Latest news with #fiscalpolicy
Daily Mail
a day ago
- Business
- Daily Mail
The tax hikes Rachel Reeves could impose to plug the benefits U-turn £3bn hole
Households are on alert for further potential tax hikes in autumn after Keir Starmer handed major concessions to rebels in a bid to salvage flagship legislation on health and disability benefits. On Friday, the government confirmed a U-turn on its cuts to disability benefits in order to avert a rebellion by more than 120 Labour backbenchers. The reversal leaves a £3billion hole in Chancellor Rachel Reeves' financial plans, according to the Institute for Fiscal Studies. Meanwhile, the Resolution Foundation warned that tax rises may be needed for her to now meet her fiscal rules. The initial benefit reforms would have saved the government £5.5billion by the end of the Parliament. The planned cut to personal independence payments eligibility was set to raise the bulk of this saving, £4.5billion. However, according to the IFS, the revised package of reforms will save only £2.5billion, so will cost the government £3billion relative to their previous plans. Under the change in tack, people who currently receive personal independence payments (PIP), or the health element of universal credit, will continue to do so. Instead, planned cuts will now only hit future claimants. Liz Kendall, Secretary of State for Work and Pensions, said: 'We have listened to people, we are in a good place now'. Most economists and think tanks think tax rises in the Autumn Budget 2025 are now inevitable. Tom Waters, an associate director at IFS, said: 'These changes more than halve the saving of the package of reforms as a whole, making the Chancellor's already difficult Budget balancing act that much harder. 'The decision is to protect existing health-related benefit claimants from the reforms, thereby making the savings entirely from new claimants to these benefits. 'This will create big differences – thousands of pounds a year, for many years in some cases – between similar people with similar health conditions who happen to have applied at a slightly different time.' Samuel Mather-Holgate, an independent financial adviser at Mather and Murray Financial told Newspage: 'With Starmer doing more U-turns than someone doing the bleep test, taxes are going up. 'There's no way that other departments can mitigate these changes to their budget.' Which taxes could be increased? Reeves has ruled out taxes on the working people, including income tax, National Insurance for employees, VAT and corporation tax. Other taxes will be in her sights. Capital gains tax Higher capital gains tax could be one option for Reeves. Capital gains tax is levied on profits from assets ranging from shares to second homes, buy-to-let properties and personal possessions. The rates for stocks and shares gains were hiked in the 2024 Autumn Budget to 18 per cent for basic rate taxpayers and to 24 per cent for those paying higher rates of tax. The profits from assets like sharers tend to come from people taking a risk, whether an entrepreneurial one or an investment one, making capital gains tax a likely target for hikes. Inheritance tax Reeves could have inheritance tax in her sights again It is a growing money-spinner for the government, with the number of households falling in scope for it rising. In the 2024 Autumn Budget, Reeves capped the availability of Business Relief and Agricultural Relief, and halved the relief available on Alternative Investment Market shares. Reeves also unveiled plans to bring pensions into the scope of inheritance tax from 2027. Further tweaks and amendments could happen. Pensions Pensions are a major source of wealth for many people, making them a prime target for Reeves. Last year, while Reeves dragged unused pension assets into the inheritance tax net from April 2027, she did not go as far as some experts feared. That is not to say that she will not meddle with pensions later this year. HMRC recently announced a consultation on salary sacrifice - when people forgo a pay rise or bonus and add to their pension instead, which helps avoid higher marginal tax rates. It has prompted speculation that Reeves could introduce a cap on the amount of salary sacrifice people can use. There is also speculation about the reintroduction of the pensions lifetime allowance. The Chancellor could also look at reforming income tax relief on pension contributions. Tax thresholds freeze The freeze on certain tax thresholds since 2021 has created a huge stealth tax raid in recent years. The frozen basic rate threshold, currently £12,570, drags more people into paying income tax and means that the real value - adjusted for inflation - of the tax-free allowance has been diminished. Stalling the higher rate threshold at £50,270 has shifted more people and a greater slice of earnings into the 40 per cent bracket. John Woolfitt, a director at Atlantic Capital Markets, told Newspage: 'A "stealth tax" manoeuvre will be high on the cards. 'Income tax allowance and the higher-rate threshold currently rise with inflation. Freezing or delaying future increases effectively raises income tax, without officially having to announce a hike.' He added: 'Targeting high earners and wealth transfers could also be seen and a populist move as the government tries to sure up support from the broader electorate.' According to the Resolution Foundation, extending the freeze in personal tax threshold by one year will save £4billion a year, 'though further consolidation is likely to be needed in the Budget this Autumn.' Property Further tax changes linked to buying and selling property could be introduced. Last year, Reeves introduced a 2 per cent increase to stamp duty for second home owners. Future stamp duty hikes could target owners of multiple properties or high-value property transactions. Businesses Higher employer national insurance contributions are already hammering businesses across Britain. However, under growing pressure to boost the Treasury's coffers, Reeves could set her signs on corporation taxes, VAT exemptions or other duties. 'This would really impact the already fragile business confidence in the UK', Woolfitt said. Wealth tax Some campaigners believe Reeves should impose a wealth tax to boost the tax-take and quash inequality. Tax Justice UK is calling on more taxes for the super-rich to be introduced by the current Government. It wants to see a 2 per cent wealth tax on assets over £10million, which it says will raise up to £24 billion a year. It also wants to apply national insurance to investment income, close inheritance tax and non-dom loopholes, and introduce a 4 per cent tax on share buybacks. It remains unclear whether a wealth tax is on Reeves' agenda and how it would work in practice. An unprecedented 16,500 wealthy Britons are predicted to leave this year amid higher taxes and a gloomy economic outlook.
New York Times
a day ago
- Business
- New York Times
The Senate Should Let Trump's Bill Die
The rise of the federal debt over the past two decades has prompted countless warnings that the United States is approaching a fiscal reckoning, a day when the government won't be able to drink all it wants from the fountain of easy money. The more immediate danger is that the fountain keeps flowing. The fear of a future crisis is distracting attention from the problems that the government's dependence on debt is already causing. We, the people, are spending a staggering amount of money each year to borrow money. The interest payments on the federal debt now exceed the government's spending on the military. They are roughly equal to the annual cost of Medicare. The sum is more than the government spends on anything except Social Security. President Trump's 'Big Beautiful Bill' would deepen this profligacy, repeating the mistakes of the 2017 legislation on which it is based. Once again, Republicans are proposing to reduce taxation. Once again, they are proposing to force the government to borrow more to pay its bills. Once again, federal spending on interest payments would rise — and money spent on interest is money that can't be spent on other things. The government is on pace to pay more than $1 trillion to its lenders this year. The House version of Mr. Trump's bill, already approved by that chamber, would increase interest payments on the debt by an average of $55 billion a year over the next decade, according to the Congressional Budget Office. The increase alone is enough money to fully repair every bridge in the United States. The Senate is still working on its bill, but early signs suggest it may cost even more than the House version. America's debt cost is already a large expenditure and would rise further if Trump's budget bill passes. Under the House bill Annual Net Interest Current law $1.6 trillion Social Security $1.45 trillion $1.2 trillion Medicare $865 billion $800 billion Defense $855 billion Medicaid $618 billion $400 billion Projection '90 '00 '10 '20 '30 Under the House bill Annual Net Interest Current law $1.6 trillion Social Security $1.45 trillion $1.4 trillion $1.2 trillion $1 trillion Medicare $865 billion Defense $855 billion $800 billion $600 billion Medicaid $618 billion $400 billion $200 billion Projection '85 '90 '95 '00 '05 '10 '15 '20 '25 '30 Sources: Congressional Budget Office Social Security, Medicare, Medicaid and Defense costs are for 2024. Because the Trump administration and House Republicans have savaged the C.B.O.'s analysis, it is worth adding that Phillip Swagel, who heads the office, is a Republican reappointed at the behest of House Republicans just two years ago. At the time, they praised his 'objectivity and integrity.' The C.B.O.'s analysis closely resembles independent assessments by the Penn Wharton Budget Model, the Yale Budget Lab and the Tax Foundation. Want all of The Times? Subscribe.
Reuters
a day ago
- Business
- Reuters
Colombia central bank expected to hold rate amid fiscal uncertainty
BOGOTA, June 27 (Reuters) - Colombia's central bank board is expected to hold the benchmark interest rate at 9.25% on Friday, on the back of mounting fiscal uncertainty and despite recent lower inflation. A majority of analysts in a Reuters survey last week predicted the hold, while a minority predicted a 25 basis point cut to 9%. The government's recent suspension of the so-called fiscal rule, which imposes policy constraints to protect public coffers, and an increase in its deficit target have set off alarm bells in a market already wary of President Gustavo Petro's economic policies. The government now has a deficit target for 2025 of 7.1% of gross domestic product, an increase from the previous estimate of 5.1% of GDP. The finance ministry has significantly increased its 2025 inflation estimate to 4.5%, nearly in line with the central bank technical team's prediction of 4.4%. Latin America's fourth-largest economy is facing lower tax revenue, high debt and difficulty reducing spending. "We are expecting stability," said Camilo Perez, director of economic investigation and market analysis at Banco de Bogota, though he said chances of a rate cut had increased in recent days on reduced recent inflation and an increase in value for local bonds and the peso. "The fiscal situation has notably deteriorated." Inflation, though still well above the central bank's long-term target of 3%, was down more than expected in the 12 months to May, to 5.05%. The bank board surprised the market in April with a 25 basis point cut, after a pause in a cutting cycle began in December 2023. Despite the predicted hold in the rate, 15 analysts who participated in additional Reuters questions in last week's survey all foresee a rate cut in the coming months, with 11 predicting a cut in July and the remaining four in September.
Reuters
a day ago
- Business
- Reuters
S&P cuts Colombia's debt rating to 'BB' over declining fiscal results
June 26 (Reuters) - S&P downgraded Colombia's debt rating by one notch to 'BB' from 'BB+', citing weaker fiscal performance, the ratings agency said on Thursday. Latin America's fourth-largest economy is facing deteriorating fiscal accounts amid lower tax revenues, high public debt and difficulties in reducing spending. The Colombian government last week suspended compliance with its so-called fiscal rule, to allow it to increase its deficit target for 2025 to 7.1% of gross domestic product from 5.1% of GDP. It said the goal was to boost the economy, especially agriculture and manufacturing. S&P said the combination of large fiscal deficits and weak economic performance had worsened Colombia's public finances and increased its vulnerability to external shocks. "Fiscal policy has also become less predictable, as highlighted by the government's recent decision to suspend the country's fiscal rule for three years," the agency said. The ratings agency assigned a negative outlook on Colombia's 'BB' rating, indicating the risk of a further downgrade over the next 18 months. It warned that steady fiscal deterioration in Colombia could persist over several years, along with the country's heightened security challenges, further worsening its credit profile. Colombia is weighing boosting its external and domestic debt by several billion dollars this year to cover a deepening fiscal deficit, Reuters reported earlier this month, citing three market sources with knowledge of the matter.
Free Malaysia Today
2 days ago
- Business
- Free Malaysia Today
Why now? Understanding the urgency behind Malaysia's SST expansion
As Malaysia approaches July 1, the effective date for the expanded Sales and Service Tax (SST) framework, the key question many are asking is: Why is this fiscal adjustment happening now? The government's decision to implement changes at this juncture is rooted in a pressing need to fortify the nation's financial health and ensure a stable path forward amid evolving economic realities. This move, initially outlined in Budget 2025 on Oct 18 last year, comes at a critical time for Malaysia's public finances. The nation currently operates with one of the lowest tax bases in the region, with a tax-to-GDP ratio of only 11.7%. Meanwhile, the average for the Asia-Pacific region stands at 19.3%. This means a significantly smaller slice of the country's economic output translates into government revenue compared to its regional peers. Broadening the tax base is now essential to resolve this long-standing structural challenge and secure Malaysia's fiscal sustainability. However, the urgency to boost government revenue goes beyond merely balancing the books—the immediate need for increased government revenue is urgent. Increased revenue is crucial for funding vital public services, including healthcare and education, and for continuing direct cash assistance programmes, like Sumbangan Asas Rahmah (SARA), which provides essential support to over 5.4 million households. The finance ministry has said that it anticipates SST enhancements to generate an additional RM5 billion in revenue for the latter half of 2025, contributing to an annual projection of around RM10 billion. Furthermore, this expansion is a cornerstone of Malaysia's ongoing fiscal consolidation efforts. The additional revenue generated is critical for helping the nation achieve its fiscal deficit target of 3.8% of GDP for 2025, with an aim to further reduce it to 3.0% by 2026 amid global trade frictions and geopolitical volatility. Acting now allows the government to proactively manage its debt and ensure a more resilient economy for an increasingly uncertain future. While the government acknowledges concerns from businesses and consumer groups regarding the timing and potential impact, it has emphasised that the SST expansion is a 'more progressive and balanced approach' compared to a reintroduction of the Goods and Services Tax (GST). According to treasury secretary-general Johan Merican: 'When GST was in place, the RM500,000 income threshold was applied broadly, and many companies registered. Now, the same threshold applies but with exceptions.' For example, the threshold for construction companies and clinics is set at RM1.5 million to reduce the burden on small contractors and clinics. So, fewer businesses are affected compared to the GST days. The decision to proceed with SST now, rather than GST, reflects a deliberate choice to widen the revenue base without disproportionately impacting everyday Malaysians on essential goods and services, which largely remain exempt or zero-rated. It is also worth noting that the measure, initially slated to begin on May 1, has already been delayed by two months to July 1, following appeals from manufacturers. This initial deferral demonstrates the government's responsiveness to industry concerns, but the underlying fiscal imperatives necessitate moving forward now. To further ease the transition, a grace period for penalties until Dec 31 this year has been announced, providing businesses with additional time to adapt without immediate legal repercussions. As Johan said: 'The goal is a fair, progressive tax system—where those who can afford more contribute more.' And, as is the case with all progress, the best time to start is now. The views expressed are those of the writer and do not necessarily reflect those of FMT.
