Small Government Good Government Summit Sponsored by Institute

Small Government – Good Government Summit Sponsored by Institute for Economic & Social Studies Slovak Association for a Knowledge Society Bratislava, November 2 nd 2010

Governing for Competitive Advantage, Economic Growth & Prosperity Presentation by Hon. Maurice Mc. Tigue Mercatus Center George Mason University, USA

Congratulations n n I am full of admiration for the achievements of the Slovak Republic since the creation of the Republic just 17 years ago. Your current efforts are pulling your country back from the brink of economic disaster and in the worst economic climate the world has experienced for 80 years.

Patience n n n When embarking on creating a MARKET ECONOMY through major reforms there is often pressure to change course, my advice DON’T. Slovakia is showing signs of recovering more rapidly than other countries in the Euro-zone. Often the hardest part is waiting for results. The message is Slovakia generally has a good strategy, it is economically sound, it is supported by the financial markets, keep on course despite the impatience of the media, the public and opponents.

GDP (Current $US (Billions))

GDP Growth (annual %)

GNI Per Capita, Atlas Method (Current $US)

Reform Tools Accountability & Transparency n n n The more open and transparent government activities are to public scrutiny, the more confidence the public will have in government The greater the transparency of government processes and procedures, the harder it is for bad policy to be implemented. Transparency is the best protection against corruption

The Prosperity Equation n n n CAPITAL – JOBS - PROSPERITY Capital investment leads to Increased job creation is followed by Prosperity Capital migrates to the friendliest environment Capital and jobs are extremely mobile The solution: Create the most attractive climate for investment

Why is Economic Recovery Slow? n ANSWER: UNCERTAINTY n n n Investment is not yet happening in the large economies because the new regulatory climate is uncertain. q As a result, job growth is still slow. The governments around the World need to act on improving the investment climate. DO NOT ATTEMPT TO CHANGE COURSE NOW!

Ireland’s Results n n n GDP growth: from 0. 4% to 10% pa Debt: from 118% of GDP to 24% Unemployment down from 15. 7% - to 3. 5% Second highest per capita income in Europe Population growth from 2. 6 million to 3. 4 million

Ireland Revenue & Fiscal Results n Revenue results n n n n Personal income tax revenue up 5 -fold Corporate tax revenue up 600% Capital gains tax revenue up 40% Deficit of 14% of GDP Surplus of 5% of GDP The secret: Grow the economy to solve fiscal problems How: Attract investment capital

Key to Individual Country Graphs Color Shape Measure Total Labor Participation Rate (% of total population ages 15+) Source: WDI Total Central Government Debt or Net Public Debt (% of GDP) Source: OECD, Banco Central de Brasil, WDI General Government Final Consumption Expenditure (% of GDP) Source: WDI Total Unemployment (% of total labor force) Source: WDI GDP Growth (%) Source: WDI General Government Balance, Fiscal Balance, or Central Government Deficit/Surplus (% of GDP) Source: IMF, CEI, OECD Fiscal Rule Source: OECD, CESifo Guideline - Debt Max 60% of GDP Source: Growth and Stability Pact (Maastricht Treaty - EU) Guideline - Deficit Max 3% of GDP Source: Growth and Stability Pact (Maastricht Treaty - EU)

70 Hong Kong 60 Percent and Percent of GDP 50 40 30 20 10 0 -10 1985 1990 1995 2000 2005

70% Economic Indicators of Slovakia 1993 -2009 60% 50% Real GDP Growth (% change on previous year) 40% Inflation (Annual Average Rate of Change in HICP) Percent 30% Inward FDI (% of GDP) Government Gross Debt (% of GDP) 20% Employment rate Government Deficit/Surplus (% of GDP) 10% 0% 3 199 -10% -20% 199 4 5 199 6 199 7 199 8 199 9 199 0 200 1 200 2 200 3 200 4 200 5 200 6 200 7 200 8 200 9

Competitiveness Strategies n n n Many countries with flat taxes - most in Eastern Europe Georgia wiped out 85% of regulations/permits Deregulating labor markets Dramatically reducing corporate tax rates zero to 10%, removing tax complexity Government policy is becoming a major competitiveness issue

World Bank, Ease of Doing Business Index, 2007 -2010 Note: **Rank from 1 – 183, with first place being the best. A high ranking on the ease of doing business index means the regulatory environment is conducive to the operation of business. The rank from 2010 examines the months between June 2008 - May 2009.

Capital Friendly Environments Ease of Doing Business 2010

Caution & Encouragement n n n Keep out of “Think Big” projects Job Creation schemes – a private company employing people – best job scheme Tax Reform – Simplify the System Beware of Government Overload Do not declare success to early Change & reform is never finished!

Preventing Future Fiscal Crisis n n n n Independent Auditor General – no more funny accounting Fiscal Responsibility Act – NZ Budget Honesty Act – Australia Code of Fiscal Stability – UK Government Accountability & Transparency Act – Canada The Maastricht Treaty – European Community Financial Transparency Legislation

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