OTTAWA — The Trudeau Liberals are set to unveil an update on the health of federal finances and its outlook for the economy while facing competing demands on benefits, taxes and economic growth.
It’s a tall order for a document that the Finance Department has signalled won’t include a bevvy of new spending items.
The government outlined its major priorities in the spring budget, such as a national child-care system, said David Macdonald, senior economist with the Canadian Centre for Policy Alternatives.
From a political standpoint, the government doesn’t have a lot of time before the holiday season to promote any new, major measures, Macdonald said. The government will likely wait for next year’s budget for any big spending proposals, he said.
“I don’t think that there’s going to be a lot of actual new policy despite the fact we just had an election,” Macdonald said.
“There’s likely to be very little in there except the deficit figures are smaller, probably.”
The government predicted the deficit for last fiscal year would be $354.2 billion, and nearly $155 billion this year. But federal books could have as much as $10 billion in extra fiscal space helped by higher oil prices, which have also helped push up inflation rates.
Inflation rates that have hit 18-year highs, along with strong growth in employment and the domestic economy, could cause the government to ease up on its platform spending plans, said Stephen Brown, senior Canada economist with Capital Economics.
In a note, Brown wrote that extra spending seems more likely to push up inflation by the time any changes take effect.
“It will be more interesting to see if the government follows through with its myriad policy proposals for the housing market, which included a ban on purchases by foreign investors,” he wrote.
Finance Minister Chrystia Freeland suggested this week that the document would give an outlook on the path of this year’s deficit, and an accounting of new aid proposals that the government estimated to cost $7.4 billion.
Some of those calculations have to do with the effect the Omicron variant may have on case counts, and any subsequent need to tighten public health measures or impose lockdowns to slow the spread of the virus.
Bea Bruske, president of the Canadian Labour Congress, urged Freeland to use the document to spend more on benefits, saying in a statement that there are still thousands of workers who are facing financial uncertainty because of COVID-19.
She also suggested the government could use the document to outline its proposed changes to the employment insurance system, whose long-known shortcomings were exposed by the pandemic.
“The fiscal update must make clear that the federal government is prepared to make investments to make life more affordable and ensure vital services, like EI, are there for people when they need it,” Bruske said.
The Chartered Professional Accountants of Canada said Friday that the government could use the update to detail previously announced tax proposals that are supposed to kick in next year, including one on purchases of luxury cars, planes and yachts, and another on foreign-owned vacant homes.
“Some of the changes are supposed to apply in less than a month,” said Bruce Ball, CPA Canada’s vice-president, taxation.
“We’re looking for some clarity in terms of how that’s going to happen and also some reasonable time frames to allow consultation on the things that are still very conceptual and … time for businesses to adjust.”
This report by The Canadian Press was first published Dec. 12, 2021.
Jordan Press, The Canadian Press
Afghan women losing jobs fast as economy shrinks and rights curtailed – The Globe and Mail
In a small tailoring workshop in Kabul, 29-year-old Afghan entrepreneur Sohaila Noori looks on as her dramatically reduced work force of around 30 women sew scarves, dresses and baby clothes.
A few months ago, before the hard line Islamist Taliban movement seized power in August, she employed more than 80 people, mostly women, across three different textile workshops.
“In the past, we had so much work to do,” said Noori, who was determined to keep her business running in order to employ as many women as she could.
“We had different types of contracts, we could easily pay a salary to our master tailors and other workers, but currently we have no contracts.”
With Afghanistan’s economy deep in crisis – billions of dollars in aid and reserves have been cut off and ordinary people have little money even for basics – enterprises like Noori’s are struggling to stay afloat.
Making matters worse, the Taliban will only allow women to work subject to their interpretation of Islamic law, prompting some to leave jobs out of fear of punishment by a group that severely restricted their freedom the last time it ruled.
Hard-won gains in women’s rights over the last two decades have been quickly reversed, and reports from international rights experts and labour organizations this week painted a bleak picture for female employment and access to public space.
Though the economic crisis is hitting the entire country – some agencies predict it will leave almost the entire population in poverty in the coming months – the effect is disproportionately felt by women.
“The crisis in Afghanistan has made an already challenging situation for women workers even worse,” said Ramin Behzad, Senior Coordinator of the International Labour Organization (ILO) for Afghanistan.
“Work in key sectors has dried up while newly imposed restrictions on women’s participation in some economic areas are also hitting home.”
Afghan women’s employment levels fell by an estimated 16 per cent in the third quarter of 2021, according to an ILO report released on Wednesday, relative to 6 per cent for men.
Women’s employment was expected to be 21 per cent lower than it was before the Taliban takeover by mid-2022 if current conditions continued, according to the ILO.
For the workers at Noori’s workshop, the opportunity to make some money outweighed other worries.
“Mostly our families are worried about our safety. They repeatedly call us when we don’t reach home on time, but we all continue to work … because we have economic problems,” said Lailuma, who only gave one name out of fear for her safety.
Another worker, Saleha, now provides for her entire family.
“My monthly income is around 1,000 Afghanis [$10], and I’m the only person working in my family … Unfortunately, since the Taliban have come to power, there is [nearly] no income at all.”
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Venezuela Holds Rare Call With Bondholders as Economy Recovers – BNN
(Bloomberg) — Venezuela’s government is making a fresh attempt to open channels with international investors, presenting potential deals in the oil and tourism sectors and talking up new economic growth data.
Advisers, led by top economic aide Patricio Rivera, held an hour-long call on Wednesday with at least two dozen bondholders and fund managers from the U.S. and Europe, according to four people with direct knowledge of the conversation. The call was organized by the Venezuela Spain Chamber of Industry and Commerce.
Rivera, a former Ecuadorian Finance minister who is spearheading reforms aimed at liberalizing Venezuela’s economy, briefed the investors on policy shifts and the government’s commitment to become more market friendly, the people said. He also said the government was open for investments in several sectors, from oil and minerals to tourism, the people said.
Rivera did not respond to a request for comment.
Venezuela has had limited contact with debt holders since it defaulted on bonds in 2017. It owes at least $60 billion plus interest on those defaulted notes. The call comes as the country breaks a seven-year recession, posting economic growth of 7.6% in the third quarter of 2021, according to preliminary data, and as it exits a four-year bout of hyperinflation.
Despite the new outreach, Venezuela remains under U.S. economic sanctions that pose an important roadblock to American bondholders.
©2022 Bloomberg L.P.
Xi resets policy priorities to boost economy – The Tribune India
China’s Central Economic Work Conference (CEWC), held at Beijing from December 8 to 10, 2021, decided that all stakeholders should work actively to maintain stability in the macro-economy in view of new challenges as the country holds the Winter Olympics from February 4 to 20, 2022, and the 20th Congress of the Communist Party of China (CPC) later this year. What made the economic planners to rethink the policy direction was the sharp dip in China’s GDP growth rate from 18.3% in Quarter 1 of 2021 to 7.9% in Q2, 4.9% in Q3 and 4% in Q4.
Structural changes ordered by President Xi Jinping such as reducing loans to the real estate sector, lower emission targets resulting in power cuts and the zero tolerance to Covid-19 had played an important role in decelerating the economic growth. Xi is personally involved in directing the real estate policies as he considers the unchecked growth of this sector as posing a threat to China’s economic stability.
New measures undertaken by the Xi regime included severe restrictions on giving bank loans, allow hugely indebted developers to default to rein in large unproductive expenditure and announcement of a property tax on a trial basis in certain provinces to discourage the purchase of multiple properties to curb speculation. Given that the real estate sector accounts for 29% of the Chinese economy, these measures, according to some economists, may reduce China’s GDP growth by about 0.5% in 2022 and thereafter. These restrictions have strained the local government’s finances, as selling land is an important source of revenue. Several local governments slashed the salaries of their staff, weakening the consumption.
In the last two years, China has undertaken several measures to reduce its greenhouse emissions, including controlling of its coal-fired power plants to meet its targets of peaking carbon dioxide emissions by 2030, lower the carbon dioxide emissions per unit of GDP by over 65% (from 2005 level) by 2030, increase the share of non-fossil fuels and forest stock. Decrease in power generation by coal-fired plants and rationing since September 2021 disrupted industrial production in many provinces as several industries were forced to cut production and reduce jobs. Recurrent outbreaks of Covid in some areas and China’s zero tolerance approach again forced several businesses to close and confined about 20 million people at home. The working of several companies in technology, education and gaming sectors was adversely impacted due to the regulatory actions, resulting in lower earnings and loss of jobs.
At the CEWC, it was felt that new external challenges had arisen as President Biden had not only continued the policies of his predecessor but also taken a harder line with his allies towards China. The Comprehensive Investment Agreement with the EU had remained frozen and China’s relations with Australia and Japan had deteriorated. These countries had become more vociferous in criticism of China’s human rights record and applied a number of sanctions against the Chinese companies and individuals for investments and exports. Several Chinese leaders appeared nervous about the slowing of economic growth in 2022 as Xi is expected to seek an unprecedented third term as President. They advised him that priority should shift to maintaining growth and stability so that the Chinese economy could convey a picture of strength.
Amid deterioration in China’s external environment, the conference identified securing supplies of primary products such as food, soybean, minerals and energy as a priority to prepare for the post-Covid world. “The Chinese people’s rice bowl must be firmly held in their own hands at all times,” Xi emphasised. He underlined the need to establish a strategic materials reserve to secure minimum needs at critical moments and work on a comprehensive conservation strategy. Other four priorities agreed were “common prosperity, capital regulation, defusing major financial risks and carbon neutrality. Concerns were expressed at the high level of unemployment among the migrants, the youth and possible outflow of foreign exchange as the US dollar strengthened following rise in the interest rates.
In view of these reasons, it was agreed that the government would have to give bigger policy support to the economy. China’s central bank had also conveyed dovish signals, cutting the reserve requirement ratio to the banks in a departure from central banks in the developed countries. Though the policymakers remained committed to structural reforms, it was agreed to slow down the regulatory crackdown and provide targeted support to SMEs, first time homebuyers, more funding for technology innovation and green investments.
China’s foreign trade made impressive gains in 2021, reaching $6.05 trillion as it functioned as a supply house to the rest of the Covid-stricken world. Trade with the US soared by 28.7% ($755.6 billion) and India by 43.3% (total $125.66 billion, Indian exports $28.14 billion, imports $97.52 billion). The increased global demand was chiefly responsible for 8.1% growth of China’s economy in 2021.
Chinese leaders are worried that external demand may not sustain as other major economies come out of Covid and start exporting this year. Consumption in China has not moved beyond 55% of the GDP (54.3% in 2020) in recent years due to the saving habits of the Chinese people for expenditure on health, education and old age. The government is, therefore, forced time and again to resort to big investments to drive up the growth rates.
It is now trying to increase investments in research and innovation (its R&D expenditure reached 2.4% of GDP in 2020), adoption of intelligent technologies and digital economy. While these technologies will yield efficiencies and mitigate to some extent the adverse impact of declining workforce, these will not lessen the latter’s adverse impact on lowering consumption. China will, therefore, be forced to accept sub-5% economic growth in the coming years as it rebalances its economy away from non-productive expenditures and starts experiencing the negative effects of population decline.
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