US President Joe Biden issued his first full budget proposal Friday, detailing his ambitions to greatly expand the size and scope of the federal government with more than $6 trillion in spending over the coming fiscal year.
Vast new spending would be paired with significant tax increases on corporations and the wealthy. But Congress controls the government’s purse strings, and with Republicans almost uniformly opposed to most of Mr Biden’s spending and all of his tax increases, he and allied Democrats face difficulty enacting any of it into law.
In more than 1,700 pages, the budget illustrates Mr Biden's uncompromising vision to restore the nation's infrastructure, expand the social safety net and combat income inequality with some of the highest levels of federal spending of the postwar era.
The president envisions significant funding increases to combat climate change and improve health care, paired with the president’s sweeping families and jobs plans unveiled over the opening months of his presidency.
The White House argues that while those investments might pile on to the federal debt in the early years, permanent changes to the tax code and economic growth will offset the costs in the long run.
“It is a budget that reflects the fact that trickle-down economics has never worked, and that the best way to grow our economy is not from the top down, but from the bottom up and the middle out,” Mr Biden said in a presidential message included in the document.
The budget employs some methodology that Biden’s political opponents would consider gimmicky.
Like his predecessors, the president uses convenient but politically unlikely assumptions about changes to the tax code to reduce projected deficits while simultaneously projecting modest inflation and a broad rebound in US employment.
The White House omitted some of the president’s trickier – and costlier – political ambitions, like offering a government-run plan for Americans buying healthcare coverage. And even accounting for his least likely assumptions, Mr Biden’s budget never balances, projecting annual deficits above $1.3tn for the next 10 years and national debt that hits $39tn, or 117 per cent of annual economic output, by 2031.
“I cannot imagine a worse thing for the economy than higher interest rates, higher inflation and higher taxes,” Kevin Cramer, a Republican senator from North Dakota, said of Mr Biden’s proposal.
The budget proposal also provides greater detail on how Mr Biden’s previously announced jobs and families plans would be implemented, and how the administration envisions new changes to the tax code would work.
In a statement, the US State Department said the $58.5 billion it had requested from the budget would include $10.1bn for global health programmes, with about $1bn in funding to help end the pandemic.
It added the budget request would also fund US commitments to Middle East allies including Israel and Jordan.
"The budget request funds assistance programmes and humanitarian aid for Palestinians, including support for the UN Relief and Works Agency for Palestine Refugees in the Near East (UNRWA)," the statement read.
"The United States will maintain steadfast support for Israel as the administration renews relations with Palestinian leadership, restores economic and humanitarian assistance for Palestinians and works to advance freedom, prosperity and security for the Israeli and Palestinian people alike."
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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