Friday, March 23, 2018

Trump’s company tax cut behind forecast global economic growth: IMF

US President Donald Trump's dramatic cuts to company tax in the United States are being credited with a forecast upswing in global economic growth.

The normally reserved International Monetary Fund (IMF) said the anticipated impact of the tax overhaul was a major factor in global growth, rising to 3.9 per cent this year.

Mr Trump's controversial tax overhaul last year reduced the corporate tax rate from 35 per cent to just 21 per cent and was seen as his first major legislative victory.

Speaking at the World Economic Forum in Switzerland, the IMF's chief economist, Maury Obstfeld, said the lower company tax rate might be a one-off boost.

"The recent US tax legislation will contribute noticeably to US growth over the next few years, largely because of the temporary exceptional investment incentive that it offers," Professor Obstfeld said.

"This is very good news, but the global financial crisis may seem firmly behind us.

"But without prompt action to address structural growth impediments, enhance the inclusiveness of growth, the next downturn will come sooner and will be harder to fight."

US growth is forecast to lift sharply from 2.3 per cent to 2.7 per cent this year before hovering around 2.5 per cent in 2019.

IMF chief economist Maury Obstfeld at the World Economic Outlook press conference in Washington, DC.

But Mr Obstfeld said the tax-cut momentum meant the US economy would ultimately face an economic bill.

"Whatever output impact its tax cut will have on an economy so close to full employment will be paid back partially later in the form of lower growth," he said.

"[This will happen] as temporary spending incentives — notably for investment — expire, and as increasing federal debt takes a toll over time."

Morrison campaigning for Australian tax cuts

Australian Treasurer Scott Morrison seized on the result as evidence the Federal Government needed to lower its own company tax rate.

Mr Morrison is campaigning to have a local company tax rate of 25 per cent extended to all companies over time, including corporations that currently pay 30 per cent.

He told RN Breakfast that unless Labor agreed to a lower company rate, essential services like Medicare and the NDIS could suffer.

"These new global growth forecasts demonstrate yet again that the move that's been taken in the United States, but also in other countries, to drive their economies and to see their businesses grow," he said.

"If you don't have a strong economy, you can't have a strong health system, you can't have a strong education system, you can't have an NDIS, you can't have a pension system.

"You need a strong economy to support all of these essential services."

IMF managing director Christine Lagarde also welcomed the US tax cuts, but worried an era of low interest rates since the global financial crisis had created a high-debt world.

"The long period of low interest rates has led to the build-up of potentially serious financial sector vulnerability, and we are seeing a troubling increase in debt across many countries and we need to remain watchful," she said.

The Trump tax cuts were already factored into financial markets so US stocks closed higher after a deal was struck to reopen the Federal Government, ending a two-day shutdown.

Original Article

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