P21_Layout 1 - Kuwait Times

Gulf banks likely to need
$35bn of capital by 2019
Page 22
NBK most valuable
banking brand in Kuwait
Page 23
Bahrah Trading Co holds spectacular field show for
Al-Babtain launches
all-new Renault
Bobcat Captur in Kuwait
Page 26
Page 25
WASHINGTON: News cameras get a look as President Barack Obama’s new $4 trillion budget plan is distributed by the Senate Budget Committee as it arrives on Capitol Hill in Washington, early yesterday. — AP
Obama sends $4tn budget to Congress
Foreign profits tax tied to big public works spending
WASHINGTON: President Barack Obama sent Congress a $4
trillion budget yesterday that calls for huge spending on
infrastructure funded by a one-time tax on profits US companies have amassed overseas. The business-friendly
Republican-controlled Congress is all but certain to say no.
The foreign earnings tax would be part of a broader administration plan to overhaul corporate taxes by ending certain
tax breaks and lowering rates, a challenging task that
Obama and Republican congressional leaders insist they are
poised to tackle this year.
The spending document for the 2016 fiscal year beginning Oct 1 also reflects goals Obama set out in his State of
the Union speech, particularly higher taxes on wealthy
Americans to shrink the growing gap between high-income
and middle-class citizens.
The administration said the budget represented a strategy to strengthen the middle class and help “hard-working
families get ahead in a time of relentless economic and
technological change.” Obama’s fiscal blueprint, for the
budget year that begins Oct 1, proposes spending $4 trillion $3.99 trillion before rounding - and projects revenues
of $3.53 trillion.
That would leave a deficit of $474 billion. Obama’s budget plan never reaches balance over the next decade and
projects the deficit would rise to $687 billion in 2025.
The administration contends that various spending cuts
and tax increases would trim the deficits by about $1.8 trillion over the next decade, leaving the red ink at manageable levels. Congressional Republicans say the budgets they
produce will achieve balance and will attack costly benefit
program like Social Security, Medicare and Medicaid.
The question is what kind of negotiated middle ground,
if any, will emerge in a climate of the overwhelming partisan divide separating Obama and his Democrats from
Republicans, many of whom have made their goal to stop
or reverse virtually all of the president’s domestic initiatives.
Obama, in an NBC interview before the Super Bowl, disputed a suggestion that he and Congress are so far apart
that his budget proposals have no chance of winning
approval. “I think Republicans believe that we should be
building our infrastructure,” Obama said. “The question is
how do we pay for it? That’s a negotiation we should have.”
Obama’s new budget offers an array of spending programs and tax increases on the wealthy that Republican
lawmakers have already rejected.
The likely meeting ground is the tax rate on US companies. The current 35 percent top tax rate for corporations in
the United States, the highest among major economies,
Oil’s fresh rally lifts Saudi
DUBAI: A rebound in global oil prices
and decisions by state-controlled
companies to pay cash bonuses to
employees boosted Saudi Arabia’s
stock market yesterday, while other
Gulf bourses were mixed in choppy
trading. Brent crude fell in early trade
on news of a US refinery strike and
weak Chinese manufacturing data,
but bounced back later in the day
and traded above $54 per barrel by
the time Saudi Arabia’s market
The Saudi stock index rose 0.8 percent as petrochemicals firm Saudi
Basic Industries, the kingdom’s
largest listed company, jumped 2.4
percent; other stocks in the sector
also climbed. Petrochemical prices
are linked to oil and the sector was hit
hard in a sell-off triggered by oil’s
plunge last year.
Retailers also performed well yesterday: Fawaz Alhokair surged 8.8
percent and Jarir Marketing jumped
2.6 percent. This followed announce-
ments by large companies such as
Saudi Electricity and Saudi Telecom
that they would pay out hundreds of
millions of dollars in bonuses to their
workers, following last Thursday’s
order by the new king that Saudi
state employees would receive two
months of extra salary to mark his
Part of the corporate bonuses is
expected to be spent on consumer
goods, boosting the retailers’ revenues and profits. Investors were less
enthusiastic about the companies
which will use their resources to pay
out the cash; shares in Saudi
Electricity edged up 0.6 percent,
while Saudi Telecom fell 0.8 percent.
Other Gulf markets had closed
when oil was still in the red and their
performances were mixed. Dubai’s
index fell 1.1 percent; the benchmark
had surged 4.5 percent in the previous session. But shares in property
developer DAMAC shot up 6.8 percent after it reported an 11 percent
rise in fourth-quarter profit yesterday,
according to Reuters calculations.
Abu Dhabi’s index edged down
0.6 percent as most blue chips pulled
back. Oman’s market was nearly flat,
while Kuwait edged up 0.3 percent.
Qatar’s benchmark added 0.5 percent, largely on the back of Islamic
lender Masraf Al-Rayan, which
jumped 3.9 percent. The bank reported estimate-beating fourth-quarter
results and a dividend hike last week.
Meanwhile, shares in Qatar
National Bank dropped 2.0 percent as
they no longer carried the 2014 dividend. Egypt’s bourse edged up 0.5
percent as property developers continued to gain on hopes that
Egyptians will use real estate as a
hedge against the weakening pound.
Talaat Moustafa Group rose 1.2 percent, Amer Group added 0.8 percent
and Palm Hills Development gained
0.2 percent. — Reuters
serves as a disincentive and many US companies with overseas holdings simply keep their foreign earnings abroad.
The question remains whether there will be sufficient
flexibility in negotiations to keep Obama from vetoing the
budget, a move that would force, yet again, last-minute
emergency talks, a possible government shutdown or a socalled continuing resolution that would fund the government at current levels. Under Obama’s plan, the top corporate tax rate for company profits earned in the U.S. would
drop to 28 percent. While past foreign profits would be
taxed immediately at the 14 percent rate, going forward
new foreign profits would be taxed immediately at 19 percent, with companies getting a credit for foreign taxes paid.
Republicans are opposed virtually across the board to
anything that would increase taxes, such as closing loopholes. They also are against taxing foreign profits and will
likely block that avenue for funding Obama’s infrastructure
plans. The White House believes it has some leverage on
taxing foreign earnings by linking the revenue to construction projects that could potentially benefit the home districts of every member of Congress.
The budget will call for the one-time 14 percent manda-
tory tax on the up to $2 trillion in estimated US corporate
earnings that have accumulated overseas. That would generate about $238 billion, by White House calculations. The
remaining $240 billion would come from the federal
Highway Trust Fund, which is financed with a gasoline tax.
Obama is releasing his budget as the federal deficit drops
and his poll numbers inch higher. Although Republicans
will march ahead on their own, they ultimately must come
to terms with the Democratic president, who wields a veto.
Ahead loom big challenges. Obama is proposing to ease
automatic cuts to the Pentagon and domestic agencies
with a 7 percent increase in annual appropriations. He
wants a $38 billion increase for the Pentagon that
Republicans probably will want to match. But his demand
for a nearly equal amount for domestic programs sets up a
showdown with Republicans.
Another centerpiece of the president’s tax proposal is an
increase in the capital gains rate on couples making more
than $500,000 a year. The rate would climb from 23.8 percent to 28 percent. Obama wants to require estates to pay
capital gains taxes on securities at the time they are inherited. He also is trying to impose a 0.07 percent fee on the
roughly 100 US financial companies with assets of more
than $50 billion. — AP
Philippines may surpass China
as Asia’s fastest growing economy
MANILA/JAKARTA: The Philippines may surpass China to be
Asia’s fastest growing economy this year, but its bigger challenge
is working out how to sustain and share the gains of the past five
years to secure longer-term prosperity. Since President Benigno
Aquino came to power in 2010 and embarked on a reform and
governance push, the Philippines has become a hot investment
favorite and one of the fastest-growing economies in the world.
Investors now want to know how the Southeast Asian country
will be able to sustain fiscal and economic policies that have
spurred growth and reduced poverty after Aquino’s term ends
next year.
“We think that 2016 is critical in terms of the long-term outlook of the Philippines,” said Eugenia Victorino at ANZ bank. The
Philippines defied the region’s slowdown in the fourth quarter by
regaining momentum, bringing full-year growth to 6.1 percent the fastest expansion in Asia after China.
This year, Aquino is aiming for growth of 7-8 percent, while
China’s growth is expected to slow to around 7 percent.
Aquino has fought corruption and prioritized infrastructure
improvements that are pivotal to raising growth potential.
However, the economy is still mired with high unemployment.
The World Bank has said Philippine growth is now “more
inclusive”, and there are signs benefits are trickling down. More
than one million jobs were created in 2014 and unemployment
fell to 6 percent, the lowest for at least a decade. But job creation
has still struggled to match the number of people looking for
work; 42 percent of the population still live on less than $2 per
day. Vibrant sectors, such as booming back-office firms, earn foreign exchange but don’t spread a lot of prosperity. “To have one
of those jobs, you need some skills. At a minimum, decent command of English and computer literacy, but often a bit more than
that,” said Dan Martin at Capital Economics.
Manufacturing, the sector probably best able to raise productivity and the income of low-skilled workers, could benefit as low
wages and a competitive currency help the Philippines grab
some of the production that is leaving China because of rising
Aquino, limited by the constitution to a single term in office,
has improved public finances and boosted investment in roads,
ports and schools through public-private partnerships. Last
summer, wrangles with the Supreme Court caused a seize-up of
government spending, but it resumed after Congress passed a
supplementary budget in December.
“We’re very hopeful that the Aquino government will be able
to release the funds to continue with its infrastructure programs,” said Victorino. The outlook from mid-2016, following the
elections for a new president and half of Congress, is far less certain.— - Reuters