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Govt. should take a cue from Trump economics

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Donald’s Trump victory in 2016 was powered by economically downtrodden voters who were driven by their insecurities over their children’s economic future. For those people, after several years America’s economy is finally showing great promise for them. 

The Dow has set an all-time high 70 times in 2017, while the unemployment rate has neared an all-century low. Manufacturing confidence is higher than ever and confidence among homebuilders is now at an all-time high. After a tough year for traditional retailers holiday sales are projected to hit their highest level in three years.

In the last year of the Obama administration, the economy was decelerating with a dismal 1.6% growth rate. The economy revved up to a 3% growth rate in the April-June second quarter this year. Third quarter GDP estimates a 3.4% growth. It’s easy to read too much into short-term trends but the renewed hope is in the right direction of the economy and is confirmed by many other indicators, almost all of which point straight up. The Dow Jones industrial average is up over 3,000 points (starting with the 700-point rally the day after the election) and the net wealth of Americans — mostly through their pension funds — has increased by more than $ 4 trillion. This is also reflected in monthly job growth of nearly 210,000 and an unemployment rate — even the more meaningful measure of joblessness that includes people who have dropped out of the workforce — that too is steadily falling. 

The rate of job growth for Black Americans is also nearly 40% higher than the monthly average under President Obama. The stock market performance in 2017 and 2018 has been remarkable. The Dow has added 5,000 points in a calendar year for the first time ever. 

Trump strategy 

Though much of the attention on US President Trump focuses on what he says and tweets daily and though many of it is never taken seriously by the people, in a little over one year in office he has already had a major impact on several key issues affecting people in the US and around the world. 

The economic success according to top economists in the US is partially due to the massive tax cut that Trump gave to US companies. 

Trump reduced the corporate tax rate from 35% to 21% and reduced income taxes for individual citizens across the board while doubling standard deductions. However, by far the biggest share of those cuts benefits companies and high-earners: taxpayers earning more than $ 700,000 a year, who make up 1% of all taxpayers, will receive 20% of the total tax cut. And while the tax cuts for businesses are permanent, the reductions for individual taxpayers will expire after 10 years. The tax cuts are financed on federal borrowing, leading to an increase in the federal budget deficit of about $ 1 trillion over the next 10 years. However, it was supposed to unleash a huge amount of new investment in the country, in the form of more jobs, new factories, upgraded technology and better salaries and benefits. The growth would have been faster if he had not mishandled EU relationships. 

Major US companies have certainly benefited from Trump’s emphasis on tax cuts, protectionism and deregulation. No doubt, his corporate tax reform will increase profits, especially for large groups, large banks and retailers helping aggregate demand to expand. There is also clear evidence of Trump’s policies helping specific sectors. Today more and more Americans are finally giving Trump credit for stock market growth and the economy overall.

Sri Lanka 

The current government is attempting to develop its infrastructure to increase its economic potential and growth. However, the previous government plunged Sri Lanka deep into a pit of debt, pushing the country to the brink of bankruptcy and leaving it in need of IMF bailouts, forcing them to sell off some of the unproductive assets. The official estimate of what Sri Lanka currently owes its financiers is $ 66 billion — more than $ 8 billion of which is owed to China. The country’s debt-to-GDP currently stands at around 75% and 95.4% of all government revenue is currently going towards debt repayment. In this situation the Government finds it very difficult to do what Trump did in slashing taxes. However, a lot can be done. What it can certainly do to improve its fortunes are to:

  • Facilitate investments, investment access and increase access to debt finance for SMEs
  • Activate small and medium enterprises to drive economic activity
  • Reduce taxes for lower middle-income earners
  • Reduce VAT on household expenses
  • Increase affordability and disposable income levels for households
  • Reduce housing and construction costs
  • Encourage investments in renewable
  • Create markets for local farmers by improving rural infrastructure 
  • Support capital markets 
  • Cut back on unnecessary state expenditure to reduce the 900 billion budget deficit
  • Finally, be firm in their decision-making.
  • In the final analysis, the Sirisena-Wickremesinghe Government’s fortunes depend largely on the economy far more than the economy depends on them and the Government. Also, young people, unlike ever before, care much more about how the Government spends their tax money and will certainly hold their leaders accountable in 2020.
  • (The writer is a thought leader).

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