23 Mar International Economic Watch

Tax Changes, Tariff Hikes and Economic Alerts Around the Globe

As South Africans, we’ve quite obviously watched the unravelling of the latest political events with bated breath – wondering how these changes will affect us and touch our pockets.

But for South Africans living abroad, we have to maintain a predominant focus on our local economies and the regulations and changes which have the greatest impact on our overall lifestyles, purchasing power and financial welfare. 

With this in mind, Rand Rescue consider some legislative or regulatory changes occurring around the globe and what this means for you!

Australia: capital gains tax relief for non-tax residents canned

Although there are several economic trends and tips to check out in recent times, for South African expats, none of these come close to Australian taxation changes for foreign residents.

This, of course, is significant since Australia sees more South African expats moving to its shores than any other country in the world – and many of these residents have not yet applied for financial emigration, which means they are not considered Australian tax residents. It is also significant as many of these South African residents in Australia have resided there for quite some time. Yet these residents often deem themselves “South Africans temporarily abroad” – which means they receive tax relief in South Africa, and should they make use of the Double Taxation Agreement between South Africa and Australia, they are also exempt of taxation in Australia on their South African income.

Why does this matter? Well, Capital Gains Tax exemptions – as stated by the Australian government in July 2017 – will henceforth be waived for all non-tax residents in Australia. This regulation will only be implemented wholly on 30 June 2019 – and will be applied retrospectively to ownership acquired after 19:30 on 9 May 2017.

For any foreign nationals residing in Australia who have not acquired or sold property before the 9 May 2017 cut-off date, hefty CGT will be imposed. The solution, quite obviously, is to become a tax resident of Australia which would give you the CGT exemption benefits offered to other Australian tax residents.

And as you’re already aware – Rand Rescue can assist you with your financial emigration.

Trump’s tariff spats hits US and globe

President Trump has been making headlines for years, even before taking the reins over from former president Obama – but much like South Africa, Trump’s time in the limelight has been quite controversial.

The president has made numerous changes to the US cabinet, the executive branch and wielded his power to make policy changes across the board. His next move, of course, will be appointing his next top economic adviser. This adviser will replace Gary D. Cohn, the investment banker currently seated in the role, and a few little birds in the upper echelons of the White House have been chirping that Christopher P. Liddell is a favourite for the job. Liddell had served as executive for both Microsoft and General Motors and knows his way around corporate finance.

Of course, this decision has not yet been confirmed, and although it is something which concerns us from an economic perspective, it is not quite the point of this blog. No sir, Mr Trump is once more fingered for his responsibility in possibly ruining the US economy. Although this may have been a strategic move the president has considered for quite a while, his latest move only transpired at the beginning of March 2018 when the president announced that he would be raising tariffs on foreign-sourced steel and aluminum in the interest of national security. The security threat he was referring to, of course, is the degradation of the American industry. Which, of course, would make sense, had the USA been the biggest producer of aluminum and steel, but it is not. In fact, although the USA is the 4th largest producer of steel in the world, its 81,6 million tonnes (or metric tons) of steel produced per year cannot quite compare to China’s 831,7 million tonnes. As for its aluminum production, which stood at 840 thousand tonnes per year in 2016 – does this compare to China’s 31 000 thousand tonnes, Russia’s 3 580 thousand tonnes or its ally, Canada’s 3 350 thousand tonnes? As the world’s top importer of steel and second highest importer of aluminum, the US will not only stir the trade pot but may undermine its own economy through this decision.

Of course, neither steel, nor aluminum are pure metal ores so neither are “mined” exclusively in one country – it is their production which Trump seems to be concerned with. Aluminum, for instance, although a metal found on the periodic table (and most abundant on earth), cannot be found free in nature, and is instead found within compounds with other elements. Steel, on the other hand, is a metal alloy. There are different grades of steel – carbon steel is a mix of iron and carbon, with stainless steel including chromium to counter rust, whereas low alloy steel includes other elements such as molybdenum, manganese, chromium, copper, tungsten, vanadium and nickel. This means that, should the US want to take over the aluminum and steel trade or produce more than they import, they would also need to monopolise the imports of iron, carbon, manganese, bauxite, nickel, alum (a group of chemical compounds with similar structures, most commonly containing potassium or ammonium), aluminum oxide, molybdenum, tungsten, chromium, limestone, copper, vanadium and platinum.

Of course, the USA is not the top producer (or miner) of either of these minerals used in metal production. The decision to add an additional 25% on steel and 10% on aluminum imports will make it impossible for the US industry to purchase the same measures of these metals from abroad, and would likely see foreign countries hike their prices to compensate for the shortfall. Countries producing these metals may also be pushed to purchase less of the base elements required for the production of steel and aluminum. Of course, as the US should theoretically take up some of this market gap – one needs to consider that trade agreements between nations is not just a matter of a simple nod or handshake. The political affiliations at play may cause havoc among nations with existing trade agreements and political alignment. Consequently, analysts have warned that the USA will be the country to suffer the most under this move.

South Africa, depending on how you look at it,  could either stand to benefit or face major losses. Should the countries we export to be willing to maintain the bulk of their purchases, we could possibly raise our own rates. Should our exports to major manufacturers like China dwindle, however, this would see our mining industry take a huge knock. Furthermore, should we opt to redirect some of our metal exports to the USA, we could face the ire of those other countries currently purchasing ore from us. And this is no small thing, as South Africa produces 85% of the world’s chromium (used in stainless steel), and is the top producer of manganese, platinum, and aluminosilicates in the world. In fact, whether pure ore or for metal alloy production – South Africa’s lowest ranks for any such minerals mined worldwide is 12th, for iron ore and 11th for copper production – with all our other mineral rankings placing us within the top 8 producers in the world.

Trump had announced that the tax would be imposed at the soonest and would apply to all countries across the board and he has also stated that a trade war would be a positive move for the USA. His aim is mostly targeting China as trade between the two countries has been strained, to say the least, for years. But if this were the aim, it is troubling that China is only the 10th biggest exporter of steel to the USA, with Canada, Mexico, Brazil, South Korea, Germany, Japan, Russia, Taiwan and Turkey all supplying more steel to the US than China.

President Trump’s decision has flummoxed many analysts as the announcement had already seen immediate stock impacts on the industrial and automotive sectors with huge declines which would undoubtedly have knock-on effects – especially in the labour market and would undoubtedly see the country lose some of their historical export market.  The NY Times had given Trump a scathing rebuke by stating that his decision (as with all other decisions) will see him “protecting the homeland by shooting it in the foot.” And it is hard not to agree with the news network, given that Trump’s own words on the matter read like something more fitted to a teenage diary than a political speech. In his own words (tweet): “People have no idea how badly our country has been treated by other countries…”.

Trump’s rebuke of China is not, however, said to be stopping at aluminum and steel tax. It is further rumoured that he will also impose visa restrictions for Chinese nationals, additional import taxes on technological goods and clothing from China, and restricting Chinese investment in US companies. Some believe his ire to be legitimate, given that the US trade deficit for 2017 stood at $796 billion, with China accounting for $342 billion (almost half) of that deficit  – the Chinese therefore export three times as much to the US as it imports from the country. The Chinese investment regulations which require foreigners setting up shop in China to transfer their intellectual property rights to Chinese partners does not sit well with the US (and other nations) either.

But whether Trump has cause to be angry is not the question – it’s rather whether a game of tit-for-tat would serve any purpose other than flexing muscles at China. Does Trump’s retaliation offer economic and trade benefits to the USA and the world?

Taiwan clutching at straws

Perhaps Trump’s thumb-biting contest with China is not about metals at all. Well, if Trump’s tweets are to be taken without our customary grains of salt – then we may be inclined to believe there is a spat of a far deeper and emotive nature. And unfortunately Taiwan is a little pawn in this game which is at the losing end of affairs.

Taiwan, of course, has been waving its finger in the air waiting for the world to recognise it for ages – and this has finally paid off.

China has always maintained that Taiwan is part of its republic – something which most other nations have acceded to – and even the US had honoured up until recently. The One China policy is aimed at unifying the People’s Republic of China – which includes Taiwan from a Chinese perspective. Such a unification may have been smooth sailing had the two nations shared the same political systems and ideologies – but unifying a communist country with a pluralistic democracy was never going to go down well.

Nevertheless, after years of honouring the policy the US has made a point of biting their thumb at China since President Trump was elected. In his latest move, Trump had signed a new bill into effect which sanctions official political and diplomatic visits by the US government to Taiwan. Although US delegates had visited Taiwan frequently over the years, the legislation is an official snubbing of the Republic of China’s “One China” policy, which would compel foreign nations to consult China on all matters pertaining to Taiwan.

Although this may in a sense be good news for Taiwan, which had campaigned for sovereignty – aligning itself with the US in foreign waters far removed from US shores may not bode well for the island. For China is likely to punish Taiwan in lieu of the USA for any misconduct on the latter’s part. In fact, some analysts believe that the island may be the stage for a full-on war. In December 2017, the diplomat Li Kexin had warned the US that Beijing would take Taiwan by force should the US warships dock at Taiwan. The state-operated China Daily paper had stated quite bluntly that they are prepared to maintain their rule over Taiwan by any means.

The paper stated that the law would encourage Taiwanese president, Tsai Ing-wen to further assert Taiwan’s sovereignty, and that such a move would force China to trigger the Anti-Secession Law which permits the use of force to prevent secession. And, “Since the US is bound by domestic law to act on behalf of the island in that instance, it would only give substance to the observation that the descent into hell is easy.”

Sovereignty or unification aside – a full-on war would not have a positive impact on the Taiwanese economy.

New Zealand targets customs and travel

New Zealand has introduced a new bill, the Customs and Excise Bill of 2016, which has seen further amendments in February 2018 – it is currently in its third reading stage.

The Bill aims to, “support the movement of legitimate travellers and goods across the border and provide the legal tools needed to protect New Zealand from people or goods that may cause harm, and also supports the collection of Crown revenue.” according to the New Zealand parliamentary website. The Bill will repeal the Customs and Excise Act 1996.

The question, of course, is what changes we can expect when the new Bill is ratified. It’s a bit hard to cover all the legislation, so we’ll have to settle for a nutshell.

The Bill aims to:

• Levy excise duty
• Enable the collection of duties, taxes and levies
• Enhance border-control and security
• Enforce customs controls
• Set out new obligations and requirements for persons who wish to cross the border, or those who cause or allow goods, persons or crafts across borders
• Affirm the powers of customs officers
• Permit the chief executive to authorise individuals who are not customs officers to act as customs officers without having to identify the individuals
• Allow the accessing, analysis and search of electronic devices as required by customs – including personal passwords and PINs
• Allow customs to provide the Ministry of Social Development and any other government department direct access to their data and information
• Permit customs to request passenger name and information records by commercial transportation operators
• Allow for new definitions and submissions of goods which are prohibited from entering the country, including objectionable publications
• Expand the definition of “manufacturing” to include terms such as curing (the curing of tobacco products, for instance).

These changes aren’t cast in stone yet, but it is important to keep it in mind if you or someone you know will be crossing the New Zealand border in future, or sending goods across borders.

Denmark missing the labour mark

South Africa has seen our fair shares of public sector strikes – in fact, it is such a frequent occurrence, we hardly bat an eye anymore.

But Denmark is far different from South Africa. Not only is it 14 541,4 km from the most Southern nation in Africa; it is in the northern hemisphere, has a climate which would chill most South African hearts, is ranked 5th on the Global Peace Index scale, has an unemployment rate of 5,2% compared to South Africa’s 26,6% and has a GDP per capita which is ten times that of South Africa.

So… strikes aren’t necessarily something we envision when thinking of Denmark. And yet, Denmark’s employees have their sights set on the largest strike of its kind in the country – larger even as a percentage of its workforce than South Africa has ever seen. Roughly 450 000 employees are committed to the labour strike – more than half of the Danish public sector workforce, and the strike has been diarised for 10 April 2018.

Chief economist at Nordea (the Nordic’s largest bank) has stated that such a strike would cost the Danish economy an estimated $830 million per week and could completely wipe out Denmark’s 2018 economic growth should it reach six weeks.

The dispute, although quite far removed from SA shores, is reminiscent of our Lonmin debacle. The workforce has set their sights on a 8.2% pay increase across the board, while the highest offer on the table currently stands at 6.4%. Economists have attributed the workforce’s resolve to obtain their latest pay raises to the 2008 pay raises of 13% – which had set the bar for public sector strong-arming stamina quite high. And if history has proven anything – the ball tends to land in the court of the masses.

Denmark, unlike South Africa, does not require such annual pay increases to be implemented as part of governmental legislation which caters for low income earners. Instead, the economy follows a structure known as the “Danish Model”. This economic model has been lauded by several other nations in the past as the one to trump all models. It is aimed at an unregulated industry which grants the government limited power, or at least limited input until such its power is invoked by public sway, over industries, sectors and the regulation of human resources and income brackets. It has worked quite well thus far, but the cracks in the veneer have been growing for a whiles, and the rise of a global society which reinforces the power of the individual as well as groupthink has not quite play into its monarchy’s hands.

For just as the Danish Model limits the “government’s” (or ministry and  intervention into employer policies, so too does it hamper the nations decision-makers from intervening as mediators with employees. Of course, this is only a theoretical truth, as the government is allowed intervention should it be required. But one has to wonder what that would spell for the Danish model should the Kingdom be pushed to rescue employers from employees and vice versa. Will her royal highness Margrethe II and her second in command, prime minister Lars Løkke Rasmussen, intervene before the masses go berserk? And if they do, how will the Danish Model survive after such a mortifying blow?  And if they don’t intervene? Will the Danish people take the ignorance of their rulers on the chin and just move along?

It remains everyone’s guess – but for the time being we’re shying away from Danish investment.

New Zealand echoes the foreign housing hiatus

As if Australian and Canada’s amendments affecting property owners aren’t enough, New Zealand has introduced new legislation which would essentially bar foreign speculators from purchasing property in New Zealand.

This does not necessarily spell disaster for foreign residents who simply want a temporary home of their own in the country, but the decision could see a heap of foreign investment flooding out the kiwi gates, and also prohibit development of residential, corporate or industrial construction by foreigners. Such investment deficit would hardly quell the housing crisis at play in New Zealand, as most foreign moguls do not set their sites on a single apartment or small home fit for a family. And if you are new to New Zealand shores, such legislation could also be applicable for you until such time as you’ve emigrated financially AND obtained permanent New Zealand residency OR citizenship, depending on how the legislation is to be interpreted at this time.

One critic of this legislation is US billionaire Ric Kayne who has invested billions in numerous New Zealand developments. Kayne has warned that such a move would prompt him (as well as his companies and affiliates) to reconsider further investment in, and support of, New Zealand.

The housing crisis has been attributed both to the country’s comparatively small surface area and booming immigration rates. These factors have seen property prices jump a whopping 60% in the past decade and, as usual, the poor are the first to suffer with homeowners raising rental rates to compensate for the hikes in property prices.  But analysts are concerned that the country is trying to curtail a local housing crisis attributed to foreign influx while still urging foreigners to immigrate to their shores. For such a decision would most probably be a red flag for foreigners with the financial wherewithal to invest in property. The country would, according to some, bar those entrepreneurs and businessmen and women who could contribute to New Zealand society from entry, while making no difference on lower-income immigration and foreign monopolisation of rental properties.

US gives box seats the boot

In a move which reminds financial service providers of financial legislation passed in South Africa, the US has stated that companies will no longer be allowed to woo investors or clientele with incentives of a social and entertainment nature.

This decision, although criticised by businesses across the board, is borne from good intentions. Such intentions, of course, being aimed at reinforcing honest business practices and curtailing expenditure on non-essential corporate expenses. Such a decision is double-folded, however. For although it would curb racketeering, corruption and cronyism – it would undoubtedly affect corporations who have relied on  lavish incentives to conscribe or retain staff, contractors, affiliates or partners.

We may think of payment for services as a purely monetary thing – but research over the years suggests that homosapiens want far more than mere payment to feel satisfied and loyal to their affiliates or providers. Persistent acknowledgement of their contribution, incentives which your competitors cannot offer them, bonuses, gifts, branded gear, social events – these are all part and parcel to the human resource marketing strategy. So if such incentives are to be immediately severed, one has to wonder how long corporations will retain their external and internal representatives – if it is merely a matter of salary, if the Super Bowl tickets are no longer on the table and you have to pay for your own weekend with the company – what will keep you there? One would imagine good, honest loyalty and shaking of hands would do the trick, but this is no Hollywood movie.

It is human nature to seek incentive for participation, labour or input. And when such incentives are par for the course, a sudden curtailment of such incentives is likely to see interest or participation in whichever promotion or duties were prompted by these incentives to curtail correspondingly. This, of course, could – at least initially –  have a negative impact on production, human resources and service delivery in the US.

Canada draws a line in the sand

Canada tends to be the last country mentioned in doom-and-gloom taxation articles, and yet foreigners will need to heed their words, as you will have to fork out more for your home.

Luckily for most foreigners setting up shop in the country, the taxation is imposed by regional governments and applies to high-value residential properties only – so it is not a nationally accepted policy as yet. The tax will furthermore only be imposed on individuals with no aims of “raising a family”as stated by Ontario’s premier, Kathleen Wynne. Much like New Zealand, Canada is facing a housing crisis, although the surface area of the country cannot be blame, the cost of property around highly popular, industrious and metropolitan areas has boomed by 33% in the past year. The new taxes are therefore aimed at offering permanent resident and citizens more affordable housing options by levying funds on purchases by individuals who are not interested in a Canadian lifestyle and tend only to seek investment opportunities.

These taxes have already been imposed in British Columbia in Vancouver metro, and will now be imposed in Toronto in the Golden Horseshoe area.

Since its application in Vancouver, housing prices in the area are said to have dropped by 40% – which has boosted local property purchases. And unlike New Zealand, Canada has much room for expansion given its population density of 3,6 people per square kilometre compared to New Zealand’s 16,99 people per square kilometre.

Irrespective of divergent population densities across the world, we should remain cognisant that such densities are increasing at exorbitant rates. The Population Reference Bureau has estimated that the world’s population in 2050 could reach 9,9 billion.

Sure, if we make a small leap from 7,6 to 9,9 it doesn’t seem all that bad. It is but a mere 2,3 increase – but when we add a few zeros behind those numbers it becomes troubling.  A 2,3 billion population increase is the exact amount of people who’d lived on earth in 1945. And that is a mere increase. The problem is not necessarily space, as much as resources. For the more mouths there are to feed, the more food we need. The more bodies there are to house, the more ecosystems we would need to destroy to make space for development.

Canada does seem like a country most suited to such population boom. But since current global sentiment prescribes thwarting of foreign investment in favour of local purchasing power, one must consider how such policies will be sustained in a world which is becoming increasingly globalised, borderless and interconnected. And, of course, a world where the bulk of the population will be young, socially connected and not likely to be as compliant or conformant as any generations before.

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