TAX: PAYING THE BILL

TAX

Paying the Bill
kpmg.com

KPMG INTERNATIONAL

© 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.

Contents
Introduction 2 The European Experience 29
Belgium 30
Commentary 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 35
Paying the Bill 8 Italy 36
The Case for Tax Rises 10 Netherlands 37
Value for Money 11 Poland 38
The 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 19

The Asia-Pacific Experience 21
Australia 22
China 23
Hong Kong 24
India 25
Japan 26
Singapore 27


2 | PAYING THE BILL

Introduction
Hopes are high, and indications are promising, that the These views on taxation are important, because they
global 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 to
have preceded it, it casts a long shadow. The potential which they will be reflected in actual policy decisions is
consequences 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 offers
frameworks and a simple reluctance on the part of many
some insights into the possible future direction of public
people to boldly seize opportunities and risks that only two
revenue policy around the world. We hope it will be of value
years ago they would have considered a minor matter, will
to policymakers, businesspeople, tax directors, CFOs
be with us for some time.
and commentators, indeed anyone with a keen interest in
The consequences for public finance and taxation are the future development of global commerce and the role
equally challenging, as governments work to manage taxation should play in it.
and reduce the debts that many have incurred in their
stabilization efforts.

To coincide with KPMG’s latest European Tax Summit1,
we have commissioned an international study, examining
the views of businesspeople around the world on the
success or failure of their governments’ economic
stimulus programs, and on the best way to deal with the
resulting public debt. The effect on future tax initiatives is
at the core of this discussion.

Our researchers spoke to nearly 600 senior corporate
decision makers from 26 countries. Their responses
revealed a clear divide between the US, Europe and
the Asia-Pacific countries on the value of government
intervention, but much agreement on what tax and Ernst Gröbl
spending policies governments should adopt in future. Head of Tax, EMEA Region

1
The 2010 KPMG EMEA Tax Summit in Prague, September 29 to October 1, 2010.


PAY I N G THE BIL L | 3

Commentary
A Global Success Story?
By the standards of past international economic crises, the range of industry sectors, with annual revenues ranging
response of governments to the global crisis that broke in from less than US$ 1 billion to more than US$ 5 billion. The
2008 was swift, effective, and broadly successful. In varying countries represented were:
degrees around the world, governments stepped in to
increase public spending, boost the supply of money in the Argentina Ireland
economy and guarantee the health of important commercial Australia Italy
enterprises. It was a concerted wave of public intervention
in economic life that has not previously been seen outside Belgium Japan
times of war. Brazil Mexico
The immediate results are apparent in the speed with Canada Netherlands
which many economies have returned to growth, or have Chile Poland
resumed something approaching the levels of growth that
China Russia
they were enjoying pre-2008. But even for the most resilient
of economies, there is a price to be paid for government Czech Republic Singapore
intervention on this scale, in public debt that must be France Slovakia
serviced and ultimately repaid.
Germany Spain
For many, especially those who are not convinced that Hong Kong Switzerland
government stimulus programs were indeed a major
contributor to avoiding depression, this price may be too high2. Hungary UK
India US
As the generators of wealth from which the means to pay
this price must come, businesses across the world clearly
have an interest in what happens next. So, to discover what This report summarizes the responses we received. It
view businesspeople are taking of the efforts that their provides some insight into the views businesspeople are
governments have made to keep their economies afloat, taking of the effectiveness of interventionist policies, and
and how they think the resulting debt should be handled, their expectations for future policy on public revenues and
KPMG’s Global Tax practice commissioned a research taxation.
project covering nearly 600 senior corporate decision-
makers in 26 countries.
Independent researchers carried out telephone interviews
in April and May 2010. Their respondents were chief
executives and senior officers of companies in a wide

2
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.


4 | PAYING THE BILL

39%
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 expanding
European businesses who the businesses of Europe and North into new markets.
believe they are out of America, and those of the Asia-Pacific
recession, 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 the
in exports, and a further Put simply, Europeans and Americans stimulus programs that governments
39 percent believe it is saw the crisis as a matter primarily put in place, then it seems that
down to a recovery in needing decisive government governments broadly shared the views
consumer 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.



The countries with the largest increases interventions would bring them some recovery for 45 percent, followed by
in net debt are those where government support, they were sadly mistaken. This reduced interest rates, chosen by
intervention was most demanded: year’s survey shows that among the 41 percent. Government stimulus
Ireland, Spain, the UK, Australia, the European businesses who believe they packages came third, chosen by
Czech 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 the
in their spending, matching the less a recovery in consumer spending. Only
clear winner, chosen as the main
interventionist preferences of their 24 percent attribute recovery to their
contributor to recovery by 74 percent of
businesses. government’s stimulus package.
respondents, with consumer spending
But if the governments of Europe and In the Americas, increased consumer second, on 48 percent, and export
the 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 is
driven by their governments’ stimulus packages5

Europe 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 70

60 60 60

50 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

Recovery in exports
Political change
Market recovery
Other
Access to credit
None/nothing
DK

Recovery in exports
Political change
Market recovery
Other
Access to credit
None/nothing
DK

Source: Q. What have been the most important factors driving this recovery?
5

Base: All who believe they are out of recession (283)


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



But when we asked people how soon in favor of keeping these programs
government stimulus plans should be going for a year or more once growth
withdrawn following a return to growth, had returned. In the US and Canada,
a subtly different picture emerged. In there were majorities in favor of
India, China, Russia and Singapore, as withdrawing them immediately.
we might expect, there were majorities

Slovakian and US businesses are most keen to remove the fiscal stimulus quickly on returning to growth –
Russia and Ireland prefer to wait the longest7

100

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 growth

In many European countries, however, on recovery of a rapid withdrawal of anything that might possibly contribute
there was significant support for government support. to future growth.
keeping government support programs
It’s interesting to compare this with European businesspeople do
in 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 their
these countries over public debt. There
stimulus packages only fourth in the list prosperity from new competitors in
is clearly an ambivalent view among
of factors promoting recovery. Perhaps Asia Pacific and declining markets in
Europeans, who do not welcome the
this result reflects a general lack of the US, it appears to be a price they are
prospect 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 place
but are anxious over the possible impact

7
Source: KPMG International, May/June 2010


TAX: PAYING THE BILL

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