Bigger fights loom after fiscal deal

President Barack Obama and congressional Republicans looked ahead on Wednesday toward the next round of even bigger budget fights after reaching a hard-fought fiscal cliff deal that narrowly averted potentially devastating tax hikes and spending cuts.The agreement, approved late on Tuesday by the Republican-led House of Representatives after a bitter political struggle, was a victory for Obama, who had won re-election on a promise to address budget woes in part by raising taxes on the wealthiest Americans.But it set up political showdowns over the next two months on spending cuts and on raising the nation's limit on borrowing. Republicans, angry the deal did little to curb the federal deficit, promised to use the debt ceiling debate to win deep spending cuts next time."Our opportunity here is on the debt ceiling," Republican Senator Pat Toomey of Pennsylvania said on MSNBC, adding Republicans would have the political leverage against Obama in that debate. "We Republicans need to be willing to tolerate a temporary, partial government shutdown, which is what that could mean."Republicans, who acknowledged they had lost the fiscal cliff fight by agreeing to raise taxes on the wealthy without gaining much in return, vowed the next deal would have to include significant cuts in government benefit programs like Medicare and Medicaid health care for retirees and the poor that were the biggest drivers of federal debt."This is going to be much uglier to me than the tax issue ... this is going to be about entitlement reform," Republican Senator Bob Corker of Tennessee said on CNBC."This is the debate that's going to be far more serious. Hopefully, now that we have this other piece behind us hopefully we'll deal in a real way with the kinds of things our nation needs to face," he said.Obama urged "a little less drama" when the Congress and White House next address thorny fiscal issues like the government's rapidly mounting $16 trillion debt load.The fiscal cliff showdown had worried businesses and financial markets, and US stocks soared at the opening after lawmakers agreed to the deal.The Dow Jones industrial average surged 262.45 points, or 2.00%, at 13 366.59. The Standard & Poor's 500 Index was up 29.79 points, or 2.09%, at 1 455.98. The Nasdaq Composite Index was up 77.45 points, or 2.57%, at 3 096.97. The crisis ended when dozens of Republicans in the House of Representatives buckled and backed a bill passed by the Democratic-controlled Senate that hiked taxes on households earning more than $450 000 annually. Spending cuts of $109bn in military and domestic programs were delayed only for two months.Economists had warned the fiscal cliff of across-the-board tax hikes and spending cuts would have punched a $600bn hole in the economy this year and threatened to send the country back into recession. House Republicans had mounted a late effort to add hundreds of billions of dollars in spending cuts to the package and spark a confrontation with the Senate, but it failed.In the end, they reluctantly approved the Senate bill by a bipartisan vote of 257 to 167 and sent it on to Obama to sign into law. "We are ensuring that taxes aren't increased on 99% of our fellow Americans," said Republican Representative David Dreier of California.The vote underlined the precarious position of House Speaker John Boehner, who will ask his Republicans to re-elect him as speaker on Thursday when a new Congress is sworn in. Boehner backed the bill but most House Republicans, including his top lieutenants, voted against it.The speaker had sought to negotiate a "grand bargain" with Obama to overhaul the US tax code and rein in health and retirement programs that will balloon in coming decades as the population ages. But Boehner could not unite his members behind an alternative to Obama's tax measures.Income tax rates will now rise on individuals earning more than $400 000 and families earning more than $450 000 per year, and the amount of deductions they can take to lower their tax bill will be limited. Low temporary rates that have been in place for the past decade will be made permanent for less-affluent taxpayers, along with a range of targeted tax breaks put in place to fight the 2009 economic downturn. However, workers will see up to $2 000 more taken out of their paychecks annually with the expiration of a temporary payroll tax cut.The non-partisan Congressional Budget Office said the bill will increase budget deficits by nearly $4 trillion over the coming 10 years, compared to the budget savings that would occur if the extreme measures of the cliff were to kick in. But the measure will actually save $650bn during that time period when measured against the tax and spending policies that were in effect on Monday, according to the Committee for a Responsible Federal Budget, an independent group that has pushed for more aggressive deficit savings.

US averts fiscal cliff

A weary Congress sent President Barack Obama legislation to avoid the economy-threatening fiscal cliff of middle class tax increases and across-the-board spending cuts late on Tuesday night, hours before financial markets reopen after the New Year's holiday.The bill's passage on a 257-167 vote in the House of Representatives sealed a hard-won political triumph for the president less than two months after he secured re-election while calling for higher taxes on the wealthy.The economic as well as political stakes were considerable. Economists have warned that without action by Congress, the tax increases and spending cuts that technically took effect with the turn of the new year at midnight could cause unemployment to spike and send the economy into recession.The extraordinary late-night House vote took place less than 24 hours after the Senate passed the measure in the pre-dawn hours on New Year's Day. The legislation cleared the Senate hours after Vice-President Joe Biden and Senate Republican Leader Mitch McConnell, veteran negotiators, sealed a deal.In addition to neutralising middle class tax increases and spending cuts that technically took effect on Monday at midnight, the legislation raises tax rates on incomes over $400 000 for individuals and $450 000 for couples. Remarkably, in a party that swore off tax increases two decades ago, dozens of Republicans supported the bill in both houses of Congress.Supporters of the bill in both parties expressed regret that the bill was narrowly drawn, and fell far short of a sweeping plan that combined tax changes and spending cuts to reduce federal deficits. That proved to be a step too far in the two months since Obama called congressional leaders to the White House for a post-election stab at compromise.Majority Republicans did their best to minimise the bill's tax increases, just as they abandoned their demand from earlier in the day to add spending cuts to the package "By making Republican tax cuts permanent, we are one step closer to comprehensive tax reform that will help strengthen our economy and create more and higher pay cheques for American workers," said Rep Dave Camp of Michigan, chairperson of the tax-writing House Ways and Means Committee.He urged a vote for passage to "get us one step closer to tax reform in 2013" as well as attempts to control spending.House Democratic leader Nancy Pelosi also said the legislation included "permanent tax relief for the middle class", and she summoned lawmakers to provide bipartisan support as the Senate did.The bill would prevent an expiration of extended unemployment benefits for an estimated two million jobless, renew tax breaks for businesses and renewable energy purposes, block a 27% cut in fees for doctors who treat elderly Medicare patients, stop a $900 pay increase for lawmakers from taking effect in March and head off a threatened spike in milk prices.The bill would also raise the top tax rate on large estates to 40% from 35%, and taxes on capital gains and dividends over $400 000 for individuals and $450 000 for couples would be taxed at 20%, up from 15%.It would stop $24bn in spending cuts set to take effect over the next two months, although only about half of that total would be offset with spending reductions elsewhere in the budget.Even with enactment of the legislation, taxes are on the rise for millions.A 2 percentage point temporary cut in the Social Security payroll tax, originally enacted two years ago to stimulate the economy, expired with the end of 2012. Neither Obama nor Republicans made a significant effort to extend it.The fiscal cliff measure had cleared the Senate on a lopsided pre-dawn New Year's vote of 89-8, and House Republicans spent much of the day struggling to escape a political corner they found themselves in."I personally hate it," Rep John Campbell of California said of the measure, giving voice to the concern of many Republicans that it did little or nothing to cut spending.Majority Leader Eric Cantor, the No 2 House Republican, told reporters at one point: "I do not support the bill. We are looking, though, for the best path forward."Within hours, Republicans abandoned demands to add spending cuts to the bill and agreed to a simple yes-or-no vote on the Senate-passed bill.They feared that otherwise the Senate would refuse to consider any alterations, sending the bill into limbo and saddling Republicans with the blame for a whopping middle class tax increase. One Senate Democratic leadership aide said majority leader Harry Reid would "absolutely not take up the bill" if the House changed it. The aide spoke on condition of anonymity, citing a requirement to keep internal deliberations private.If the House failed to pass the Senate bill it would mean that any fiscal deal would have to start all over when a new Congress, with dozens of new members, is seated Thursday. And any change in the legislation would require the Senate to re-pass the measure before it could go to Obama for his signature.Despite Cantor's remarks, Speaker John Boehner took no public position on the bill as he sought to negotiate a conclusion to the final crisis of a two-year term full of them.House Democrats met privately with Biden for their review of the measure and the party's leader, Pelosi, said afterward that Boehner should permit a vote.The non-partisan Congressional Budget Office said the measure would add nearly $4 trillion over a decade to federal deficits, a calculation that assumed taxes would otherwise have risen on taxpayers at all income levels. There was little or no evident concern among Republicans on that point, presumably because of their belief that tax cuts pay for themselves by expanding economic growth and do not cause deficits to rise.The relative paucity of spending cuts was a sticking point with many House Republicans. Among other items, the extension of unemployment benefits costs $30bn, and is not offset by savings elsewhere.For all the struggle involved in the legislation, even its passage would merely clear the way for another round of controversy almost as soon as the new Congress convenes.With the Treasury expected to need an expansion in borrowing authority by early spring, and funding authority for most government programs set to expire in late March, Republicans have made it clear they intend to use those events as leverage with the administration to win savings from the Medicare health care programme for the elderly and other government benefit programmes.McConnell said as much moments before the 02:00 Tuesday vote in the Senate - two hours after the advertised "cliff" deadline."We've taken care of the revenue side of this debate. Now it's time to get serious about reducing Washington's out-of-control spending," he said. "That's a debate the American people want. It's the debate we'll have next. And it's a debate Republicans are ready for."Obama, who had campaigned for re-election on the promise of protecting households making under $250 000 a year from a tax increase, praised the agreement after the Senate's vote. Some liberal Democrats were disappointed that the White House did not stick to a harder line in negotiations, considering that Obama nlonger faces re-election."While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and the House should pass it without delay," Obama said in a statement. "This agreement will also grow the economy and shrink our deficits in a balanced way - by investing in our middle class, and by asking the wealthy to pay a little more."The fiscal cliff came about because tax rate cuts enacted in 2001 and 2003 during president George W Bush's administration were set to expire at the end of the year.The threatened across-the-board reductions in government spending, which would slice money out of everything from social programmes to the military, were put in place last year as an incentive to both parties to find ways to cut spending. That solution grew out of the two parties' inability in 2011 to agree to a grand bargain that would have taken a big bite out of the deficit which has averaged about $1 trillion a year.If Obama and Congress failed to act, about $536bn in tax increases touching nearly all American workers and about $110bn in spending cuts, about 8% of the annual budgets for most federal departments, were scheduled to start going into effect beginning in January. 

Digital sales break £1bn barrier

Greek manufacturing activity shrank for the 40th month running in December, hurt by weak domestic demand and slumping export orders, leading firms to shed yet more jobs, a survey showed on Wednesday.Markit's purchasing managers' index (PMI) for Greek manufacturing, which accounts for roughly 15% of the economy, fell to 41.4 points in December from 41.8 in November. The index has now held below the 50 mark dividing growth from contraction ever since September 2009, just before the country's massive debt problems came to light, triggering the crisis that has plagued Greece.December's decline in manufacturing output was the steepest in four months, bringing the average for the fourth quarter to 41.4, down from an average reading of 42.0 in the third quarter.In November, Greece adopted a new round of austerity measures to qualify for its next batch of EU/IMF bailout payments, expected to keep its economy in recession for the sixth straight year in 2013.The government expects gross domestic product (GDP) to contract by 4.5% next year from 6.5% in 2012."December data showed no sign of the downturn in Greece's manufacturing sector easing," said Markit senior economist Phil Smith."Of particular concern was a faster contraction in new export orders, a trend which has deteriorated considerably since the start of the year," he said.Greek manufacturers saw a near-record drop in new orders from abroad in December, exceeded only by heavier falls in November 2008 and January 2009.Weak sales led manufacturers to shed staff again in December, weighing on the country's record-high unemployment rate of 26%. Almost 24% of surveyed firms reported a reduction in payroll numbers since November. Despite falling demand, input price inflation continued to rise in December on the back of higher raw material prices. Competitive pressures led firms to cut output prices to secure new business.

Singapore growth quells recession fears

Singapore's economy grew in the fourth quarter, avoiding a technical recession despite disappointing growth figures for 2012, government data showed on Wednesday. Gross domestic product (GDP) rose 1.1% year-on-year in the three months to December from zero growth in the previous quarter, the Ministry of Trade and Industry said .On a quarter-on-quarter basis, the trade-dependent economy expanded by a seasonally adjusted annualised 1.8%, reversing a revised 6.3% contraction in the third quarter. The figures are based on estimates. Analysts feared the economy had likely slipped into a technical recession after two successive quarters of contraction. Prime Minister Lee Hsien Loong said in a speech on 1 January 2013 that GDP rose 1.2% for the full year. This was below the government's target for the economy to expand 1.5-2.5%"Overall growth of just over 1.0% is low by historical standards but it's still growth," said CIMB Research economist Song Seng Wun.The manufacturing sector shrank by an annualised 10.8% quarter-on-quarter as the European debt crisis and the sluggish US economy weakened global demand. Manufacturing contracted by 0.2% in 2012.Construction also contracted 8.9% quarter-on-quarter but grew 8.8% on year. The services sector expanded 1.2% overall in 2012.Premier Lee said GDP was expected to grow 1.0-3.0% in 2013 due to expected continued weakness in global demand.

India aims to stop welfare fraud

India will pay billions of dollars in social welfare money directly to its poor, under a new program that aims to cut out the middlemen blamed for the massive fraud that plagues the system.Previously officials only handed out cash to the poor after taking a cut - if they didn't keep all of it for themselves and were known to enrol fake recipients or register unqualified people. The program inaugurated on Tuesday would see welfare money directly deposited into recipients' bank accounts and require them to prove their identity with biometric data, such as fingerprints or retina scans.Finance Minister P. Chidambaram has described the venture as "nothing less than magical," but critics accuse the government of hastily pushing through a complex program in a country where millions don't have access to electricity or paved roads, let alone neighbourhood banks.The program is loosely based on Brazil's widely praised Bolsa Familia program, which has helped lift more than 19m people out of poverty since 2003. It will begin in 20 of the country's 640 districts on Tuesday, affecting more than 200 000 recipients, and will be progressively rolled out in other areas in the coming months, Chidambaram said Monday. The country has 440m people living below the poverty line.  "In a huge new experiment like this you should expect some glitches. There may be a problem here and there, but these will be overcome by our people," Chidambaram said.He appealed for patience with the program, which he called "a game changer for governance."The opposition Bharatiya Janata Party has accused the ruling Congress party of using the program to gain political mileage ahead of elections expected in 2014.As a first step, the government has said it plans to begin directly transferring money it would spend on programs such as scholarships and pensions.Eventually the transfers are expected to help fix much of the rest of India's welfare spending, though Chidambaram said the government's massive food, kerosene and fertilizer distribution networks - which are blamed for much of the corruption and lost money would be exempt.The program will eliminate middlemen and transfer cash directly into bank accounts using data from Aadhar, a government project working to give every Indian identification numbers linked to fingerprints and retina scans. Currently hundreds of millions of Indians have no identity documents.On Monday, 208 activists and scholars published an open letter expressing concern that the government was forcing the poor to enroll in Aadhar to get welfare benefits without putting safeguards in place to protect their privacy. They also expressed fears that the government planned to eventually replace the food distribution system for the poor, the largest program of its kind in the world."Essential services are not a suitable field of experimentation for a highly centralized and uncertain technology," they wrote. Others said the government was trying to do too much too soon."A very important concern is if we are ready for this sort of thing. The banking infrastructure is very poor, people are far from these banks, when they exist they are overcrowded. Sometimes people have to walk for a day to get to the bank," says Reetika Khera, a development economist with the New Delhi-based Institute for Economic Growth.Mihir Shah, a member of India's Planning Commission accepts that the government's timeline is "unrealistic," but said many critics had confused the lack of readiness with flaws in the plan itself."My question to them is, is it better than what is there today? That is the only way we can judge policy. I don't think there's a perfect solution to any of mankind's problems," he said.Shah said a lot more work needed to be done before cash transfers could become a reality across the country. The identification drive needed to reach the vast majority of India's poor, and villages needed banking infrastructure and Internet connectivity.