Economy
UK’s Hunt says public spending will grow slower than the economy
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LONDON — British finance minister Jeremy Hunt said on Thursday that public spending would grow more slowly than the economy, with a real terms squeeze in spending in many departments, though overall spending in public services will rise over the next five years.
Hunt said just over half of the needed 55 billion pounds ($65.2 billion) fiscal consolidation would come from cuts in spending.
“We are going to grow public spending – but we’re going to grow it slower than the economy,” Hunt said in a speech to parliament.
Hunt said for the remaining two years of the government’s Spending Review, it would protect the increases in departmental budgets it had already set out in cash terms, a sharp real-terms cut given high rates of inflation.
“And we will then grow resource spending at 1% a year in real terms, in the three years that follow,” Hunt said.
“Although departments will have to make efficiencies to deal with inflationary pressures in the next two years, this decision means overall spending in public services will continue to rise, in real terms, for the next five years.”
Hunt said he would raise
state retirement and welfare benefits payments
by 10.1% – in line with inflation.
Hunt said it would not be possible to restore the aid budget to 0.7% of gross national income from its current level of 0.5% because of the “significant shock to public finances.”
But he announced 3.3 billion pound increase in the National Health Service’s budget this year and next, and a rise in spending for social care and schools over the next two years.
The Office for Budget Responsibility said that funding increases for the NHS, social care and schools were largely offset by the reduction in aid spending.
It added that 1% real terms increases in current departmental spending would reduce cash spending “by amounts rising to 22.2 billion in 2027-28,” compared to the prior assumption it would rise in line with nominal GDP.
Torsten Bell, chief executive of the Resolution Foundation think tank, said there were also real-terms cuts in investment spending.
He said that while there was “no good news for public services,” the fiscal statement did not represent a return to the austerity of the coalition government of 2010-2015, adding there were “smaller day-to-day cuts than expected.”
Hunt delayed a decision on increasing defense spending, saying a new integrated review on security policy was needed and he would update again in the next budget. ($1 = 0.8434 pounds) (Reporting by David Milliken and Alistair Smout; editing by Michael Holden and Toby Chopra)
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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