1. The new Labour government in UK wants to close down the "carried interest tax" loophole that Private Equity firms enjoy - it allows them to pay 28% instead of the regular 45% rate. Patrick Jenkins has a good article that examines the issue and proposes a compromise.
First, they make a principled point — that carried interest is not really income as reformers argue, but a genuine reward for executives, dubbed general partners in the industry, taking investment risk. If GPs invest alongside third-party investors — so-called limited partners (or LPs) — in a deal, any gain (or “carried interest”) they make should be treated as a capital gain because that is what it is. Second, the sector insists that implementing the policy as outlined would drive wealth creators and growth generators — key to Labour’s agenda of economic revival — out of the country...There are clear flaws in the industry’s arguments. Tax changes and differentials in this sector have not led to an exodus in the past. In 2017, Italy introduced a new regime, taxing carried interest at 26 per cent, instead of the 43 per cent of higher-rate income tax. Ireland taxes carried interest at barely half the UK rate. So far neither country has made huge inroads in attracting private equity executives... The more substantive point of principle is also moot. In many cases a private equity manager is not actually investing any of their own money, but is being gifted the “right to carry” by their employer, in much the same way as a banker might be gifted shares as part of a bonus (which is liable to income tax). There is no requirement to actually invest your own money in order to benefit from the carried interest tax break...Reform is clearly needed, but with a spirit of pragmatic compromise. First, Reeves should follow through on her instinct that individuals must actually invest, say at a level equivalent to 1 per cent of the fund, as similar regimes in France and Italy already dictate. This would tighten the alignment between GPs and LPs, which is in everyone’s interest. Second, in order to qualify for carried interest taxation, the investment should genuinely be putting capital at risk. At present, CVC is one of very few firms where executives on a bad deal can actually forfeit money, even if the fund overall succeeds. Third, tax rates should be calibrated smartly. For cases where the threshold for real investment is met, a rate of, say, 33 per cent could be levied; if the threshold is not met, the rate would be 45 per cent. This would still be within the range of competitor jurisdictions, albeit towards the upper end. (France charges up to 34 per cent.)
2. The Skills Ministry appears to have bitten off more than it can chew with its target of having the country's top 500 companies providing internships to 10 million youth over the next five years.
In the five years from 2019-20 to 2023-24, India added 4.47 million people to the salaried workforce, which stood at a little over 90 million in 2023-24, according to the Centre for Monitoring Indian Economy's consumer pyramids household survey. The salaried class includes managers, supervisors, white-collar professionals, clerks, industrial and non-industrial workers, and support staff. Offering internships to 10 million people in the next five years in India's top 500 companies will mean more than doubling the total employment generated across the salaried class in the past five years, or 11% of all the people employed under this category... According to Mint's study of annual reports of 94 companies on the BSE 100 index, there were 3.83 million employees at BSE 100 firms as of 31 March 2023. The data included both permanent and non-permanent employees, and excluded workers (in some cases, only permanent employees were considered due to unavailability of data)...
As per the Union budget's announcement on Tuesday, the interns will be paid ₹5,000 per month along with a one-time assistance of ₹6,000. Companies will be expected to bear the training cost and 10% of the internship cost from their corporate social responsibility funds. The emphasis on skilling comes at a time when the Economic Survey for 2023-24 found that about one in two graduates straight out of college is not employable. “Estimates show that about 51.25% of the youth is deemed employable. In other words, about one in two are not yet readily employable, straight out of college," the Economic Survey, unveiled on 22 July, said. "However, it must be noted that the percentage has improved from around 34% to 51.3% in the last decade."
The scheme is part of five DBT schemes aimed at education, skilling and employment with an outlay of Rs 2 trillion over five years, to benefit 41 million youth.
The difference of this scheme from the apprenticeship promotion efforts should be noted.
An apprenticeship is a structured system of training where individuals, known as apprentices, learn a trade or profession through a combination of on-the-job training and classroom instruction. Apprentices can be both graduates and non-graduates. Students who turn apprentices can also use the stipend to fund their education. The stipends depend on whether the candidate has been picked up under the NAPS (National Apprentice Promotion Scheme) or NATS (National Apprentice Training Scheme) programme. The former is meant for all trades and may take non-graduates, while the latter is largely for engineers and technical apprentices.
3. Nice snapshot of the budget numbers.
I'm ambiguous on the Rs 1.5 trillion interest-free 50-year loans. State governments which had negligible or no liabilities to the central government over the years have become indebted to the central government through this scheme. It also means that the states are now ever more obliged under Article 293(3) of the constitution of India to the central government.
4. One area where India has trumped China is in its equity markets.
India formed just 6-7% of the MSCI ten years back. It has now risen to near 20%, whereas over the same time China has shrunk from over 40% to around 25%. But Indian stocks are clearly overvalued, trading at 24 times their expected earnings next year against 10 for China.
5. Daron Acemoglu and James Robinson have an excellent article that articulates the need for the Democratic Party in the US to free itself from its current elite capture.
When monarchies ruled... they had an elaborate justification for their legitimacy. In early modern England, it was the “divine right of kings.” In China, it was the “mandate of heaven.” It’s not just autocratic regimes that rely on such philosophies. The move toward greater popular participation also required legitimation and a new social contract. In England, that was articulated by philosophers such as John Locke, who provided the foundation of “popular sovereignty.”... That trust is largely lost. Center-left parties, which used to get a significant fraction of their votes from blue-collar workers and citizens without college degrees, now increasingly rely on votes (and money) from college graduates, professionals and managers.That is all the more so in the United States, where the Democratic Party has gradually become associated with the preferences of the well-educated and urban voters. Democratic politicians often shy away from policies such as job guarantee programs, trade protection and stronger unions... Center-left parties need to lead the way in breaking this mold. This must start by the severing ties with tech billionaires, pharmaceutical giants and Wall Street tycoons. It is difficult to believe that a party that gets funding and ideas from the very wealthy will work hard for the well-being of the most disadvantaged. They must promote to leadership people with a background in manual work and from different educational paths. One visible and symbolic way of achieving this is to reserve a fraction of candidacies and leadership positions to individuals without a college degree. Similar strategies have been successfully used by Swedish social democrats and local governments in India... Campaign-finance reform would help, including public money for candidates that refuse support from big donors. There is also a case for introducing proportional representation voting, which can allow new parties to take up the mantle of working-class causes if the two major parties cannot get their act together.
Note the point about severing ties with elite interests and promotion of people with a background in manual work and from different educational paths. In other words, return to truly representative governments.
6. The findings of a 3 year RCT study on unconditional income transfer among 3000 adults in Texas appears to pour cold water on UBI enthusiasts.
The trial recruited 3,000 people in Texas and Illinois on the basis that they would be in a study receiving $50 a month or more for three years. Then a third of them were unexpectedly told they would instead receive $1,000 a month with no effect on any of their other income. The results definitively show that receiving more money provides a better life. Spending and saving rises... Time at work went down for both the recipients of the $1,000 and their partners, replaced by more leisure... The big question for the dynamic benefits of a universal income was what people would do with their additional time. Would they invest in their education, upskill, get better jobs or start businesses? The short answer was no. The findings ruled out “even small improvements” in the quality of employment and upskilling. The most that could be said was that the recipients spent some of their extra leisure time thinking about starting a business without actually doing it... Did universal support make recipients healthier than the control group? Again, the answer was no. Surveys and blood tests of recipients and the control group shows no improvement in physical health, and mental health improved only in the first year. There were more visits to medical facilities and more alcohol consumed, although also less problematic drinking.
7. Solar industry globally is facing a massive glut created by China that's driving down prices and destroying domestic solar industries in many countries, including in Europe.
According to BloombergNEF, panel prices have plunged more than 60 per cent since July 2022. The scale of the damage inflicted has sparked calls for Brussels to protect European companies from what the industry says are state-subsidised Chinese products. Europe’s solar panel manufacturing capacity has collapsed by about half to 3 gigawatts since November as companies have failed, mothballed facilities or shifted production abroad, the European Solar Manufacturing Council estimates. In rough terms, a gigawatt can potentially supply electricity for 1mn homes. The hollowing out comes as the EU is banking on solar power playing a major role in the bloc meeting its target of generating 45 per cent of its energy from renewable sources by 2030.
The Chinese prices are so low that it requires very high tariff to level the playing field, besides constant surveillance to see whether the exports are being routed through third countries.
The Inflation Reduction Act.. has spurred almost $13bn of investment in solar manufacturing, more than six times the amount committed in the five years before the legislation... In May, it removed a tariff exemption for double-sided panels and lifted levies on Chinese imports of solar cells from 25 per cent to 50 per cent. Chinese companies now also face penalties if they are found to have dodged tariffs. US imports of Chinese polysilicon for solar panels had already been hit by a 2021 ban on products made or sourced from China’s Xinjiang because of concerns over the use of forced labour. Nevertheless, America’s solar power companies warn that the steps taken by the Biden administration this year will fail to provide enough protection... Chinese solar companies... dumping cells in south-east Asia, the source of the bulk of US imports. A solar panel manufactured in America using US-made cells costs 18.5 cents a watt, compared with 15.6 cents for a panel sourced in south-east Asia and just over 10 cents for one produced in China, according to estimates from BloombergNEF.
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