Global: Why reform is the right option
20 November 2014
Posted by: Author: Angel Gurría
GloAuthor: Angel Gurría (OECD)
"Life is full of alternatives but no choice.” G20 leaders at the summit in Brisbane, Australia, in November should reflect on these words by Australian writer Patrick White, a Nobel Laureate, as they prepare their economic strategies for the years to come.
despite signs of recovery earlier in 2014, the global economy remains stuck in
the "repair shop”. In the OECD’s latest Interim Economic Outlook growth
forecasts for 2014 and 2015 were revised down for the largest G20 countries–by
nearly a quarter of a percentage point compared to our April forecasts. Six
years afterthe start of the crisis, the output gap remains substantial–this is
unprecedented, reflecting stubbornly weak demand. Two key cylinders of the
global growth engine, trade and investment, remain particularly sluggish and
are still not back to their pre-crisis levels. In the euro area, credit
continues to shrink, creating a drag on demand. Furthermore, the recovery faces
various headwinds, including geopolitical risks.
tepid growth means that addressing the jobs gap will be a huge challenge: over
100 million people are unemployed in G20 countries. Particularly worrying is
the very high level of youth and long-term unemployment in many countries.
Rising unemployment also contributed to the intensification of income
inequality experienced during the crisis. Meanwhile, informality remains a drag
on labour productivity in emerging economies.
fiscal and monetary policy room very limited, structural reforms are the only
way forward to address these crisis legacies, particularly their "scarring”
impact as reflected in lower potential growth.
OECD’s long-term growth scenarios emphatically warn that without structural
reforms, growth will slow across the board until the middle of the century. G20
leaders have no choice: they must develop and implement an ambitious and
feasible structural reform agenda.
means doing all they can to eliminate structural bottlenecks to investment,
competition, trade and jobs, as the Australian G20 presidency has rightly
emphasised. This would also help unlock private investment, including in
infrastructure, a priority of the Australian presidency.
get unemployment down and boost inclusive growth, governments must invest in
people’s skills, push activation programmes and equip people for the world of
work. They must make labour markets more adaptable, affordable and productive
for employers, and more dynamic and rewarding for employees.
in a challenging demographic context, policymakers must clear away barriers to
enable more people to join the workforce, particularly women. The Australian
G20 presidency’s 25X25 target to reduce the gender gap in employment by 25% by
2025 would add some 126 million women to the G20’s workforce, boosting real GDP
by between 1.2% and 1.6% over the period.
for boosting competition in product markets, facilitating trade and enhancing
the efficiency of trade-enabling services are also essential.
policy requirements are, by and large, captured in the 1,000 reform commitments
from the National Growth Strategies submitted by G20 members. The OECD and the
International Monetary Fund (IMF) were asked by the G20 to assess the impact of
those strategies and whether their commitment can deliver an additional 2%
growth by 2018. We also helped identify priorities that can yield the best
results for each country. Our verdict is two-pronged: yes, the strategies can
work, but implementation and leadership will be key.
progress on global tax matters shows how important leadership is. As US
President Barack Obama remarked: "The work on tax is the G20 at its best.”
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 use 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.
September the OECD presented G20 finance ministers with the first package of
measures agreed under BEPS, including country-by-country reporting by
multinational enterprises, guidance for revising transfer pricing in the area
of intangibles and a framework for taxation in the digital economy.
G20 has enjoyed major advances in fighting tax evasion and non- co-operative
jurisdictions as well. G20 finance ministers promptly endorsed the common
global standard for the automatic exchange of information that we presented in
September. Already more than 60 countries, including developing ones, have
committed to implementing the Global Standard, and 45 countries have agreed to
start implementation as early as 2017.
measures are paying off: in five years, some €37 billion has been identified
from voluntary disclosure programmes targeting offshore evasion involving just
24 countries. More is expected. This rapid progress shows what can be achieved
when political leadership, close co-operation and technical excellence join
forces for a common good.
Australian G20 presidency must be commended for setting an ambitious agenda and
I urge successor presidencies to maintain momentum. In today’s uncertain world,
the G20 can provide the leadership needed to make the right choice to end the
crisis and help forge better policies for better lives.
This article first appeared on oecdobserver.org.