease its fiscal stimulus support, with some 75 percent believing this should Q: What have been the most happen immediately upon a return to important factors driving this growth. This is the highest percentage recovery? of respondents across all countries in our survey seeking a swift end to fiscal 42 stimulus. Only 20 percent are in favor of stimuli remaining in place for a further 25 25 six months, and no respondents want them to remain beyond this time. 8 According to Economist Intelligence Unit estimates, Slovakian public debt now stands at 38 percent of GDP an , Recovery in exports increase of 31 percent on the 2008 level. This is of great concern to Consumer spending recovery 75 percent of Slovakian businesses. Market recovery It would appear that the business Government stimulus package community is unanimous on the best way of dealing with this: 100 percent of Base: All who believe they are out of respondents want the government to recession (12)© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 43. PAY I N G THE BIL L | 41SpainThe Spanish economy was particularly badly affected by therecession, and although most of the countries in our survey hadofficially returned to growth at the time our interviews took place,Spain was one of the six still to turn the corner12.Perhaps more importantly, 95 percent of European states except the Netherlands.the Spanish businesspeople interviewed Nevertheless, it has reached this levelsaid that they still felt their sector was after increasing by 69 percent sincein recession, making them the most 2008, a rate exceeded only by Ireland,pessimistic of all those surveyed. So, and our respondents did want to seerather than ask these people what evidence of Government action to keepfactors have been most successful debt under control.in promoting recovery, it seemed As with most other countries, theappropriate to ask them which measures most favored method was a cut inthey expected to be most effective. public spending, led by cuts in defenceAs we might expect in a recession spending. Public sector pay was also ainitiated by a crisis in the property market, popular target for cuts, and the Spanishwhich then hit consumer confidence were more prepared than any othervery badly, the most important factor for Europeans to see cuts in infrastructurethese people was a recovery in consumer spending, an option chosen by 35 percentspending. This was chosen by 61 percent of respondents.of respondents. Second on the list werea recovery in exports and in the housingmarket, both chosen by 28 percent. Q: What do you think will beContinuation of the Government’s the most important factors instimulus activities came fourth, chosen by determining when there is a returnonly 17 percent of respondents. But even to growth?though this suggests some scepticism 61over the value of Government action, only25 percent of respondents wanted tosee the program withdrawn immediatelyafter a return to growth. Just over a thirdwanted it to be maintained for six months, 28 28and 30 percent were prepared to see it 17remain in place for up to two years.Our Spanish respondents were relatively 67%unconcerned about the effect of thisadditional spending on levels of publicdebt. Less than half (45 percent) Consumer spending recoverysaid they were very or extremely Recovery in exportsconcerned, placing them well below theircounterparts in Italy, France, Germany, the Housing market recoveryUK or Ireland. Continuation of the government This may be because stimulus package Spanish public debtThis may be because Spanish publicdebt currently stands at 67 percent of currently stands at Base: All who do not believe they areGDP lower than that of any of the major , 67 percent of GDP lower , out of recession (18) than that of any of the major European states12 The others were Singapore, Japan, Hungary, Italy and Ireland. except the Netherlands. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 44. 42 | PAYING THE BILL Switzerland22%22 percent point tothe reduction in Switzerland has a high per capita GDP a large financial sector, , is one of the most stable economies in the world and, as a consequence, has been less affected by the financial downturninterest rates as than many other countries.beneficial and the Consumer confidence in the economy believe extra revenue can be raisedsame proportion of is high and spending has risen, through non-taxation methods. Butbusinesses view which 56 percent of Swiss business the most popular course, accordingthe Government’s respondents view as critical to the to 55 percent of Swiss respondents,fiscal support recovery. Switzerland is a major exporter is to cut public spending.package as a of chemicals and electronics and theimportant driver. Although the Swiss armed forces growth in export sales is credited by participate in various peacekeeping 44 percent of respondents as a key missions around the world, cuts in factor in Switzerland’s economic upturn. spending on defense is advocated 22 percent point to the reduction in by 82 percent of businesses. Welfare interest rates as beneficial and the payment reductions are called for by same proportion of businesses view the an above average 55 percent, while Government’s fiscal support package as 45 percent are keen to see public a important driver. sector pay levels cut. A smaller Despite Switzerland now being out of number (18 percent) believe public recession, the business community infrastructure investment should fall. shows a degree of caution when it comes to withdrawing the fiscal support package. 25 percent of respondents call for it to be removed immediately but the majority suggest Q: What have been the most a longer period of support. 20 percent important factors driving this want it to remain in place for the recovery? foreseeable future, while 15 percent 56 believe it can be withdrawn in a year’s time and 35 percent want withdrawal 44 in six month’s time. Compared with other countries, 22 22 Switzerland’s public debt is low at 44 percent of GDP which is an , increase of only eight percent on the 2008 level. Swiss businesses seem happy with this, with only five percent registering concern over the debt and Consumer spending recovery a similar percentage calling for taxation Recovery in exports measures to counter it. Government stimulus package 35 percent of respondents are confident the debt will automatically be reduced Reduced interest rates through tax revenues gained through Base: All who believe they are out of economic growth, and 15 percent recession (9)© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 45. PAY I N G THE BIL L | 43United KingdomAmong businesses in the UK, top of the list of factors drivingrecovery is low interest rates, chosen by 72 percent, followed bya general recovery in consumer spending, chosen by 61 percent.The broad range of measures implemented by the Government,including short term fiscal easing, large-scale assistance to thebanking sector and the injection of money into the economythrough the Bank of England, which we refer to collectively asthe stimulus package, comes only third in the list.Nevertheless, 72 percent of respondents spending should be cut, with 78 percentdid not want the stimulus package wanting a cut in public sector pay, andwithdrawn immediately after a return to 75 percent wanting a cut in defencegrowth. Nearly half (48 percent) wanted spending.to wait for six months and the remainder UK businesses are prepared to seewere prepared to see the package some rises in taxation, with 65 percentremain in place for up to two years. agreeing that taxes should rise, but onlyThis result may have been distorted if this extra money is used specifically toby the election which was taking pay back public debt. A suggestion thatplace at the time of the research, in there should be a general rise in taxationwhich discussion focused on how long meets with virtually no support at all.the Government should continue tosupport the economy. But it’s clear thatmany UK businesspeople are quietlyacknowledging the value of Government Q: What have been the mostsupport, even if they see other factors important factors driving thisas more immediately important. recovery?This has not prevented rising levels of 72concern over public debt. UK public 61debt has risen by 51 percent over 2008 56levels, to stand at 80 percent of GDP. 44Seven out of ten of the respondentsfrom the UK were very or extremelyconcerned at this level of debt. Thisplaces the UK alongside the US andIreland in terms of business anxiety overpublic borrowing, and second only torespondents from the Czech Republicand Slovakia. Reduced interest ratesThis result suggests that reducing Consumer spending recoverypublic debt must be a higher politicalpriority for the UK Government than Government stimulus packagefor Governments in many competing Recovery in exportscountries. According to UK respondentsto our survey, the preferred way to do Base: All who believe they are out ofthis is very clear; 80 percent say public recession (18)© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 46. 44 | PAYING THE BILLNotes© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 47. PAY I N G THE BIL L | 45Notes© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 48. ContactsErnst GröblHead of Tax, EMEA RegionKPMG in GermanyT: + 49 (89) 9282 1464E: ernstgroebl@kpmg.comwww.kpmg.comThe information contained herein is of a general nature and is not intended to address the circumstances of any particular individualor entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information isaccurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such informationwithout appropriate professional advice after a thorough examination of the particular situation.© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independentfirms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority toobligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any suchauthority to obligate or bind any member firm. All rights reserved.The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.Designed by Evalueserve.Publication name:   aying the Bill PPublication number: 100928Publication date: September 2010