Growth you can trust
“We are now into the fifth year of the greatest economic crisis of our lifetimes. These are tough times for OECD economies”, as OECD Secretary-General Angel Gurria said on 6 February (Read speech). But as G20 finance ministers and central bank governors meet in Moscow on February 15-16, it is also worth remembering that much has been done during these five years on an international level to map a way out of the crisis that can work for everyone, and that can build the foundations to ward off a similar crisis in the future.
The G20 has brought together key players worldwide to chart a path for sustainable, balanced growth and to rebuild trust in the system, using the expertise of international organisations such as the OECD. So what has changed? The answer is quite a lot, from new banking rules to the way we think about fairness in the tax system, as governments work to create a new sustainable framework for their economies and societies.
Russia, as G20 president for 2013, has put growth at the heart of its presidency on three fronts: quality jobs and investment; trust and transparency; and effective regulation. OECD is supporting the G20 with its expertise on these issues, and its work will inform the meeting of G20 finance ministers and central bank governors in Moscow on February 15-16 (Read speech).
Take tax. Much has been written in the press in recent months about multinational corporations that make huge profits and pay what critics see as not enough tax. But the root of the problem is a fundamental question about whether the current tax rules for companies operating in more than one country are appropriate for the 21st century high-tech global economy.
Current rules were written to make sure companies were not made to pay tax twice on the same profits. This fosters cross-border trade and investment and ensures a level-playing field between domestic companies and multinational ones.
But the world has moved on in the past 50 years, and the twin evolutions of globalisation and the Internet revolution have created a world where the opposite is now true: cross-border profits go untaxed anywhere.
Domestic and international tax rules are complex. This is not just a case of waving a magic wand to reveal where untaxed cash is hiding – it is about finding a fair way to decide who pays what tax, where and to whom. But international agreement on the issue is vital – if governments start introducing unilateral measures, companies could suddenly find themselves paying tax twice, fairness would go out of the window.
So what to do? The G20 turned to the OECD, which for many years has supported international cooperation on tax matters, to come up with some new proposals. That report will be delivered to the G20 meeting in Moscow.
The latest issue of the OECD's Going for Growth report is also a valuable tool at governments’ disposal in difficult times. It looks at the structural policy reforms governments need to make to get their economies out of trouble and onto a sustainable path for the future and finds that reform has accelerated since the crisis hit. The trick is to minimise the short-term pain while maximising the long-term gain. And that is where exercises like Going for Growth come to the fore. It looks at areas where reform is needed to find a long-term solution to problems such as unemployment, tax, or inequality. And Going for Growth keeps it simple – five priorities for each government based on their ability to improve long-term material living standards through higher productivity and employment.
So one country might be advised to do more to keep older people in the workforce, while another is encouraged to increase the number of women working. On the education front, one country may be urged to improve early childhood education while another is urged to increase participation in tertiary education.
And Going for Growth comes back regularly to see where changes have been made, and what the outcome was. As well as looking at adjustments that can be made to take account of changing situations.
Since 2011, the G4G has covered countries beyond the OECD but that are major global players – Brazil, China, India, Indonesia, Russia and South Africa.
So what does the latest Going for Growth set as priorities for Russia? They include further lowering barriers to foreign investment, reducing state control of the economy, improving innovation policy, raising the quality of the public administration and reforming the health care system. And of course, they are all accompanied by what steps can be taken to make it happen.
OECD Secretary-General says the G-20 should be “….concentrating on productivity. We should be concentrating on competitiveness. Instead we’re being distracted by this talk of currency wars.”
“The Russian presidency's main task will be to focus the G20's efforts on developing measures to stimulate economic growth and create jobs. What will this require? We think the answer is clear: investment incentives, trust and transparency in markets, and effective regulation.” Russian President Vladimir Putin at the start of Russia’s G20 presidency (www.g20.org/).
Find out more
For more on OECD work on economic growth and reform: www.oecd.org/economy
For more on OECD work on tax: www.oecd.org/tax
For more on OECD work with the G20: www.oecd.org/G20