Economy

WASHINGTON (Reuters) – U.S. President Joe Biden on Thursday will escalate his crusade to push wealthy Americans and large companies to pay more in taxes in his State of the Union address, unveiling proposals to hike the corporate minimum tax and curb deductions for executive pay and corporate jets.White House officials said Biden would preview the steps that will be part of a proposed fiscal 2025 budget released next week that aims to cut the federal deficit by $3 trillion while cutting taxes for low-income Americans.The tax plans are expected to form a core part of Biden’s re-election campaign, contrasting markedly with presumptive Republican nominee Donald Trump, whose 2017 “Tax Cuts and Jobs Act” slashed taxes on companies and the wealthy.”Congressional Republicans want to cut taxes even more for the wealthy and big corporations, all while adding more than $3 trillion to the debt,” said Lael Brainard, director of the White House’s National Economic Council. “President Biden has made clear whose side he’s on.” Most of Biden’s tax proposals have little chance of enactment unless Democrats win strong majorities in both chambers of Congress in November, a sweep that polls suggest is unlikely.They include Biden’s previous calls to raise the corporate tax rate to 28% from the current 21%, recouping half of Republicans’ 2017 cut.Biden also now wants to increase to 21% a 15% corporate minimum tax on companies reporting over $1 billion in profit that he won as part of 2022 clean energy legislation.TAX BREAK CURBSBiden also will call for Congress to approve far stricter limits on business income deductions for executive pay, limiting them to $1 million for any given employee.Current law already prohibits deductions on compensation for chief executive officers, chief financial officers and other key positions. White House officials said the new proposal would cover all employees paid more than $1 million, and raise over $250 billion in new corporate tax revenue over 10 years.Biden will also go after business income deductions for the use of corporate jets, an area already targeted for audits by the Internal Revenue Service. This includes extending the depreciation period for corporate jets to seven years, the same as commercial aircraft, from five years currently, reducing annual deductions, an administration official said.Biden will renew his “billionaire tax” proposal, which is actually significantly below that level. It imposes a 25% minimum tax on income for those Americans with wealth of over $100 million. The average American worker paid about a 25% tax rate in 2022, the OECD reports; White House research found the wealthiest individuals paid about 8% from 2010 to 2018. Biden will pledge to extend Trump-era tax cuts for those earning under $400,000, call for restoring a COVID-era expansion of the Child Tax Credit that paid eligible families up to $3,600 a year per child, and increase a tax credit for low-wage workers.FIGHTING “RIP-OFFS”As consumers continue to struggle with high prices, Biden also will outline steps that his administration is taking to cut “corporate rip-offs” including added “junk” fees, price gouging and reduced package sizes to hide price hikes. So-called “shrinkflation” was bemoaned on Monday by Sesame Street muppet Cookie Monster in a widely reported X social media post.After a move this week to cap credit card late fees at $8, Biden also will call for crackdowns on “exploitative” practices with branded credit cards, including devaluing air miles and points. More

BERLIN (Reuters) – The German economy is not picking up as quickly as expected, the economic institute DIW Berlin said on Thursday, forecasting a recession at the start of the year. Gross domestic product is expected to contract by 0.1% in the first quarter, according to DIW, after the economy shrank by 0.3% in the final three months of 2023. Two consecutive quarters of falling output are defined as a technical recession.”As inflation continues to decline, private consumption will again become the main driver of the economic upswing from the second quarter onwards,” DIW’s Timm Boenke said. Although a return to modest growth is expected by the second quarter, the German economy will stagnate in the current year, DIW said, cutting its previous forecast of 0.6% growth.DIW Berlin is the latest economic institute to cut forecasts. Two German forecasting institutes cut their 2024 growth forecasts on Wednesday in the latest blow to the euro zone’s largest economy.”We are a bit more pessimistic than our colleagues,” said Marcel Fratzscher, DIW president, in the presentation of the forecasts. In 2025, economic output is expected to increase by 1.2%, DIW said, slightly up from a previous forecast of 1.0%. More

MATSUE, Japan (Reuters) – The Bank of Japan’s (BOJ) governor and one of its board members said on Thursday the economy was moving towards the central bank’s 2% inflation target, in comments that heightened market expectations of an imminent end to negative interest rates.The remarks came as Japan’s largest trade union group Rengo said average wage hike demand hit 5.85% for this year, topping 5% for the first time in 30 years and raising prospects of a broad-based pay rise that the BOJ set as a prerequisite for a stimulus exit.BOJ board member Junko Nakagawa said the country’s intensifying labour shortages were prodding more companies to resume their practice of increasing pay annually, signalling conviction that conditions for phasing out the central bank’s massive stimulus were falling into place.”We can say that prospects for the economy to achieve a positive cycle of (rising) inflation and wages are in sight,” Nakagawa told business leaders in the southwestern city of Matsue.”There are clear signs of change in how companies set wages. Japan is moving steadily towards sustainably and stably achieving our 2% inflation target,” she said.The remarks came amid growing market expectations that the BOJ could exit negative interest rates this month, fuelled in part by a media report on Wednesday that at least one of its board members could call for such an action this month.The growing momentum for a March stimulus exit lifted the yen to a one-month high against the dollar, and pushed up government bond yields, a trend that continued on Thursday.Analysts have tipped either the March or April meetings as possible timings of the pivot. Back in mid-February, most polled by Reuters saw April as far more likely because that is when the BOJ produces fresh quarterly growth and inflation forecasts.Nakagawa’s remarks follow those of fellow BOJ board member Hajime Takata, who said last week Japan was finally seeing prospects it could durably achieve the central bank’s 2% inflation target.BOJ governor Kazuo Ueda added to the hawkish chorus later on Thursday, saying the likelihood of achieving the central bank’s inflation target was gradually rising.”If we confirm that a positive wage-inflation cycle is strengthening, we can examine modifying our massive monetary easing measures,” he told parliament.Ueda also elaborated on how the BOJ could guide policy after exiting negative rates, suggesting it was actively brainstorming ways to smoothly end its prolonged ultra-easy policy.For one, the BOJ will pay interest on reserves financial institutions park with the central bank, and use that as a tool to control short-term interest rates, Ueda said.He also said that regardless of whether the BOJ ditches or maintains yield curve control, it will continue to buy enough long-term bonds to avoid any abrupt spike in yields.CONSUMPTION, WAGES KEYDespite recent weak signs in the economy, BOJ policymakers have signalled their intention to move ahead with plans to dial back stimulus.Real wages shrank in January for the 22nd straight month but at the slowest pace in over a year, data showed on Thursday, as price pressures from rising raw material costs dissipated.To keep inflation sustainably around 2%, the BOJ guides short-term rates at -0.1% and sets a 0% target for the 10-year bond yield under a policy dubbed yield curve control (YCC).Governor Ueda has said the outcome of this year’s annual spring wage negotiations will be key to how soon the BOJ can phase out the monetary easing measures.Big firms will settle their wage negotiations with unions on March 13, days before the BOJ’s policy meeting on March 18-19.While pointing to some positive signs on the wage outlook, Nakagawa said there was a risk that wages fail to rise enough and hurt household sentiment, thereby cooling consumption.”Consumption appears weak in both real and nominal figures” she told a briefing. “It’s also important to note that wage hikes, and hopes of continued wage increases, will likely underpin consumption.” More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.If you want to see what green trade policy looks like, it comes in the form of steelmakers around the world grumbling as they fill in spreadsheets about carbon emissions, and palm oil growers from Malaysia and Indonesia poring over the minute detail of photos from satellites.The destination for all this information is Brussels. Environmental trade negotiations at a multilateral level are essentially dead in the water: India is blocking the whole principle of discussing climate change at the World Trade Organization. The EU’s unilateral carbon border adjustment mechanism (CBAM) and its forthcoming ban on commodities produced on recently deforested land are two of the few green trade games in town.This being the EU, the measures are generally fine in theory — and possibly even motivated by principle, you never know — but complex and bureaucratic in practice. CBAM and deforestation are respectively the responsibility of the European Commission’s tax and environment directorates, not the trade directorate, and they are less used to dealing with policy affecting foreign producers. Even commission officials privately admit that implementation, especially for deforestation, has been poor. To foreign exporters, the new EU regulations can look a lot like protectionism via so-called technical barriers to trade.As if to prove the point, this week a WTO dispute settlement panel ruled on a Malaysian complaint against an EU renewable energy directive that in effect blocked imports of palm oil. It was a complicated decision but the general upshot of it was that whatever the fairness of the principle, it has been poorly implemented in practice. For CBAM, companies importing steel and other emissions-intensive products — as with trade tariffs, it’s importers that will actually pay the tax — already have to report those emissions to the EU ahead of the planned imposition of tariffs in 2026. The duties are intended to equalise the carbon price for domestic and imported goods, essentially extending the EU’s emissions trading system to foreign businesses. Policymakers, particularly those in the EU’s neighbourhood such as Turkey and the UK, are contemplating linking up directly with the EU’s ETS scheme, which would reduce policy discretion but also remove paperwork.In the meantime, for businesses like Turkish steelmakers — the country, which is inside the EU customs union, is the world’s fifth-biggest steel exporter — the process is something of a jolt. Uğur Dalbeler of the Turkish Steel Exporters’ Federation says: “We’ve been used to the world being divided into two, the developed countries playing happily in their playground and the developing countries out on their own . . . now we find we’re outside and have to get back in.” Dalbeler is no implacable enemy of CBAM, which he says will give Turkey a competitive edge against other non-EU exporters with higher carbon emissions. But the adjustment, he says, involves filling in “very complicated Excel spreadsheets”.Mundane as they may seem, the practicalities of the process are sparking as many complaints as the principle. Emissions reporting by EU importers is much slower than hoped. Companies say that the EU website is buggy and the methodology complicated. They can use so-called “default values” — benchmark measures published by the EU — rather than their actual emissions. But while easing their administrative burden, those also overstate their carbon footprint.The burden is particularly heavy for smaller trading companies. Any import consignment of CBAM products worth more than just €150 must be reported and will eventually face duties. For a small business importing small batches of nuts and bolts, that means the regulatory cost is not trivial. There’s a burgeoning industry of consultants who will help out, but for a fee.Palm oil growers in Malaysia and Indonesia are having similar issues. The industry there has many thousands of smallholder farmers, many of whom already regard the EU’s existing import restrictions to be arbitrary protectionism. It doesn’t help that they are being imposed by a trading bloc dominated by European former colonial powers.To prove that a particular batch of palm oil was not grown on recently deforested land involves complex processes of combining satellite photos with geolocation data showing exactly to which piece of land they refer. Time to perfect that practice is short: the regulation starts to apply from December this year. Tengku Zafrul Abdul Aziz, the Malaysian trade minister, told the FT in a recent interview: “It’s quite an aggressive timeline given what the companies need to do to comply, and that’s why some view this as a form of a non-tariff barrier.” All this may seem technical and abstruse. But with standard import tariffs for most industrial goods in advanced economies pretty low, technical and regulatory hurdles have emerged in the past few decades as one of the biggest impediments to world trade. Brussels has just raised the bar higher. The EU may delay implementation of CBAM or deforestation rules by a year or two to give companies time to adjust, but it’s highly unlikely to back off the plans altogether. Those producers spending their time filling out spreadsheets and scrutinising satellite photos have a busy time [email protected] CapitalWhere climate change meets business, markets and politics. Explore the FT’s coverage here.Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here More

SINGAPORE (Reuters) – The U.S. dollar eased on Thursday and hit a one-month low against the yen as traders zeroed in on the idea that U.S. interest rates were likely to fall this year even after some upside surprises on inflation.In cryptocurrencies, bitcoin retreated from a record struck earlier in the week, though its 0.4% loss on the day was insignificant in comparison to its 55% rally for the year thus far.In his testimony to lawmakers on Wednesday, U.S. Federal Reserve Chair Jerome Powell said rate cuts will “likely be appropriate” later this year “if the economy evolves broadly as expected” and once officials gain more confidence in inflation’s steady deceleration.Those remarks, coupled with data released on Wednesday that pointed to an easing of labour market conditions, sent U.S. Treasury yields falling, which in turn pushed the greenback broadly lower.Against the yen, the dollar bottomed at a roughly one-month trough of 148.94 in early Asian trade on Thursday.The euro and sterling held near one-month highs struck in the previous session and last bought $1.0902 and $1.2738 respectively.”Dollar weakness against the major currencies came down to both the weak labour market data … and also Powell’s testimony,” said currency strategist Carol Kong at Commonwealth Bank of Australia (OTC:CMWAY).”Powell didn’t really give away too much … (but) judging by the market reaction, Powell’s comments were less hawkish than some had expected. Markets were likely relieved that Powell didn’t change his risk assessment on inflation even after the January CPI (consumer price index) figures.”Futures pricing currently point to a 70% chance that the Fed could begin easing rates by its June policy meeting, according to the CME FedWatch tool, with roughly 87 basis points of cuts priced in for the year.Market bets for imminent cuts also kept U.S. Treasury yields under pressure, with the two-year yield – which typically reflects near-term rate expectations – last at 4.5640%. It touched a three-week low of 4.5100% in the previous session. [US/]All of that left the greenback pinned near a one-month low against a basket of currencies. The dollar index edged 0.04% lower to 103.30.Elsewhere, the Canadian dollar was little changed at 1.3518 per U.S. dollar after the Bank of Canada (BoC) on Wednesday kept its key overnight interest rate steady but said underlying inflation meant it was too early to consider a cut.”We now think the BoC is more likely to delay any decision to cut rates until June 5,” said Simon Harvey, head of FX analysis at MonFX. “We maintain our short-CAD bias, but note the period of significant depreciation is likely to be delayed until the mid-Q2.”The New Zealand dollar rose 0.05% to $0.6133, while the Australian dollar edged 0.11% higher to $0.6572.Data on Thursday showed Australia’s surplus on trade goods widened in January as a rise in exports of farm products and gold outweighed growth in vehicle imports.Over in the cryptoverse, bitcoin was last at $66,232, while ether slipped more than 0.2% to $3,842.20 after peaking at an over two-year high in the previous session. More

WASHINGTON (Reuters) -The Republican-controlled U.S. House of Representatives on Wednesday passed legislation funding a broad swath of the federal government through the fiscal year that began in October, as yet another threat of a partial shutdown looms.The House voted 339-85 for the bill with 83 Republicans in opposition. It now goes to the Senate for passage by Friday, before a midnight deadline when temporary funding expires for several Washington agencies.This 1,050-page cluster of bills would keep programs running at huge federal bureaucracies, including the departments of Agriculture, Justice, Transportation and Housing and Urban Development. Also affected are construction projects at military bases and care for veterans.Republican House Speaker Mike Johnson had to rely on support from opposition Democrats to get the massive legislation passed. Since becoming speaker on Oct. 25 following the ouster of Kevin McCarthy, Johnson has had a difficult time governing because of his paper-thin 219-213 majority.His work has been made all the more difficult by a band of hardline conservatives who have bucked their Republican leadership on a series of bills, including some to fund regular government operations, as well as emergency aid to continue helping Ukraine in its war against Russia.Representative Mike Simpson, a senior Republican appropriator, defended the bill, saying: “Many agencies with important missions face reductions under this legislation. We believe it is important to reverse the out-of-control growth of the federal government and that is reflected in this agreement.”Even before the sprawling spending bill reached the Senate, Republican Senator Mike Lee tried to kill funding for some federally-backed projects, such as the nearly $1 million for a Georgetown University prison and justice program. He was blocked by Senate Appropriations Committee Chair Patty Murray.Hardline House Freedom Caucus members urged fellow Republicans to oppose the bill, saying in a statement that it will “bust” spending caps enacted last June and “punts on nearly every single Republican policy priority.”The group wants significantly deeper spending cuts — amid national debt nearing $34.5 trillion — that would be unlikely to clear the Senate or win Biden’s signature.”Republicans will go around and they’ll talk about how they scored major wins, how they somehow delivered for the American people … We did no such thing,” said Republican Representative Chip Roy during House debate.Representative Rosa DeLauro, the senior Democrat on the House Appropriations Committee, told reporters that her party had to give ground on some spending initiatives. But she applauded the final product, saying it protected women’s access to reproductive healthcare and ensured enough funding for food and nutrition programs “so that no family in need was put on a waiting list.”Congress is over five months late in accomplishing its most basic task of passing full-year government funding measures. Passage of these six bills would open the way for lawmakers to move on to the remaining six bills by a March 22 deadline.Hefty government agencies including the Defense Department, Homeland Security, State Department and Health and Human Services are prominent pieces of the second package. Taken together, the two batches of bills would spend $1.66 trillion for fiscal 2024, down from the $1.7 trillion in discretionary spending the previous year.Among agencies that would suffer spending cuts are the FBI, the Environmental Protection Agency and the Bureau of Alcohol, Tobacco and Firearms. More

The US private sector added 140,000 jobs in February, signalling a modest uptick in the labour market ahead of job openings figures later this morning and Friday’s official non-farm payrolls report.February job gains surpassed 111,000 in January but fell below the 150,o00 that economists polled by LSEG predicted. Wage growth for those who remained in their jobs continued to decelerate, moderating to an annual gain of 5.1 per cent, the smallest gain since August. That is potentially an encouraging sign for policymakers trying to tame inflation.“Job gains remain solid. Pay gains are trending lower but are still above inflation,” ADP chief economist Nela Richardson said.Wage growth for job changers accelerated for the first time in a year to an annual rate of 7.6 per cent in February. More