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from Expert Zone:

Budget 2014 is only the first step

(Any opinions expressed here are those of the author and not of Thomson Reuters)

Much was expected from Budget 2014/15 without realizing that India’s economy has its own rhythm, which changes only by small degrees if left to itself. That is why big-ticket reforms are necessary to quicken the pace. Finance Minister Arun Jaitley had reason to move forward with caution and make changes only at the fringes.

Labourers work at the construction site of a multi-level parking in ChandigarhNo wonder then that P. Chidambaram almost welcomed the budget as if it was a carryover from his own budget. Even the increase in shareholding by foreign investors in the insurance and defence sector, which Jaitley has announced, had been on the previous government’s agenda. Now that the opposition has shrunk, the Modi government took the first opportunity to do that, though with conditions.

The reason for carrying forward the agenda of the United Progressive Alliance (UPA) government could possibly be that the new government had little time to consider the nuances of any new approach to policies and the apprehension that any radical departure from previous budgets may see the repeat of opposition behavior in earlier parliament sessions.

Not that significant changes haven’t been made, but they are not so visible. The budget speech is silent on the cap on LPG cylinders, decontrol of diesel subsidies or direct benefit transfers, which are included in other budget papers.

from Counterparties:

Transit trouble

Summer is the peak season for both traveling and new construction, so it’s just about the worst imaginable time for the country’s transportation funding to be on the verge of running out. On Tuesday, Transportation Secretary Anthony Foxx sent letters to the heads of all 50 state transportation agencies, telling them that the federal Highway Trust Fund would start to dry up by early August, leaving states on the hook for most of their transportation costs. The Highway Trust Fund provides anywhere from 30-70% of transit money to states, and Foxx has estimated that the average state will lose 28 percent of its federal funding. President Obama, giving a speech under the Key Bridge in Washington, D.C., plugged his own $302-billion plan to replenish the trust fund by closing corporate tax loopholes.

The culprit, says Jared Bernstein, is the federal gas tax. At 18.4 cents per gallon, the gas tax provides a majority of the Trust Fund’s revenue, but it hasn’t been raised since 1993. Over the last 21 years, a number of factors have converged — the gas tax has not been indexed to inflation, the total number of vehicle miles driven in the U.S. has actually declined, cars are more fuel-efficient than ever — to reduce the purchasing power of gas tax revenues by 28%.

from Breakingviews:

Spanish government oddly passive on Catalonia risk

By Fiona Maharg-Bravo

The author is a Reuters Breakingviews columnist. The opinions expressed are her own. 

Investors in Spanish debt don’t seem to worry much about the tension in Catalonia. Independence is a distant possibility, and yields on the country’s 10-year bonds, at 2.7 percent, are now below the UK’s. But the insouciance of the Spanish government on the matter is harder to fathom. The crisis won’t simply go away if Madrid does nothing.

from Edward Hadas:

Shhh – don’t talk about higher taxes

By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Many people assume that tax increases are the only realistic response to excessive income inequality. They are wrong. There is a better way.

from MacroScope:

Will French numbers add up?

French President Francois Hollande’s cabinet meets to adopt a new debt reduction plan.

After outlining 50 billion euros of savings for 2015-2017 to help pay for consumer and business tax cuts, the government is due to sign off on already delayed deficit reductions to bring it, eventually, to three percent of output as demanded by Brussels.

from MacroScope:

Sanctions loom for Russia

The European Union, as we exclusively reported yesterday, has agreed on a framework for sanctions against Russia, including travel restrictions and asset freezes, which goes further than many expected. The list of targeted individuals is still being worked on but will be ready for the bloc’s foreign ministers to look at on Monday.

Angela Merkel will speak to the German Bundestag about the standoff with Russia. Merkel has been cautious about imposing anything too tough as she tries to convince Vladimir Putin to agree to a "contact group" that would reopen communications between Moscow and Kiev. But yesterday she said measures would be imposed next week – after a Crimean referendum on joining Russia which the West says is illegal - unless diplomatic progress is made.

from Felix Salmon:

The bank tax rises from the dead

Back in January 2010, Barack Obama — flanked by Tim Geithner, Larry Summers, and Peter Orszag — unveiled a new tax on big banks, or a “financial crisis responsibility fee”, as he liked to call it. Of course, this being Washington, the initiative never got off the ground, and was largely forgotten — until now:

The biggest U.S. banks and insurance companies would have to pay a quarterly 3.5 basis-point tax on assets exceeding $500 billion under a plan to be unveiled this week by the top Republican tax writer in Congress.

from Felix Salmon:

Pension politics

David Sirota has a very important scoop today: the PBS series “Pension Peril” has secretly* been funded by John Arnold, a billionaire powerbroker with an aggressively anti-pensions political agenda. This looks very bad for PBS — but it’s also bad for Arnold, who generally gets glowing press, and who would seem to have no good reason to have insisted on secrecy when writing the $3.5 million check that made the series possible.

The PBS series in question seems to fall uncritically into line with the beliefs of Arnold and other Very Serious People — that pension liabilities are a huge problem, and that the only way to fix them is to reduce the amount that pensioners get paid. But of course it’s not nearly as simple as that.

from MacroScope:

Hollande’s moment of truth

This afternoon, French President Francois Hollande will expand upon his New Year announcement that French companies who agree to hire more workers could pay lower labour taxes in return and find themselves less tied up in red tape. Unemployment is running near to 12 percent and Hollande’s vow to get it falling by the end of 2013 fell short.

Unfortunately, the announcement has been eclipsed by his threat of legal action after a French magazine reported he was having an affair with an actress. France tends to overlook its politicians’ peccadilloes but with the economy in a hole, Hollande risks facing the charge that he should be focusing squarely on that.

from Anatole Kaletsky:

Learning budget lessons from Japan and Britain

While the world is transfixed by the U.S. budget paralysis, fiscal policies have been moving in several other countries, most notably in Japan and Britain, with lessons for Washington and for other governments all over the world.

Let's start with the bad news: Shinzo Abe’s decision to increase consumption taxes from 5 to 8 percent next April. This massive tax hike, to be followed by another increase in 2015, threatens to strangle Japan’s consumer-led growth from next year onwards, since Abe looks unlikely to offset this massive fiscal tightening with stimulative measures that would maintain consumers’ spending power. Even if Abe delivers on his vague promise to compensate with business tax reductions, these will only aggravate the over-investment and corporate cash hoarding that have long distorted the Japanese economy. Meanwhile, the government’s willingness to risk economic recovery in the cause of fiscal discipline implies that those of us who believed Abe was making an unconditional commitment to do whatever it takes to achieve economic recovery were simply wrong. Now that the forces of budgetary austerity have reasserted themselves, Japan’s probability of ending its decades of stagnation is much reduced.

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