Strengthening Global Growth: The G20 Brisbane Summit’s Challenges and Contributions
17 November 2014
Posted by: Author: OECD
Remarks by Angel Gurría, OECD Secretary-General
Ladies and gentlemen,
I am delighted to be here today to discuss with you the G20 Brisbane Summit’s Challenges and Contributions towards achieving strong, sustainable, balanced - and I should add - inclusive growth.
The G20 Brisbane Summit will be no exception…
This G20 Summit will be no exception: just as past G20 Summits, it will take place in a challenging economic and social environment. Despite signs of recovery earlier in 2014, the global economy remains stuck in the "repair shop”. Since the Summit in St. Petersburg, the world’s output has continued to grow below its long-term trend. Three key cylinders of the global growth engine, trade, investment and credit, remain particularly sluggish and are still not back to their pre-crisis levels.
The OECD’s Economic Outlook for 2015/2016 released last week showed another downward revision to our forecasts and growing concern that growth will remain weak for some time.
Such tepid growth means that addressing the jobs gap - over 100 million people are unemployed in G20 countries – will be very challenging. Particularly worrying is the very high level of youth and long-term unemployment in many countries. To complicate things further, the gap between rich and poor is at its highest level in 30 years and has intensified as a result of the crisis. This is the social and human legacy of the crisis.
These difficult economic conditions have been the backdrop of the Australian Presidency in 2014. It is thus absolutely critical that the G20 delivers meaningful outcomes at the Brisbane Summit.
What is to be done? Go structural, social and green
What needs to be done? We need decisive action to get our economies into a higher gear!
I am not particularly keen on doomsday prophecies. But if we do not take resolute action now, this crisis will have long-term negative consequences for our economies, societies and political systems. The OECD’s long-term growth scenarios emphatically warn that growth will slow across the board until the middle of the century. This is both due to the trends that already existed before the crisis, such as declining productivity and ageing, as well as to the "scarring impact” – durably low investment and higher long-term unemployment – of the crisis itself. The social and political fallout can also be particularly severe: social hardship is undermining the confidence and trust of citizens in everything from governments to markets, businesses and institutions at large.
The G20 needs to go structural, social, and green! With fiscal and monetary policy room nearly exhausted, structural reforms are the best choices, sometimes the only choice. The OECD battle cry in this regard has been unchanged since 2008: "go structural!”.
The good news is that this is mostly what the G20 did this year, thanks to Australia’s leadership.
The 2% additional growth ambition: A masterstroke!
The Australian Presidency has indeed entirely refocused the agenda of the G20 on the need to reignite growth and strengthen the recovery. It was the first G20 Presidency to harness all available sources of growth – macroeconomic and structural policies, taxation, financial regulation, trade, employment, investment, etc. - into holistic growth strategies and to activate the full range of policy levers. This approach went a long way towards bringing the various pieces of the "growth jigsaw” together into a transversal, coherent and effective economic agenda.
But the story does not end there: A genuine step-change in the approach was achieved by the Presidency with the endorsement by G20 finance ministers of a key measurable objective: to achieve a collective, cumulative 2% additional growth by 2018 over a baseline scenario, as defined in October 2013.
"So what?” some of you may object… Well, having a specific, well-defined, quantitative growth target over the medium term focused the minds, provided momentum and direction and galvanised members’ efforts. It also enhanced the public visibility of the G20. In other words, it became both the cornerstone of the G20 architecture and the touchstone for its efforts. You all know and talk about the 2% objective and that’s positive because governments will now be held accountable for its achievement. This was in fact, and quite simply, a strategic masterstroke from the Australian Presidency!
But sceptics have a point: what matters, at the end of the day, are the policies and their implementation to reach this target. It is obviously too early to tell regarding implementation. But let me share with you our assessment of the policy commitments encapsulated in the G20 National Growth Strategies. The OECD, together with the IMF, has been asked by the G20 to "unpack” those strategies and their almost 1000 policy commitments: their level of ambition is truly meaningful!
All the relevant growth-enhancing policy "ingredients” are there: supporting demand where and when possible; raising productivity by bolstering competition in product and services markets and by investing in skills; facilitating trade and removing obstacles to investment; reforming labour markets and activating employment policies to boost participation and address unemployment.
Our estimate of their "notional” impact on growth is positive too: According to joint OECD/IMF estimates, those efforts, if fully implemented will achieve the 2% objective.
G20 work on tax: "the G20 at its best”
Let me now turn to another key deliverable at the Brisbane Summit and a central contribution to the resilience of the global economy: the progress achieved in reforming the international tax system. This is not only about revenues; it is about the fairness and efficiency in our societies. Taxation lies at the heart of our social contract.
Everyone understands that fairness and transparency in tax are fundamental for a thriving, trustworthy and inclusive economy. Major firms, for instance, should not be able to abuse the blind spots of the global economy to avoid paying taxes by gaming tax legislations and shifting their profits to low-tax jurisdictions. Governments will gradually stop these practices, thanks to the OECD/G20 Base Erosion and Profit Shifting (BEPS) project. Last September in Cairns, the OECD presented G20 finance ministers with the first package of 7 measures agreed under this ambitious project and we expect G20 Leaders to endorse them over the week-end.
The G20 has also achieved major progress in fighting tax evasion and non-cooperative jurisdictions. Also last September, G20 finance ministers endorsed the new single, more ambitious, common global standard for the automatic exchange of information that we developed in less than one year and presented in September. Already more than 93 countries, including many developing ones, have committed to implementing the Global Standard by 2018 at the latest, and 51 countries have already signed to start implementation as early as 2017.
These measures are paying off: in five years, some €37 billion have already been collected from "voluntary” disclosure programmes involving just 24 countries. More is expected. By 2008, after 12 years of efforts, the OECD had managed to promote 40 rather dysfunctional agreements for the exchange of tax information. Today, there are 3000.
The work on tax is definitely a "success story” of the G20 and, as President Obama once remarked, "the G20 at its best”. The OECD is proud to have been a major force behind this quantum leap.
Inclusive and Green growth: the "new frontiers” of the G20
We are proud but not complacent. The G20 has still a long way to go: As I said, implementation of the national growth strategies will be of the essence. In some areas, such as trade, progress has been limited, if not disappointing. OECD’s work on Global Value Chains (GVCs), Trade in Value Added (TiVA) and on the Services Restrictiveness Index (STRI) amounts to the "decoding of the trade genome” and offers endless possibilities, but it needs the collective resolve of the G20. Trade today is growing at half the speed necessary to boost growth.
Also, we must be careful to ensure that G20 growth strategies not only boost growth and jobs, but also address inequalities. Today, the average income of the richest 10% of the population in the OECD is almost 10 times that of the poorest 10%, compared to 7 times in the 1980s and 8 times in the 1990s. In the US, it is around 16 times, in Mexico over 25, in Brazil around 50 times and in South Africa around 100 times. And it many countries, it is still growing. And inequality is not only about income but has become truly multi-dimensional: OECD analysis reveals large inequalities in health, education, strength of social connections, political engagement and sense of personal security.
Some may think that this is not an issue for the G20. It is! If the G20 worries about growth, it should worry about inequalities. Work underway at the OECD confirms that high levels of inequality harm economic growth. Our analysis shows that, if inequality continues to increase in OECD countries, it could result in 7.5% lower GDP per capita over the next 25 years. The G20 commitment to reduce the gender gap in labour market participation by 25% by 2025 is promising and shows the way. It could add as much as 1.6% to GDP by that date. But more needs to be done in the area of inclusive growth.
The same reasoning applies to climate change. We are on a collision course with nature. The latest OECD analysis shows that unabated climate change can dampen future economic growth: world GDP in 2060 could be lowered by 1.5% on average, and in South and Southeast Asia by nearly 6%, mainly due to losses in agriculture and sea level rises. The G20 cannot say that a systemic issue such as climate change is not in its remit. We need to engage the private sector, mobilise clean investment and advance meaningful outcomes in light of COP 21 in Paris at the end of 2015.
Ladies and Gentlemen, dear colleagues,
The Australian G20 presidency must be commended not only for setting an ambitious agenda but for also for re-organising the G20 "modus operandi” and instilling a real sense of purpose in its work. We encourage successor presidencies to maintain momentum. But we invite them also to define the win-win policies that combine strong economic growth with improvements in all those aspects of life that matter for people’s wellbeing – good health, jobs and skills, and a clean environment. In today’s uncertain world, the G20 can provide the leadership needed to make the right choices to end the crisis and help design, develop and deliver "better policies for better lives.”
This article first appeared on oecd.org.