Archive for June, 2011

China eases tax burden on poor with law change

Thursday, June 30th, 2011 | Finance News

BEIJING – China's legislature raised the threshold for paying income tax, effectively exempting tens of millions of workers in a new effort Thursday to defuse tensions over surging inflation and a yawning wealth gap.

The change comes on the eve of celebrations of the 90th anniversary of the founding of the ruling Communist Party, which faces public rancor over high prices and corruption and protests over minority and migrant worker rights.

The Standing Committee of China's legislature raised the minimum personal income required to pay taxes from 2,000 yuan ($300) a month to 3,500 yuan ($540).

That will reduce the number of taxpayers from 84 million, or 28 percent of workers covered by the law, to about 24 million, or just 7.7 percent, said a tax official, Wang Jianfan. The income tax law covers about 300 million urban workers but not most of China's hundreds of millions of farmers, who pay tax under a different system.

The change is meant to ease the tax burden on low-income workers, Wang said at a news conference. The official Xinhua News Agency said lawmakers also wanted to "adjust the distribution of income" — a reference to narrowing the gulf between China's elite who have benefited from economic reform and the poor majority.

"It is a serious attempt to maintain social stability and redress the problems of inflation," said Steve Tsang, director of the China Policy Institute at Britain's University of Nottingham.

Inflation jumped to a 34-month high of 5.5 percent in May, driven by a double-digit jump in food costs and some economists forecast a bigger jump for June.

High prices are dangerous for the authoritarian government because they erode economic gains that underpin the ruling party's claim to power. Food costs are especially sensitive because poor families in China spend up to half their incomes on food.

Communist leaders declared controlling inflation their priority this year but prices have continued to climb despite four interest rate hikes since October and curbs on lending and investment.

The government also has promised hefty increases in social spending to help narrow the gap between an elite who have profited from three decades of economic reform and China's poor majority.

Thursday's announcement highlights the extremes of wealth and poverty in a society that had 115 billionaires in Forbes magazine's 2011 list of the world's richest.

The figures cited by Wang would mean only 24 million workers earn more than 42,000 yuan ($6,500) a year, while millions of families get by on less despite rapid economic growth.

The investment bank UBS said this week that June inflation might rise as high as 6.5 percent after the cost of vegetables and pork jumped following floods that damaged crops in China's south and east.

"A steady improvement in living conditions is what people have been led to take for granted" as part of an unspoken "social contract" under which the communists remain in power, said Tsang.

"If you were earning enough to pay tax so you are not at the bottom of the pile but what you can really afford has been eroded in the last couple of years, then this could not have come soon enough," he said.


AP researcher Yu Bing contributed.


German parliament approves nuclear shutdown

Thursday, June 30th, 2011 | Finance News

BERLIN – German lawmakers overwhelmingly approved on Thursday plans to shut the country's nuclear plants by 2022, putting Europe's biggest economy on the road to an ambitious build-up of renewable energy.

The lower house of parliament voted 513-79 for the shutdown plan drawn up by Chancellor Angela Merkel's government after Japan's post-earthquake nuclear disaster. Most of the opposition voted in favor; eight lawmakers abstained.

Lawmakers sealed for good the shutdown of eight of the older reactors, which have been off the grid since March. Germany's remaining nine reactors will be shut down in stages by the end of 2022.

By 2020, Germany wants to double the share of energy stemming from water, wind, sun or biogas to at least 35 percent. Until this year, nuclear energy accounted for a bit less than a quarter of Germany's power supply.

"Some people abroad ask: will Germany manage this? Can it be done? It is the first time that a major industrial country has declared itself ready to carry through this technological and economic revolution," Environment Minister Norbert Roettgen told lawmakers.

"The message from today is this: the Germans are getting to work," he said. "This will be good for our country, because we all stand together. So let's get to work."

The government hasn't put a specific price tag on the plan to shift to renewable sources.

"Of course it will cost something, but it won't overburden anyone," Roettgen said.

Thursday's vote completed a spectacular about-face on nuclear energy by Merkel's center-right coalition. Only last year, it had amended a previous center-left government's plan to abandon nuclear power by the early 2020s and extended the life span of Germany's 17 reactors by an average 12 years.

After Japan's Fukushima Dai-ichi plant was ravaged by an earthquake and tsunami, Merkel said the accident had prompted her to reevaluate the risks of nuclear power.

Opposition leaders taunted the government over its U-turn, which Merkel initiated less than two weeks before a pair of state elections in March.

"We are approving this out of full conviction, but you are doing it merely to preserve power," said Sigmar Gabriel, the head of the center-left Social Democrats.

Renate Kuenast, the co-leader of the Greens' parliamentary group, said she didn't care why Merkel had changed course.

"For me, it's enough of a historical irony that you now have to come close to what you fought for decades," she said.

"Now no one can deny that Germany wants an energy turnaround," added Kuenast. Her party has always opposed nuclear energy, which has been unpopular in Germany since the 1986 Chernobyl disaster sent radioactivity drifting over the country.

Still, she complained that the government's renewable energy target was "unambitious," arguing that Germany should be aiming for a share of well over 40 percent.

"The world is watching us now, and we will have to do justice to that," Kuenast said. "That is the scale of this task: We must show that this works for the (world's) fourth-biggest industrial country."

Parliament's upper house, which represents Germany's 16 states, is expected to endorse the plans next week, but much of the package doesn't formally require its approval.


HSBC adds to sweeping bank job cuts in Europe

Thursday, June 30th, 2011 | Finance News

LONDON (Reuters) – HSBC Holdings Plc (HSBA.L) is poised to axe about 700 jobs in its UK retail bank arm, as swingeing staff cuts begin in earnest at banks across Europe stung by a limp economic recovery, trading woes and tougher regulation.

The fresh round of layoffs, affecting Switzerland's Credit Suisse Group AG (CSGN.VX) and Italy's Banco Popolare (BAPO.MI) among others, is hitting investment banking divisions and branch networks after months of mounting scrutiny on costs.

Smaller-scale cuts throughout the early part of this year as banks discreetly trimmed back in some weaker areas look set to escalate dramatically.

Job reductions at HSBC will mainly affect retail banking, people close to the matter said on Thursday. About 460 financial advisory positions are set to go across its UK branches, one of the sources said.

The move comes prior to the implementation of new UK rules that will affect how banks offer advice, expected in January 2013 and known as the Retail Distribution Review.

The redundancies will add to 15,000 jobs set to go at Britain's part-nationalized Lloyds Banking Group Plc (LLOY.L) after new boss Antonio Horta-Osorio unveiled a strategy overhaul.

This latest round comes on top of 27,000 job losses at Lloyds since the 2008 financial crisis.

Trade union Unite slammed the redundancy plans at the two British banks, adding it was "flabbergasted" by HSBC's move.

"Unite has been informed that these cuts will generate savings of around 9 million pounds for HSBC. Is it a coincidence that this figure is the equivalent to the bonus for Stuart Gulliver, HSBC Chief Executive, due to be paid later this month?" said David Fleming, Unite national officer.


HSBC, which employs 55,000 staff in the UK, declined to comment. Lloyds employs some 103,000 staff.

Peers across Europe are also swinging the axe and layoffs are starting to fall even at some of the biggest Wall Street investment banks, more than two years after many began putting the financial crisis behind them by hiring heavily.

A tough second quarter for investment banking earnings, dragged down by sovereign debt woes in Europe and trading jitters, is prompting many to cut back in areas where revenue has not come up to scratch.

Credit Suisse is one of those kicking off one of the deepest round of layoffs so far this year. Cuts at its investment bank will affect around 600, people familiar with the matter said.

About 100 of those cuts are expected to fall in London, where the bank launched a consultation on jobs this week. Credit Suisse declined comment.

Goldman Sachs Group Inc (GS.N), meanwhile, plans to lay off 230 employees in New York at the end of this year because of economic conditions, according to a state filing.

Italian lender Popolare, which has 20,000 staff, said it was cutting 1,120 jobs and shifting 1,100 employees to boost its retail network.

(Editing by Mike Nesbit and David Holmes)