Finance & Business World

South African Finance Minister Pravin Gordhan may push back next year

Japanese Finance Minister Jun Azumi said his nation and China will work together to help Europe solve its debt crisis through the International Monetary Fund.

Europe needs a bigger so-called firewall of added funding to contain the crisis, even as Greece shows some improvement in solving its financial woes, Azumi told reporters in Beijing yesterday after meeting Chinese Vice Premier Wang Qishan. Azumi, who met Chinese Finance Minister Xiu Xuren during his visit, also said he asked China to make its currency more flexible.

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The Obama administration’s corporate tax reform plan will end “dozens and dozens” of tax breaks, U.S. Treasury Secretary Timothy Geithner said on Tuesday as he defended the White House’s election-year call for higher taxes on the wealthy.

Within days, the administration is set to unveil a blueprint for revamping the corporate tax system aimed at leveling the playing field for all companies, which pay wildly differing levels of taxes, while lowering the top corporate tax rate.

Companies are clamoring for a cut in the top 35 percent corporate tax rate but disagree about how to how eliminate special tax preferences that benefit selected industries.

Geithner spoke before the Senate Finance Committee a day after President Barack Obama unveiled a $3.8 trillion budget-and-tax proposal that called for aggressive government spending to boost the economy and higher taxes on the rich.

“We think they can handle it. We think they can afford it,” Geithner said.

The budget proposal is seen as a campaign document, with few elements expected to win approval this year in a divided U.S. Congress as elections approach in November.

Republicans criticized Obama’s budget, saying it chooses winners and losers and moves away from tax reform.

For example, Obama wants to end a manufacturing tax break for oil and gas companies, but expand it for high-tech companies. “Obviously not everyone is going to be playing by the same set of rules,” Republican Senator Jon Kyl of Arizona said.

Geithner said it was a “fair question.”

He said the Obama plan would “wipe out a very substantial, dozens and dozens of special tax preferences,” in the corporate code, but keep a “very limited” number targeting incentives for “creating and building stuff in the United States.”

Senators from both parties said Obama needs to use the bully pulpit to push major changes to the tax code online pay day loans.

The last time major rewrite of the U.S. tax code came in 1986 under the leadership of Republican President Ronald Reagan.

“The key in 1986 was of course the presidential bully pulpit and that the executive branch every single time out talked about how you had to fit the pieces together,” Democratic Senator Ron Wyden said.

Obama said earlier he was “hopeful” of a deal on extending a 2 percentage point cut in the payroll tax paid by workers, which will expire at the end of the month without a deal between sparring lawmakers.

FISCAL CLIFF

The payroll tax extension is the first among many deadlines approaching in coming months that could hamper the fragile economic recovery.

At the end of the year, individual tax cuts enacted under President George W. Bush are set to expire. In addition, $1.2 trillion in automatic budget cuts across all government programs are set to kick in as part of last summer’s deal to raise the debt ceiling.

“A perfect fiscal storm is waiting at the end of the year,” Senator Max Baucus, Democratic chairman of the Senate Finance Committee said.

Geithner agreed that the combination of the deficit reduction measures and higher taxes would hurt the economy.

But he said the administration is proposing to extend the bulk of the tax cuts so that only the wealthiest would be impacted. “The impact of that tax reform would be very, very modest,” he said.

Geithner rejected Republican suggestions that the administration should make drastic cuts to government spending even though the U.S. deficit has soared to $1.3 trillion and the federal debt has topped $15 trillion.

“That would damage economic growth,” Geithner said.

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Canada’s prime minister heads to China next week where he’ll discuss Canada’s vast oil reserves in a visit that’s being viewed as an “open warning” to the United States, which rejected a pipeline from Canada to Texas.

Prime Minister Stephen Harper will be in Beijing and two other cities for bilateral meetings with top Chinese officials, including President Hu Jintao and Premier Wen Jiabao, from Feb. 8-11.

Andrew MacDougall, Harper’s spokesman, said Friday it is “absolutely in Canada’s interests” to move the country’s resources to China.

Five Cabinet ministers, including the ministers of natural resources, trade and foreign affairs will make the trip with Harper.

Harper is determined to build a pipeline to Canada’s Pacific Coast after U.S. President Barack Obama rejected the Keystone XL pipeline that would have taken oil from Alberta to refineries in Texas.

Ninety-seven percent of Canadian oil exports now go to the U.S and Harper is eager to diversify. Canada is increasingly looking to China, thinking America doesn’t want a big-stake share in what environmentalists call “dirty oil,” which they say increases greenhouse gas emissions.

Canada has the world’s third-largest oil reserves after Saudi Arabia and Venezuela: more than 170 billion barrels. Daily production of 1.5 million barrels from the oil sands is expected to increase to 3.7 million by 2025, which the oil industry sees as a pressing reason to build the pipelines.

Harper told Obama he was “profoundly disappointed” that he rejected the Keystone XL pipeline. The pipeline has become a hot topic in the U.S. presidential election. Republican presidential candidates Newt Gingrich and Mitt Romney have both promised to approve the pipeline.

After Obama first delayed a decision on the Keystone pipeline in November, Harper told the Chinese president at the Pacific Rim summit in Hawaii that Canada would like to sell more oil to China, and the Canadian prime minister filled in Obama on what he said instant credit report.

Wenran Jiang, an energy expert and professor at the University of Alberta, said Canada is using China as leverage.

He said Harper’s visit is an explicit warning to the U.S.

“It’s a not a subtle warning. It’s an open warning,” Jiang said. “Harper has said Keystone was a wake-up call.”

Jiang said Washington will be paying attention to the trip but he said a number of factors make U.S. officials less worried than a few years ago when China’s intentions in Canada’s oil sector weren’t as clear as they are now.

Jiang said U.S. officials no longer fear that the Chinese are investing in Canada to lock up the supply and ship it back to China. But Jiang said that doesn’t prevent Republicans like Gingrich and Romney from raising fears that the U.S. is losing energy security.

David Goldwyn, a former energy official in the Obama administration, has said he sees no threat from Chinese inroads into Canada because there is more than enough oil for all concerned.

China’s growing economy is hungry for Canadian oil. Chinese state-owned companies have invested more than $16 billion in Canadian energy in the past two years. State-controlled Sinopec has a stake in Enbridge’s proposed Pacific pipeline, and if it is built, Chinese investment in Alberta oil sands is sure to boom.

Zhang Junsai, China’s ambassador to Canada, has said Harper’s visit will help forge a “win-win” natural resource partnership with Canada to help his country’s expanding economy meet its voracious energy needs.

Forty Canadian business leaders will accompany Harper on the trip.

Relations between the countries have improved since Harper’s first visit in 2009 when Premier Wen publicly chided Harper for taking so long to visit China. Harper has since changed Canada’s hardline stance on human rights.

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President Barack Obama announced a package of proposals designed to jolt the housing market, his latest effort to reignite the economy after four years of foreclosures and falling home prices.

An unusual small claims lawsuit by a Honda hybrid owner took another complicated turn Wednesday with additional arguments that prompted a commissioner to delay a ruling for more consideration.

Superior Court Commissioner Douglas Carnahan said he was aware of “a media blitz on this case,” and wanted to be clear on all of the issues raised by Honda owner Heather Peters.

Peters told the court she was anxious to get the matter resolved and did not want to waste the court’s time.

“You’re not wasting the court’s time,” said Carnahan. “These are serious issues affecting more people than just you.”

Honda representative Neil Schmidt showed up for the hearing with a stack of envelopes that the commissioner estimated as 8 inches high, purportedly containing letters from satisfied Honda owners.

Carnahan declined to open the envelopes, saying it would just prolong the hearing that has already gone on longer than most small claims court actions.

Peters said she did not want to see the letters and had submitted her own testimonials from those who are dissatisfied with the cars.

“I’ll stipulate there are people who love their cars,” she said as she pointed to the audience where six other disappointed Honda owners were seated, including a woman who drove from Sacramento to attend the hearing.

The woman, Kathy Wood, of Elk Grove said outside court, “I drove from Sacramento because if she can do all this that’s the least I can do.”

Peters, a former lawyer, has been using the Internet to try to rally other Honda hybrid owners to follow her example and go to small claims court rather than accept a proposed class-action settlement by Honda.

Peters bought her car in April 2006.

Peters claimed the car never came close to the 50 miles per gallon (21.26 kilometers per liter) promised and that it got no more than 30 miles per gallon (12.75 kilometers per liter) when the battery began deteriorating. She still owns the car and wants to be compensated for money lost on gas, as well as punitive damages.

She bolted from a class-action lawsuit in order to sue for $10,000 rather than agree to a proposed settlement by Honda with thousands of car owners that would give each owner $100 to $200 and a $1,000 credit on the purchase of a new Honda.

She has said that if all owners of the problem cars won in small-claims court, it could cost Honda $2 billion

Wood said she is planning to opt out of a class-action suit.

“I’m never buying a Honda again,” Wood said.

Schmidt presented charts that he said showed that even with the decreased mileage, Peters benefited from having the car. She called his calculations “laughable.”

“If Honda snuck into my garage and siphoned gas out of my car, that’s a crime,” Peters told the commissioner. “That’s what they’re doing.”

Honda also sent Darren Johnson, its manager in charge of certifications, to explain how Honda tests its vehicles in relation to tests by the environmental protection agency.

Schmidt claimed there was no fraud and said “we’re being sued for telling the truth and she actually benefited from having the hybrid.”

Carnahan said he was taking the matter under submission and would have a ruling probably next week or at least before the Feb. 11 deadline for people to opt out of the class action case.

Outside court Peters said, “I feel great. I did my best. However he decides it I’m happy I did it. It’s brought to light a lot of background stuff that people should know.

“I’m the trailblazer here,” she said, “and everyone else can follow what I did.”

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The war of words between Europe and private investors heated up Tuesday as talks to reduce Greece’s massive debt burden hit an impasse.

While the finance ministers of the countries that use the euro as their currency adopted a tough stance on how much rescue money they would pump into the Greek economy, the head of the group that represents the country’s private creditors _ banks and other investment firms _ warned that the future of Europe was being threatened if a voluntary debt reduction deal over Greece was not agreed.

Charles Dallara, the managing director of the Institute of International Finance, warned that Europe was putting “decade of progress at risk” over the management of Greek debt-reduction talks, which stalled over the weekend.

“European stability is at stake as well,” Dallara said in Zurich in a press conference.

On the front line of Europe’s sovereign debt crisis, Athens is trying to get its private creditors to swap their Greek government bonds for new ones with half their face value, thereby slicing some euro100 billion ($130 billion) off its debt. The new bonds would also push the repayment deadlines 20 to 30 years into the future.

However, the main stumbling block over the past few weeks to securing this deal has been the interest rate these new bonds would carry. A high interest rate could buffer losses for investors, but would also require the eurozone and the International Monetary Fund to put up more than the euro130 billion ($169 billion) in rescue loans they promised in October.

Dallara said the private creditors, which include banks, insurance companies and hedge funds, were acting in good faith and that the proposal made last week was in the spirit of last October’s agreement. At that time, Europe’s leaders said Greece should look to reduce the value of its private sector debts by 50 percent, or euro100 billion ($130 billion).

In the early hours of Tuesday, eurozone politicians drew a firm line on the Greek debt restructuring.

Jean-Claude Juncker, the Luxembourg prime minister who chaired a meeting of finance ministers on efforts to fight the crisis, said the average interest rate over the lifetime of the new Greek bonds must be “clearly below 4 percent,” with an average rate of less than 3.5 percent for the period until 2020. That is far below the 4 percent demanded by the Institute of International Finance, which has been leading negotiations for the private bondholders.

The European ministers’ tough stance on the interest rates underlines how the eurozone and the IMF are unwilling to increase new rescue loans above the promised euro130 billion, even though Greece’s economic situation has deteriorated. After already granting Greece a euro110 billion bailout in May 2010, the eurozone and the IMF are threatening to withhold further funding for the country, which has repeatedly failed to hit budget and reform targets required in return for the financial aid.

The interest rate caps will also seriously test the willingness of private bondholders to agree to a debt deal voluntarily.

Dallara said talks would continue over the coming days, adding that he was confident there would be “large-scale” participation by the private sector if a “voluntary” deal is clinched.

However, he refused to put a deadline on the discussions.

Given the complexity of the negotiations and the legal consequences that would ensue, many analysts think a deal has to be agreed soon if Greece is to meet a vital bond repayment deadline in March.

If it can’t pay its bond, Greece would be in default of its debts, a scenario that could lead to renewed panic in financial markets and potentially derailing a feeble global economic recovery.

Dallara said Europe must keep the support of the private sector, given the massive amounts of debt that have to be refinanced from France to Portugal.

He added that there wasn’t a country that didn’t need investment from the private sector.

“Investors need to feel confident in their investments … in sovereign debt,” he said.

Before Dallara’s latest comments, German Finance Minister Wolfgang Schaeuble said the current impasse was a normal part of difficult negotiations.

“We continue the negotiations (with investors) as happily, but also as little susceptible to blackmail as possible,” he told reporters in Brussels. “That exists in every bazaar _ a final offer _ one shouldn’t let oneself be overly impressed by that.”

The alternative to a voluntary deal would be to force losses on to investors _ a move that the eurozone has so far been unwilling to make. Some officials fear that a forced default could trigger panic on financial markets and hurt bigger countries like Italy, Spain or even France.

But several ministers indicated that they might be willing to accept a forced default if it puts Athens in a position where it can eventually repay its remaining debt _ including the rescue loans from the eurozone and the IMF. The eurozone has said that Greece’s debt is sustainable if it falls to some 120 percent of gross domestic product by 2020. Without a restructuring it would reach close to 200 percent by the end of the year.

Even Olli Rehn, the EU’s Monetary Affairs Commissioner, said that forcing some holdouts to accept a restructuring that has the support of the majority of bondholders would be acceptable.

“That is possible within the framework of achieving a voluntary agreement on private sector involvement,” Rehn said, referring to so-called collective action clauses that Greece could write into its old bond contracts to allow majority decision making. The Commission has so far always been opposed to any forced losses for investors.

But ministers also put the pressure on Greece to reach a manageable debt level by bolstering its reform and austerity measures.

“Greece and the banks have to do more in order to reach a sustainable debt level,” Dutch Finance Minister Jan Kees de Jager told reporters as he arrived for a second day of meetings with his European counterparts. “We have to await the discussions about that because a sustainable debt level is absolutely a precondition for the next (rescue) program.”

Schaeuble also insisted that firm support for new austerity measures from all major Greek parties _ including after elections expected in April _ was a precondition for a new bailout.

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Pan Pylas in Zurich and Nicholas Paphitis in Athens, Greece, contributed to this story.

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China is allowing the nation