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    Indonesia’s Prabowo considers corporate tax cut, report says

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    Prabowo, who takes office on Oct. 20, has pledged to improve tax compliance, seeking to boost tax revenue to 18% of gross domestic product. His team has said Prabowo plans to spin off the finance ministry’s tax and custom offices to create a state revenue agency. “We do hope that at some point we can reduce corporate income tax,” CNBC Indonesia quoted Prabowo adviser Dradjad Wibowo as saying.Dradjad could not be immediately reached for comment on Sunday.Foreign investors have been worried that Prabowo, who plans to expand the number of government ministries, may ease fiscal discipline in Southeast Asia’s largest economy. A senior aide has said Prabowo will stick to agreed 2025 spending levels and adhere to existing budget rules.The decision on a corporate tax cut will depend on government revenue conditions, Dradjad was quoted as saying.”We will see how the state revenue performance is, if there is an opportunity for it, we want to reduce it so that it is not too burdensome for the people.” More

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    Five scenarios that could shape global markets in 2025/26 – UBS

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    The first scenario sees former President Donald Trump winning the presidency while Republicans win both houses of Congress, though fall short of a filibuster-proof majority in the Senate – the so-called Red Sweep.Fiscal policy in 2025 is roughly baked in, as most of the spending and tax policies are already in place, based upon existing agreements between the parties. But beyond 2025, big changes loom: most of the tax cuts enacted under the Tax Cuts and Jobs Act in 2017 expire at the end of that year.“We do not assume that the Red Sweep would result in a simple extension of the TCJA, but we do assume the bulk of the TCJA would be extended,” analysts at UBS said, in a note dated Oct. 9. In all, relative to the CBO baseline, we estimate the fiscal deficit would increase by $4.4 trillion and run over 7% of GDP after 2028 — most of which would be the cost of maintaining the status quo.  An additional feature is a cut to corporate taxes estimated to cost about $600bn over the 10-year window, which could be roughly fully funded by repealing the energy tax provisions in the Inflation Reduction Act. Tallying it all up, the deficit would potentially widen $4.4trn over the budget window relative to the CBO baseline where many current tax deductions would have expired. However, the vast majority of this spending is meant to keep the existing tax code in place rather than significantly cutting personal taxes. The corporate tax cut could potentially spur a little growth, however, combining this domestic tax policy mix with harsher China tariffs implies that deficit-widening relative to current law may not be all that stimulative for growth.The second scenario sees Vice President Harris winning the White House, with the Democrats retaking the House of Representatives and potentially holding on to the Senate – the so-called Blue Sweep.The Harris campaign has proposed returning the top tax bracket to 39.6% for single filers’ earnings over $400K and joint filers’ over $450K, as was also proposed by the Biden administration. This policy could offset the widening from extending for other income groups by ~$400bn over the budget window, meaning the total cost of bracket extension for all other groups would be ~$1.7trn in lost revenues.Overall, despite a number of revenue raising proposals, the Harris campaign policies are likely to widen the deficit by ~$2trn over the 10-year budget window. Balancing the tax hikes on upper incomes and corporations and tax cuts for the lower end of the income spectrum, we estimate Q4/Q4 growth would be ~0.3pp and ~0.1pp lower in 2026 and 2027, respectively, in the Blue Sweep scenario relative to our baseline.The third scenario sees the US economy in recession, a risk that should diminish over time, if the Fed manages to deliver the easing that is priced.For all the good news on the economy, signs of household stress have spread. Credit card and auto loan delinquencies are near or above global financial crisis levels. The highly liquid balance sheets have now completely evaporated for the bottom 80% of the income distribution, while even among the wealthy, the post-Covid spending spree may run out of steam. Business surveys look mixed at best, parts of investment and construction are slowing sharply, and slower government spending is starting to weigh on activity. The cyclical, interest-sensitive part of the economy has looked recessionary for a while, but strong consumption has broken the usual transmission link. In this scenario that changes: consumer spending finally slows to the point of breaking corporate confidence about demand. Less spending feeds into lower hiring (negative payroll growth) which feeds into lower spending and rising precautionary savings.The Fed, realizing that it needs to be outright accommodative rather than just less restrictive, takes the Fed funds rate back to the lower bound.The fourth scenario centers around tariffs, with one of the most consequential proposals put forward by former President Trump is to increase the level of US tariffs on China to 60%, and on the rest of the world to 10%.Should such tariffs be implemented, we believe the legal process would make it unlikely that China tariffs are implemented before the second half of 2025 (we assume September) while RoW tariffs would be a 2026 event.Most of the literature suggests that the costs of the US tariffs in 2018/2019 were borne by the US, in that Chinese firms did not lower prices to preserve market share. But the volume of imports from China (and its market share) fell sharply, by 22% in the first year, on average, and by 36% after 5 years).We expect significantly more focus on ‘rules of origin’ to avoid tariff circumvention.Finally, the fifth scenario centers around central banks having eased too early.Central bank easing has started – with close to 70% of all the central banks under the bank’s coverage having now started lowering interest rates – despite still elevated run-rates of core inflation, and 63% of central banks missing their inflation targets.The logic of the ‘why cut now?’ seems to be in part to ward off potential further slowing. That said, we are not aware of prior episodes where this much easing was priced by markets when labour markets were still this tight.Although we are not in the ‘sticky’ inflation camp, premature easing could contribute to a slower ‘last mile.’Global growth outside of the eurozone and China is already running a bit above its long-run average. It is not hard to imagine that, if the US does not slow as we forecast, and eurozone consumption finally starts to take off, or more stimulus from China is announced, that the global economy picks up momentum, pushing growth above trend.  More

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    FAA approves SpaceX Starship 5 flight set for Sunday

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    WASHINGTON (Reuters) -The Federal Aviation Administration approved a license on Saturday for the launch of SpaceX’s Starship 5 set for Sunday after earlier saying it did not expect to make a decision until late November.Reuters first reported this week the faster than expected timetable after the FAA in September had suggested a much longer review.SpaceX is targeting Sunday for the launch and said a 30-minute launch window opens at 7:00 a.m. CT (1200 GMT)The FAA said on Saturday SpaceX had “met all safety, environmental and other licensing requirements for the suborbital test flight” for the fifth test of the Starship and has also approved the Starship 6 mission profile.The Starship spacecraft and Super Heavy rocket are a fully reusable system designed to carry crew and cargo to Earth orbit, the Moon and beyond.The fifth test flight of the Starship/Super Heavy from Boca Chica, Texas, includes a return to the launch site of the Super Heavy booster rocket for a catch attempt by the launch tower, and a water landing of the Starship vehicle in the Indian Ocean west of Australia.The FAA said if SpaceX chooses an uncontrolled entry “it must communicate that decision to the FAA prior to launch, the loss of the Starship vehicle will be considered a planned event, and a mishap investigation will not be required.”On Friday, the FAA approved the return to flight of the SpaceX Falcon 9 vehicle after it reviewed and accepted the SpaceX-led investigation findings and corrective actions for the mishap that occurred Sept. 28.SpaceX CEO Elon Musk has harshly criticized the FAA, including for proposing a $633,000 fine against SpaceX over launch issues and for the delay in approving the license for Starship 5, which the company says has been ready to launch since August. Musk has called for the resignation of FAA Administrator Mike Whitaker and threatened to sue the agency. More

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    China flags more fiscal stimulus for economy, leaves out key details on size

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    BEIJING (Reuters) -China pledged on Saturday to “significantly increase” debt to revive its sputtering economy, but left investors guessing on the overall size of the stimulus package, a vital detail to gauge the longevity of its recent stock market rally.Finance Minister Lan Foan told a press conference Beijing will help local governments tackle their debt problems, offer subsidies to people with low incomes, support the property market and replenish state banks’ capital, among other measures.These are all steps investors have been urging China to take as the world’s second-largest economy loses momentum and struggles to overcome deflationary pressures and lift consumer confidence amid a sharp property market downturn.But Lan’s omission of a dollar figure for the package is likely to prolong investors’ nervous wait for a clearer policy roadmap until the next meeting of China’s rubber-stamp legislature, which approves extra debt issuance. A date for the meeting has yet to be announced but it is expected in coming weeks.The press conference “was strong on determination but lacking in numerical details,” said Vasu Menon, managing director for investment strategy at OCBC in Singapore.”The big bang fiscal stimulus that investors were hoping for to keep the stock market rally going did not come through,” said Menon, adding this may “disappoint some” in the market. A wide range of economic data in recent months has missed forecasts, raising concerns among economists and investors that the government’s roughly 5% growth target this year was at risk and that a longer-term structural slowdown could be in play. Data for September, which will be released over the coming week, is expected to show further weakness, but officials have expressed “full confidence” that the 2024 target will be met.New fiscal stimulus has been the subject of intense speculation in global financial markets after a September meeting of the Communist Party’s top leaders, the Politburo, signalled an increased sense of urgency about the economy.Chinese stocks reached two-year highs, spiking 25% within days since that meeting, before retreating as nerves set in given the absence of further policy details from officials. Global commodity markets from iron ore to industrial metals and oil have also been volatile on hopes stimulus will stoke sluggish Chinese demand.Reuters reported last month that China plans to issue special sovereign bonds worth about 2 trillion yuan ($284.43 billion) this year as part of fresh fiscal stimulus. Half of that would be used to help local governments tackle their debt problems, while the other half will subsidise purchases of home appliances and other goods as well as finance a monthly allowance of about 800 yuan, or $114, per child to all households with two or more children.Separately, Bloomberg News reported that China is also considering injecting up to 1 trillion yuan of capital into its biggest state banks, though analysts say more lending firepower will come up against stubbornly weak credit demand.STIMULUS STEP-UPThe central bank in late September announced the most aggressive monetary support measures since the COVID-19 pandemic, including interest rate cuts, a 1 trillion yuan liquidity injection and other steps to support the property and stock markets.While the measures have lifted market sentiment, analysts say Beijing also needs to firmly address more deeply-rooted structural issues such as boosting consumption and reducing its reliance on debt-fuelled infrastructure investment.Most of China’s fiscal stimulus still goes into investment, but this leads to debt outpacing economic growth as returns are dwindling.The International Monetary Fund estimates central government debt at 24% of economic output. But the fund calculates overall public debt, including that of local governments, at about $16 trillion, or 116% of GDP.”There is still relatively big room for China to issue debt and increase the fiscal deficit,” said Lan.He added local governments still have a combined 2.3 trillion yuan to spend in the last three months of this year, including debt quotas and unused funds. Municipalities will be allowed to repurchase unused land from property developers, he said.Low wages, high youth unemployment and a feeble social safety net mean China’s household spending is less than 40% of annual economic output, some 20 percentage points below the global average. Investment, by comparison, is 20 points above.Chinese officials have repeatedly pledged over the past decade to increase efforts to boost domestic demand, but made little progress on that front, which would require a fundamental structural re-think of many policies and institutions.Lan said more reforms will be announced “step-by-step.” “The focus seems to be around funding the fiscal gap and solving local government debt risks,” Huang Xuefeng, credit research director at Shanghai Anfang Private Fund Co, said of the press briefing.”Without arrangements targeting demand and investment, it’s hard to ease deflationary pressure.” More

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    Exclusive-Maldives picks Centerview as debt adviser amid financing crunch

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    LONDON (Reuters) – The Maldives has chosen U.S.-headquartered Centerview Partners to be its adviser on debt matters as the country battles to stave off a financial crisis, two sources familiar with the situation said.Concerns have grown in recent months that the island nation could become the first country to default on Islamic sovereign debt as the government faces a $500-million Sukuk maturing in 2026 and dwindling foreign currency reserves. According to the World Bank, the country’s total public and publicly guaranteed debt stood at $8.2 billion, or equivalent to 116% of GDP, in the first quarter of this year.About half of that is external debt, with a big chunk owed to regional rivals China and India, which have extended $1.37 billion and $124 million in loans, respectively, World Bank data shows.Both countries have in recent weeks shored up their support to the Maldives, easing investor concerns about a debt crisis and helping to bolster its international bonds. Beijing signed a financial cooperation agreement with the Maldives in September to strengthen trade and investment. India subscribed to a $50-million Maldives Treasury bill last month and said in October it had approved currency swap deals worth more than $750 million.The Maldives’ sole international bond, which had tumbled to 66 cents on the dollar in early September as debt concerns deepened, currently trades around the 80-cents mark, Tradeweb data showed. That is well above the threshold of 70 cents, below which debt is considered distressed. Investment and advisory firm Centerview Partners, founded in 2006, has recently been on a push to increase its sovereign advisory business and has been hiring widely over the past year to beef up its global operations both in Paris and New York.The Maldives’ government did not immediately respond to a request for comment. More