Trump to Name Powell Predecessor Early?

During his press conference at the NATO Summit on Wednesday afternoon, Trump repeatedly criticised the current Federal Reserve Chair.  Some of the words Trump used to describe Mr Powell were “terrible” and “mentally average”. Alongside the insults that littered his speech, Trump illuded to his desire to name a new Chair as early as September.

We should remember the such a replacement will be selected by a president that is so desperate for rate cuts – bias will undoubtably run its course. Traders have since upwardly revised their rate cut expectations for 2025. The greenback has slumped to its lowest level in 3 years, down over half a percentage point Thursday morning.

According to the World Interest Rate Probability function, traders are pricing in 66 basis points of easing by year-end, versus 51 basis points at the end of last week.

Oman is set to introduce a personal income tax from 2028, marking the first Gulf state to do so. This new tax will impose a 5% levy on individuals earning over USD 109,000 and forms part of the country’s ‘Oman’s Vision 2040’ strategy.

This strategy seeks to maintain fiscal stability, improve credit ratings, support employment and social development and promote economic diversification. And central to all these themes is to diversify its economy (and in turn its tax structure) away from oil dependency, in an effort to enhance fiscal sustainability. Its hoped that the shift will deliver an expansion of non-oil industries such as logistics, tourism, manufacturing, agriculture and fisheries, in addition to mining.

Its thought that while the tax will impact just the top 1% of earners, the revenue generated will support social protection systems, including education, healthcare, and housing.

For many years, Oman has been able avoid taxing incomes due to the vast revenues it receives through oil and gas. For example, its thought that oil accounts for 64% of Oman’s export earnings, 45% of government revenue, and 50% of the country’s GDP. Indeed, following the discovery of oil in Oman in 1964, economic growth was recorded as being well over 300% that decade before accelerating to well over 1,300% over the course of the next decade.

Many Omani law makers have also maintained that the absence of personal income taxes have made the country an attractive destination for expats and foreign investors, contributing to economic growth and diversification though other means.

However, fluctuating oil prices, economic challenges including the pandemic, and the need for greater diversification have driven Oman to reconsider its tax policies.

Its thought that other Gulf states will closely monitor the impact of the tax as they also consider ways to diversify their economy and tax structure away from oil.

It may be of interest to note that oil revenues account for some 87% of Kuwait’s government income, around 60–70% in Qatar, 60% in Bahrain and 30-40% in the UAE. Outside of the recent spikes seen in oil prices last week due to concern over the impact of the conflict between Israel and Iran, its thought that sustained pressure on oil prices (perhaps below $60dpb) could put countries like Saudi Arabia, Bahrain, and Oman into potential budget deficits.

Hence, as one KPMG report argued, “Saudi Arabia’s Vision 2030, Oman’s Vision 2040, the Dubai Economic Agenda D33, and the UAE’s Vision 2031 illustrate the GCC’s eagerness to act boldly in pursuit of economic diversification”.

Therefore, Oman’s introduction of an income tax represents a small but significant shift in the Gulf State’s economy and could well be the first of many across the region.

Readers will note that the 5% income tax proposed is a far cry from places like Finland – which currently holds the highest top marginal income tax rate at 57.3%. Close behind are Japan (55.95%) and Denmark (55.9%), whose economic models are based on strong social welfare systems and comprehensive public services.