Donald Trump says the Republican border tax could ‘lead to a lot more’ U.S. jobs

WASHINGTON — President Donald Trump on Thursday spoke favorably about an export-boosting border adjustment tax proposal being pushed by Republicans in the U.S. Congress, but did not specifically endorse it.

Trump had previously sent mixed signals on the proposal at the heart of a Republican plan to overhaul the U.S. tax code for the first time in more than 30 years.

“It could lead to a lot more jobs in the United States,” Trump told Reuters in an interview, using his most positive language to date on the proposal.

Trump sent conflicting signals about his position on the border adjustability tax in separate media interviews in January, saying in one interview that it was “too complicated” and in another that it was still on the table.

“I certainly support a form of tax on the border,” he told Reuters on Thursday. “What is going to happen is companies are going to come back here, they’re going to build their factories and they’re going to create a lot of jobs and there’s no tax.”

Trump also said his administration will tackle tax reform legislation after dealing with Obamacare, the health insurance system put in place by his predecessor, President Barack Obama.

© Thomson Reuters 2017

Alberta out of recession, but government keeps deficit forecast steady

CALGARY – Alberta’s long recession appears to have ended but the provincial government will continue to borrow billions of dollars to cover expenses for the next year, contravened one of its own financial laws.

The province released its third quarter fiscal update Thursday, which showed 18,000 jobs had been added in the province since employment troughed in July 2016. The majority of those jobs, 12,000 positions, were in the oilfield, where the government expects drilling activity to continue to recover.

The budget shortfall is expected to be $10.8 billion, unchanged from the government’s last forecast in November, but higher than the $10.4 billion gap originally forecast in the 2016-17 budget released in April.

At the same time, however, the budget update showed the government was no longer in compliance with its own Fiscal Planning and Transparency Act, which the NDP made law in 2015, thanks to increased expenses and a $1 billion planned payout to coal-fired power producers.

The act was meant to limit unplanned hikes in operating expenses to 1 per cent of the budget, but the government now projects operating expenses will be roughly 5 per cent higher than planned. In total, the province now expects to spend $53.7 billion this fiscal year, which is up $2.6 billion from budget.

In the past, multiple ratings agencies cut Alberta’s credit rating as a result of what Moody’s Investors Services called an “unconstrained debt burden.”

“A full economic recovery will take time after such a long downturn but we are starting to see encouraging signs for Alberta in the year ahead,” Alberta’s Finance Minister Joe Ceci said in a release, adding that “some challenges still remain” and “we will continue to protect the services that Albertans depend on.”

To fund those services next year, the budget update showed the government is increasing the province’s borrowing base this year by $14.5 billion and had begun selling bonds, including a deal in the British pound struck with U.K. lenders on Wednesday, to take advantage of currently low interest rates.

The province’s increased spending this year will be partly offset by better-than-expected revenues of $42.9 billion, $1.5 billion more than forecast, thanks in large part to higher oil and gas prices and royalties.

However, corporate income tax revenues are now expected to be $981 million lower than originally forecast. The province attributed a third of that decline to losses incurred during the wildfire that devastated Fort McMurray and area during the summer of 2016 but also to a weaker than expected economy.

The government now expects Alberta’s real gross domestic product to rise 2.4 per cent in 2017 following a 2.8 per cent contraction in the economy in 2016 and a 3.6 per cent contraction in 2015.

The estimate might be conservative given the Conference Board of Canada predicted Alberta’s economy would outpace that of every other province when releasing its own forecast Thursday, which predicted Alberta’s real GDP would grow 2.8 per cent in 2017 as a result of rising oil production.

Financial Post with file from Reuters

U.S. Treasury’s Mnuchin targets 3% growth by passing ‘significant’ tax reforms by August

U.S. Treasury Secretary Steven Mnuchin on Thursday laid out an ambitious schedule to enact tax relief for the middle class and businesses by August, but said the Trump administration was still studying a proposed new border tax on imports.

Comments in his first televised interviews since taking office last week suggested that much work was still needed on key elements of the sweeping tax reform plan that he called his “No. 1 priority.”

“We are committed to pass tax reform. It will be very significant. It’s going to be focused on middle income tax cuts, simplification and making the business tax competitive with the rest of the world,” Mnuchin told CNBC in his first television interview since taking office last week.

“We want to get this done by the August recess,” he added, acknowledging later on Fox Business Network that such a timeline was “very aggressive.”

U.S. equities have risen to record highs in recent weeks on hopes tax reform and other Trump administration policies would boost growth, but investors have started to become impatient for details.

President Donald Trump has promised announcement of a “phenomenal” plan by early March to cut business taxes.

The dollar fell against a basket of major currencies, while yields on U.S. Treasuries slipped after Mnuchin failed to provide much new information on the tax plans. U.S. stocks were mixed.

Some Republican senators have criticized a House Republican plan to levy a 20 per cent tax on imports aimed at encouraging more U.S. production and exports and raising US$1 trillion in revenue over a decade to offset lower business tax rates.

Mnuchin said the border tax plan was still being studied, but the tax reform plan would be negotiated with the House and Senate.

“We’re looking at it seriously. There are certain aspects of it that we’re concerned about, there are certain aspects that we like,” Mnuchin told Fox Business Network of the border tax adjustment plan. “It’s going to be something that’s focused on growth, and we will have listened to people’s concerns and we will have taken them into account.”

In addition to tax reform, Congress and the administration are trying to settle on a plan to replace “Obamacare” with new healthcare legislation.

Mnuchin did not rule out potential tax cuts for wealthy earners, but told CNBC that the administration would aim to offset any “high end” tax cuts with reduced deductions and other breaks.

He told both networks that he believed the tax reform plan would help the United States boost economic growth above 3 per cent by late 2018 from 1.6 per cent in 2016. Growth effects from tax reform and less business regulation would not likely start to take hold until next year, he added.

He told CNBC the Trump administration would use “dynamic scoring” models that would likely assume more growth than models used by the Congressional Budget Office and the Joint Committee on Taxation. This would have the effect of boosting assumed revenues from tax reform and relaxation of regulations.

Given the still-low interest rate environment he said it “makes sense” for the Treasury to examine whether to issue long-term debt of 50 to 100 years “at a very slight premium,” but said he was not ready to make any announcements on this topic.

Mnuchin added to recent comments in the Wall Street Journal regarding the strong dollar, telling Fox Business Network that short-term increases in the dollar’s value “are a reflection of the optimism of the economic plans” of the Trump administration.

Trump had pledged to declare China a currency manipulator on his first day in office, but Mnuchin told CNBC he would pursue the normal Treasury process of examining currency practices by major trading partners. Treasury is required by law to report on these findings by April 15.

He added that Treasury was also considering allowing the U.S. Export-Import Bank to make loans larger than its current US$10 million limit. EXIM has been restricted in its ability to lend because its board is not at full strength.

Mnuchin said the Trump administration was not interested in simply subsidizing large corporations.

© Thomson Reuters 2016

Stealth startup Privacy Labs raises $4M to give consumers ‘control’ of their data

privacy please Privacy Labs, a stealth-stage startup that wants to enable internet users to “regain control” of their personal data, has landed a $4 million seed funding round. The company doesn’t have a product right now and is cagey about what it will eventually release, but nonetheless its promise has persuaded Initialized Capital to lead this round. Other investors… Read More

Tax, Borrow or Wait? Something’s got to give in Trudeau’s budget

Justin Trudeau’s embrace of deficits won him accolades from global investors and policy makers, but not a full year into his first budget and Canada has run out of fiscal runway.

Faced with deficits of almost C$100 billion ($76 billion) in the prime minister’s first mandate, the tone in Ottawa for months has been one of prudence, penny pinching and scaled-down expectations. Cabinet ministers worry they will get only cents on the dollar for funding requests. Provinces have been frustrated in their requests for health-care transfers.

A possible downgrade of Australia’s credit rating and a recent finance department report showing Canada may not return to balance for decades only stoked worries.

The massive cost of Trudeau’s two marquee initiatives — enhanced child benefits and infrastructure — means there is little room for anything else as Finance Minister Bill Morneau puts the finishing touches on a budget expected within weeks.

The likeliest option: keep the focus on delivering infrastructure spending, build out an innovation and competitiveness agenda, and hold off doing much else on the fiscal side until the next election in 2019. Which is a long time to resist political pressure to spend.

Or, if he’s feeling ambitious, Trudeau can test Canadians’ (and investors’) appetite for even higher deficits, tighten spending in lower priority areas to create fiscal room or even raise taxes.

1. What shape are Canada’s finances in?

The economy has unfolded largely as the government expected in its five-year fiscal update last November, when it predicted the deficit peaking at C$27.8 billion this year before narrowing to C$14.6 billion in 2021.

The fiscal update, however, didn’t include any new commitments or take into account any adverse impacts from Donald Trump’s protectionist administration. Adding risk cushions for increased uncertainty — it isn’t uncommon for the finance department to shave C$3 billion annually from revenue projections as a precaution — would drive up deficits and curb fiscal leeway further.
Take into account Canada’s rapidly aging population and Trudeau’s decision to lower the eligibility age for state pensions — as this finance department study did in December — and there is no clear path to balance any time soon.

Another constraint is the government has also pledged to grow its debt at a slower pace than gross domestic product expands. That effectively places a cap on deficit increases.

2. What’s driving the deficits?

A weaker economy for one. GDP is coming in at about C$100 billion less annually than projected two years ago, which means the country is at a less favorable starting point as it goes on this spending run.

More structurally, however, has been a permanent shift up in program spending under Trudeau’s Liberals, to the tune of about 1 percent of GDP. About half the increased spending is being allocated toward additional transfers, mostly benefits for families with children and the elderly. The other half is being put toward higher transfer payments to provinces and increased operating expenses — reflecting in large part the government’s ambitious infrastructure plans.

Had spending come in at levels projected in former Conservative Prime Minister Stephen Harper’s last budget — and that’s a big if — federal government expenditures would be about C$30 billion less in 2019 than under Trudeau’s current fiscal plan.

3. Has the revenue picture changed?

No. The Liberals have kept the revenue level as a share of GDP largely in line with what was projected in the last Harper budget, even though levels will be lower in absolute terms given the weaker economy.

Essentially, unless someone is prepared to curb the additional transfers, Canada has a long-term revenue shortfall of about 1 percent of GDP — or slightly less than the interest it pays on federal government debt.

Put another way, while Canada’s government can pay off all its current bills with existing revenue streams, it doesn’t raise enough money to fully pay off interest on debt.

4. Is it really a problem?

Well, technically it doesn’t need to be. Canada can essentially run a deficit indefinitely as long as debt isn’t growing faster than GDP. Even if it were, investors would likely tolerate some increase in the debt-to-GDP level given Canada’s relatively strong finances. In fact, some are recommending the government do exactly that.

The problem comes if there is some type of economic shock that really blows the country off track, creating dynamics for the sort of debt spiral the country went through in the 1970s.

People also forget that the federal government isn’t alone at borrowing on behalf of Canadian taxpayers. So too do the provinces and municipalities, and combined Canada’s total government debt doesn’t look so world-beating. Measured in aggregate, Australia has less overall debt than Canada and is facing the prospect of losing the coveted AAA credit score.
Combine that with record household indebtedness and Canada’s debt looks heavy.

5. How about tax increases?

A 1 or 2 percentage point increase of the federal government sales tax would go some way in closing the fiscal gap, but the Liberals have ruled that out. In fact, they’ve ruled out any tax increases at all on “middle-class Canadians.”

Trudeau’s government may also be hitting pause on plans to eliminate some costly tax credits and deductions, as it waits to see what moves Trump makes on the tax side. That takes away another revenue source.

The government’s revenue problem has left them targeting higher-income earners for funding sources, but that’s hardly a deep enough pool of taxpayers to pay for any structural deficit. Nor is it cost free. Canada has become one of the highest tax jurisdictions in the world for well-paid professionals.

6. What can Trudeau do now?

The Liberals are in a bind. They’ve promised not to raise taxes, even while shifting the country’s spending profile higher. Provinces aren’t happy with the federal expansionism, since it takes up fiscal room that they both share. Investors and rating agencies are unlikely to tolerate any further easing of fiscal anchors — currently a promise to reduce the country’s debt-to-GDP ratio. Not to mention public opinion, which in Canada consists of a formidable collective aversion to government borrowing.

Something has to give.

With assistance from Erik Hertzberg

K2 Global’s $183 million VC fund aims to decentralize Sand Hill Road

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India’s top mobile operator Airtel is buying smaller rival Telenor

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Tesla wants to offer vehicles with one price, including insurance and maintenance

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