Reuters File Photo: Euro and US dollar notes can be seen in this image taken on January 23, 2013 in Prague.
Written by Dhara Ranasinghe and Sujata Rao
LONDON (Reuters) – And so it begins: Taxes are rising in the world’s richest countries. The inevitable is perhaps the unprecedented Covid-era debt growth and, according to some investors, even a good thing if it helps close the wealth gap has exacerbated the epidemic.
In recent times, the UK, the largest borrower in terms of gross domestic product (GDP), has raised taxes on workers and employers, raising the headline to raise 12 12 billion (17 17 billion) in a potential year.
U.S. markets are also excited after Democrats proposed raising tax rates on companies and annual revenues above ০০ 400,000,000.
Wealthy people will not welcome higher income taxes, as several investment banks have lowered Wall Street forecasts for 2022.
Still, most investors and economists are volatile, with some saying that raising target taxes that reduce growing inequality will benefit the market in the long run.
Moreover, a return to the “austerity” policy adopted after the 2008-9 crisis is unlikely, as gradual growth, poverty and socio-economic upheavals such as Britain’s 2016 Brexit vote are often blamed on those belt-tightening years.
So far, investors should keep in mind that efforts to raise personal taxes in major Western economies have been modest and will not necessarily hurt economic growth and equity markets.
For example, the UK’s 1.25 per cent-point national insurance growth, estimated at half a per cent of GDP. And a dividend tax increase would provide just পা 100 an annual hit for those earning 10,000 10,000 a year, according to brokerage AJ Bell.
For the bond market, even moderate measures of debt reduction can be positive.
Fahad Kamal, chief investment officer at Kleinwart Hambros, sees no political appetite for reducing the epidemic-era spending program that “kept the lights on for everyone in the economy and those who needed help.”
Yet it is a good thing that there are definitely some plans in place to address the huge increase in our debt over the past year and a half, ”he said of the UK tax hike.
Michelle Napolitano, head of Western European Services at Fitch Ratings, said efforts to start paying off debt this year were “part of the rationale” to stabilize Britain’s negative view of AA-credit ratings.
He said at a recent conference, “What we are seeing across Western Europe … shows that there is no desire to raise public debt levels forever.”
Global debt fast graphics close to $ 300 trillion:
It is easy to see why the government is worried.
Global debt, including government, family and corporate and bank debt, is at a record প্রায় 3 trillion, the International Monetary Fund estimates, adding .. 4.8 trillion in the second quarter of 2021.
According to a study by Janus Henderson, it has increased in 2020.3. tr trillion dollars, more than the previous eight years.
For graphs of Central Bank Balance Sheet and MSCI World Stock Index:
But it is unlikely that such austerity will be caught in Europe after 2009; The government continues to spend by capitalizing on record low interest rates and the central bank’s money-printing program.
The European Union (EU) has suspended rules on government funding, while the United States has proposed huge spending and poverty alleviation initiatives such as 1. The tr trillion-dollar American family plan is fully underway.
Last year showed how effective targeted spending can be; An epidemic relief program has reduced U.S. poverty rates by almost half compared to 2018 levels, a study by an urban institute found.
The crisis also highlighted the wealth gap – figures quoted by Oxfam show that the world’s billionaires became richer by 9 9.9 trillion between March and December 2020.
For policymakers seeking to raise funds, these resources are less hanging fruit, analysts say, targeting the Biden administration’s proposals and China’s “prosperous prosperity” campaign.
Kiran Ganesh, Multi Asset Head, UBS Global Wealth Management, said, “There is no real pressure from the market to repay the debt from the government where there is a role for the central bank and interest rates.” That should be the theme for years to come
If inequality drives growth, as institutions like the IMF have repeatedly warned, redistribution will support economies and support the stock market instead.
According to a congressional estimate, changing the tax code demanded by Democrats would reduce the tax bill for Americans earning less than ,000 200,000 a year.
Tom O’Hara, portfolio manager at Johns Henderson, said: “One result is that wages for lower wages will increase because better pay more taxes and those who have more money in their pockets tend to spend.” Investors.
A study presented at this year’s U.S. Jackson Hole conference found that income inequality has put downward pressure on bond yields, as the rich typically save a large portion of their income.
For a graphic of high US savings:
Ganesh of UBS said, “It is easy for investors to see tax increases as a short-term negative but if you see that high-income people suddenly get higher incomes, it can be positive for the economy and the market.”