The principality of Monaco, renowned for its glamour, its “beautiful people”, its Grand Prix and its luxurious yachts, also boasts the highest gross national income per capita in the world — some $197,460, according to 2010 World Bank estimates. To better understand the dynamics behind this economic model, Executive travels to the city state in Southern France to sit with Italian Marco Piccinini, Monaco’s Minister of Finance and Economy, at his offices atop the famous Rock, Monaco’s old town.
Initially, however, Piccinini seems more interested in hearing about Middle Eastern politics, as he spends the first 15 minutes asking questions about the Middle East. “Sorry if I am the one interviewing you” he says jokingly. Married to a Tunisian with whom he has one child, he is curious to understand the dynamics of the region.
When the tiny principality recently revealed its 2012 budget, it forecast balanced books for the year ahead, an envious feat for European neighbors struggling to restrain raging deficits. With 833 million euros ($1.06 billion) in both revenues and expenditures, it will be a turnaround on previous years.
“We have experienced some budget deficit after the crisis, but already this year we are essentially ‘budget balanced’ and we will be back to a surplus in one to two years, maximum” says Piccinini. Unlike some of his European counterparts, raising taxes is not on his agenda. Piccinini says the aims are “cutting costs, investing in areas with better returns, moving resources from what brings nothing to what brings more.”
Trying to be modest
Monaco boasts a mild taxation system. Famed for charging no personal income tax, it has attracted many “tax refugees” to its appealing shores. It also offers a mild corporate tax system, charging corporations a 33.3 percent tax rate if more than 25 percent of their revenues are generated from outside of the principality; otherwise, the rate is zero.
“People ask me, ‘is your model with mild taxation sustainable?’ It can happen, because we never deviated for political or ideological reasons from our three pillars” says Piccinini. The three pillars of the economic and social model of Monaco are to have zero sovereign debt, to run a reserve fund covering four years of budget expenditures and to have a balanced budget with a possible budget surplus. “Our aim is to try to have a surplus which can be put away for difficult days,” he adds.
But while Monaco’s relatively low tax environment becomes more appealing for businesses to come and set up shop, Piccinini stresses that the principality is not trying to compete with other tax havens. “We see ourselves more as a gateway to Europe for non-European investors. Taxes can be one of the elements but not the only element,” he says.
Even with its hefty banking sector (deposits in Monaco’s banks total some 19 times the size of its economy), Piccinini says Monaco has no aspirations of being a global financial hub akin to London or New York. “Let’s be humble. We cannot pretend to reproduce, in less than two square kilometers, what other financial hubs have produced; banking has been developing very well but we don’t want to become a financial hub which may be exposed to the uncertainties of this business.” The deposits in Monegasque banks in those two-square kilometers amount to a 78.4 billion euros ($100 billion) as of end 2010, the most recent consolidated figures available. That’s equivalent to 65 percent of the total deposits held in Lebanese banks. “It is the size of a small to medium sized bank. Our goal is not to increase assets under management. We want to remain a reasonably sized banking platform,” says Piccinini.
Attracting the MENA region
The minister also eludes to Lebanese and Middle Eastern financiers beginning to wet their feet in the Monegasque financial fodder. Lebanon’s Audi Bank set up a branch in Monaco in January 2010 and Qatar recently acquired KBL, a Luxembourg-based bank with a branch in the principality. And the Middle East’s venture into the principality does not end at the banking sector. “We have Middle Eastern people from many businesses here. The tourism, banking, shipping and industry sectors are all pillars of Monaco’s economy and in many of these areas, Middle East nationals are very active. The Prince dedicates every year an official visit to the Middle East,” says Piccinini. As for investment, he says that Middle Eastern clients are mainly interested in investing in Monaco’s real estate sectors, in incorporating family offices in the principality and in having a base in Monaco, which becomes their gateway to Europe.
Monaco seeks to remain “attractive as an overall destination by being an interesting hub for the [European] region and also a place where one can enjoy life,” says Piccinini. “That’s the attractiveness of Monaco”.