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BW Businessworld

Budget Snips

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Mid-April, US President Barack Obama proposed a $3.77 trillion budget that combines controversial cuts to social safety net programmes with tax increases on the wealthy in a package the White House hopes will jumpstart deficit-reduction talks. Its deficit-cutting measures mirror an outline Obama put forward last year, which was rejected by the Republican speaker of the House of Representatives at the time. The budget included cuts in social security, the pension programme for retirees and in Medicare, the health insurance programme for seniors. “I don’t believe that all these ideas are optimal, but I’m willing to accept them as part of a compromise,” Obama said. Just hours after proposing the budget, the President set in motion the next $109 billion in reductions to the military and domestic programmes for the year starting 1 October.

The 7-Inch Itch: Microsoft Corp. is reportedly developing a new line-up of Surface tablets, including a 7-inch version expected to go into mass production later this year, according to people familiar with the company’s plans. The news was reported in The Wall Street Journal. It is said that Microsoft executives felt that they needed to keep pace with the growing popularity of smaller tablets across the world, such as Google’s 7-inch Nexus and the 7.9-inch iPad Mini introduced by Apple last October.

Life Support: Protective Life Corporation (PIC) said it will buy Mony Life Insurance from parent Axa for $1.06 billion to access its portfolio of life insurance policies. “This book of business, comprised primarily of life insurance policies written prior to 2004...should produce a steady and predictable stream of earnings for many years to come,” PIC chief John Johns said. PIC has been expanding into emerging markets while scaling back its presence in the US after years of underperformance in that region.  Including a capital surplus of $303 million, PIC’s total investment is about $1.09 billion.

In The Bag: Four Japanese auto makers, including Toyota, Nissan and Honda, are recalling a total of about 3.4 million vehicles worldwide as a result of an airbag problem. Auto parts maker Takata Corp. said it had supplied the airbags related to the recalls. Toyota is recalling about 1.73 million vehicles globally, Honda around 1.14 million and Nissan around 480,000, while Mazda is recalling around 45,500.

Open Doors:
At a meet with global business leaders at the Boao Forum for Asia, China sought to reassure foreign investors, saying it would never close its doors to the outside world and was committed to improving the business climate. “We are protecting the legitimate rights of foreign enterprises according to law,” said President Xi Jinping. This is relevant as US firms grow increasingly wary about the investment environment amid concerns over intellectual property and cyber security.

It’s A Date:
Malaysia will hold general elections on 5 May, the government said, in what could be the toughest test of the ruling coalition’s 56-year grip on power. Opinion polls suggest a narrow victory for the National Front led by PM Najib Razak, who’s under pressure to restore the two-thirds majority the coalition lost for the first time in 2008. Najib ended months of speculation when he called for the poll less than a month before the end of the parliamentary term.

Dismal Numbers: The World Trade Organization (WTO) slashed its forecast for global trade growth in 2013 to 3.3 per cent from 4.5 per cent and said 2012 saw only a 2 per cent increase, the smallest annual rise since 1981. WTO director general Pascal Lamy warned that 2013 could turn out worse than expected, especially because of risks from the euro crisis, and countries might try to restrict trade further in a desperate attempt to shore up growth. “The threat of protectionism may be greater now than at any time since the start of the crisis, since other policies to restore growth have been tried and found wanting,” he said. Trade growth remains well below the 20-year average of 5.3 per cent. For 2014, trade is expected to rebound to around 5 per cent growth.

Funding Trouble: Fiat’s loss-making European operations will be further weakened by the region’s drawn out auto slump, CEO Sergio Marchionne warned, adding that Fiat may need to raise capital after it completes a planned buyout of Chrysler. European losses could be worse than expected in 2013, but the firm still believes it can meet financial targets thanks to improved earnings from more dynamic markets in the Americas and Asia. Fiat may need to pay $3.3-4.2 billion for 41.5 per cent of the unlisted car maker.

Hard Cuts: Portugal will cut spending on education, health and welfare in a bid to meet the terms of an international rescue after the country’s constitutional court rejected parts of its austerity programme. The court ruling left the government scrambling to find about €1 billion — a fifth of the total austerity measures planned for 2013 — to keep its €78-billion bailout on track. PM Pedro Passos Coelho said Portugal would do all it could to avoid a second bailout — similar to Greece last year — but ruled out raising taxes. Portugal was shut out of international bond markets in 2011 after it followed Greece and Ireland in negotiating a bailout from the EU and IMF.

Taxing Matters: If at first you don’t succeed in taxing the rich, try, try and try again. French President Francois Hollande made changes to last year’s failed proposal for a 75 per cent top tax rate, shifting the burden of payment from individuals to businesses that pay salaries over €1 million, saying that he will “take a different path”. Hollande said the measure is needed to ensure transparency at large corporations — the only businesses that can afford to pay employees so generously. Hollande, during last year’s presidential campaign, proposed a 75 per cent tax rate on individual income above €1 million. At the time, the controversial tax was rejected by France’s judiciary.

(This story was published in BW | Businessworld Issue Dated 06-05-2013)