Economy
Merkel wants Europe, United States to aim for new trade deal
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BERLIN (Reuters) – A trade agreement between the United States and the European Union would “make a lot of sense”, German Chancellor Angela Merkel said in a speech in which she welcomed the United States’ return to the multilateral fold under President Joe Biden.
German enthusiasm for a trade deal and stronger transatlantic ties may have to contend with a more cautious approach in France, where President Emmanuel Macron has made a priority of reducing European reliance on rival superpowers.
Merkel said that while Germany had no interest in a world divided into camps as it was in the Cold War, it was good that the United States, Europe’s “most important ally”, stood alongside Europe in rivalries with China and Russia.
“I have always supported a trade agreement between the United States of America and the European Union,” she told a Berlin conference on the future of transatlantic ties.
“We have trade agreements with so many of the world’s regions. It would make a lot of sense to develop such a trade agreement here, similar to what we have done with Canada,” she added.
Merkel’s transatlantic coordinator Peter Beyer told Reuters in February that Germany and the new U.S. administration should “think big” and aim for an ambitious agenda including a trade deal to abolish industrial tariffs and a WTO reform to increase pressure on China.
The European Union has put reform of the World Trade Organization at the heart of its trade strategy for the next decade, saying global rules on commerce must be greener, take more account of state subsidies and be enforced.
The EU itself feels bruised by trade wars, Brexit and what it sees as unfair competition from China, which it perceives as a “systemic rival”, and is taking more assertive measures to enforce global trade rules and ensure a level playing field.
Merkel said that despite issues with its ratification in the EU, the bloc’s planned investment agreement with China, the comprehensive agreement on investment (CAI), is a “very important undertaking, because it gives us more reciprocity in market access”.
At the same time, it was necessary to address “the whole range of issues” with China, including its human rights record, she added.
The EU executive has hailed the CAI, struck at the very end of 2020, as a means to secure better access for European companies to Chinese markets and redress unbalanced economic ties.
But concerns over China’s human and labour rights record and scepticism from the United States had already cast doubt on the deal’s approval process even before Chinese blacklisting of five members of the European Parliament in tit-for-tat sanctions.
(Reporting by Thomas Escritt, Paul Carrel and Michael Nienaber; EDiting by Giles Elgood)
Economy
Biden's Hot Economy Stokes Currency Fears for the Rest of World – Bloomberg
As Joe Biden this week hailed America’s booming economy as the strongest in the world during a reelection campaign tour of battleground-state Pennsylvania, global finance chiefs convening in Washington had a different message: cool it.
The push-back from central bank governors and finance ministers gathering for the International Monetary Fund-World Bank spring meetings highlight how the sting from a surging US economy — manifested through high interest rates and a strong dollar — is ricocheting around the world by forcing other currencies lower and complicating plans to bring down borrowing costs.
Economy
Opinion: Higher capital gains taxes won't work as claimed, but will harm the economy – The Globe and Mail
Alex Whalen and Jake Fuss are analysts at the Fraser Institute.
Amid a federal budget riddled with red ink and tax hikes, the Trudeau government has increased capital gains taxes. The move will be disastrous for Canada’s growth prospects and its already-lagging investment climate, and to make matters worse, research suggests it won’t work as planned.
Currently, individuals and businesses who sell a capital asset in Canada incur capital gains taxes at a 50-per-cent inclusion rate, which means that 50 per cent of the gain in the asset’s value is subject to taxation at the individual or business’s marginal tax rate. The Trudeau government is raising this inclusion rate to 66.6 per cent for all businesses, trusts and individuals with capital gains over $250,000.
The problems with hiking capital gains taxes are numerous.
First, capital gains are taxed on a “realization” basis, which means the investor does not incur capital gains taxes until the asset is sold. According to empirical evidence, this creates a “lock-in” effect where investors have an incentive to keep their capital invested in a particular asset when they might otherwise sell.
For example, investors may delay selling capital assets because they anticipate a change in government and a reversal back to the previous inclusion rate. This means the Trudeau government is likely overestimating the potential revenue gains from its capital gains tax hike, given that individual investors will adjust the timing of their asset sales in response to the tax hike.
Second, the lock-in effect creates a drag on economic growth as it incentivizes investors to hold off selling their assets when they otherwise might, preventing capital from being deployed to its most productive use and therefore reducing growth.
Budget’s capital gains tax changes divide the small business community
And Canada’s growth prospects and investment climate have both been in decline. Canada currently faces the lowest growth prospects among all OECD countries in terms of GDP per person. Further, between 2014 and 2021, business investment (adjusted for inflation) in Canada declined by $43.7-billion. Hiking taxes on capital will make both pressing issues worse.
Contrary to the government’s framing – that this move only affects the wealthy – lagging business investment and slow growth affect all Canadians through lower incomes and living standards. Capital taxes are among the most economically damaging forms of taxation precisely because they reduce the incentive to innovate and invest. And while taxes on capital gains do raise revenue, the economic costs exceed the amount of tax collected.
Previous governments in Canada understood these facts. In the 2000 federal budget, then-finance minister Paul Martin said a “key factor contributing to the difficulty of raising capital by new startups is the fact that individuals who sell existing investments and reinvest in others must pay tax on any realized capital gains,” an explicit acknowledgment of the lock-in effect and costs of capital gains taxes. Further, that Liberal government reduced the capital gains inclusion rate, acknowledging the importance of a strong investment climate.
At a time when Canada badly needs to improve the incentives to invest, the Trudeau government’s 2024 budget has introduced a damaging tax hike. In delivering the budget, Finance Minister Chrystia Freeland said “Canada, a growing country, needs to make investments in our country and in Canadians right now.” Individuals and businesses across the country likely agree on the importance of investment. Hiking capital gains taxes will achieve the exact opposite effect.
Economy
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The IMF’s World Economic Outlook estimates Nigeria’s gross domestic product at $253 billion based on current prices this year, lagging energy-rich Algeria at $267 billion, Egypt at $348 billion and South Africa at $373 billion.
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