News Brief - November 2011
G20 agrees on tax; Making more aid better; Economy; "How's Life" launched; Soundbites; Rethink fossil fuel subsidies; Country roundup; Plus ça change...
Participants at the G20 summit in Cannes agreed to a new international convention to tackle tax evasion more effectively. The Multilateral Convention on Mutual Administrative Assistance in Tax Matters offers a wide range of tools for cross-border tax co-operation. It includes automatic exchange of information, multilateral simultaneous tax examinations and international assistance in the collection of tax due. The agreement comes after the delivery of the OECD-based Global Forum’s Progress Report to the G20 Summit, which includes some 370 recommendations for improved international tax co-operation.
It also comes after another report by the OECD on the dangers of corporate tax avoidance. Global corporate losses have increased significantly because of the financial and economic crisis, with loss carry-forwards as high as 25% of GDP in some countries. Though most of these claims are justified, some corporations find loopholes and use “aggressive tax planning” to avoid taxes in ways that bend , if not break, the law, according to Corporate Loss Utilisation through Aggressive Tax Planning. To address this concern many countries have developed various strategies. Working together, countries can deter, detect and respond to aggressive tax planning while at the same time ensuring certainty and predictability for compliant taxpayers.
Development aid has more than trebled in the past 50 years from $37 billion in 1960 to $128 billion last year. But how effective is it? Poor co-ordination and unpredictable aid flows can waste efforts to eradicate poverty. A new survey of 78 countries and territories gives both donor and recipient countries scores based on their management of aid. Rwanda and Tanzania, for instance, are given A ratings for their own national development strategies, while Chad and Nepal have backtracked to D ratings. The survey applauds Canada, the UK, Norway and Ireland for eliminating tied aid, which can increase assistance project costs by 20-30%. Efficiency is key, the survey says, pointing to the US, France and Japan which made several hundred missions in 2010, spending money that could have been targeted on real development projects.
The OECD’s latest leading indicators continue to point to a slowdown in economic activity in most OECD countries and major non-member economies. The indicators, which include order books, building permits and long term interest rates, fell by 0.5 points in August, the fifth consecutive monthly decline.
Meanwhile, GDP in the OECD area slowed to 0.2% in the second quarter of 2011, from 0.3% in the previous quarter. This is the fourth consecutive quarter of slower growth, and was particularly marked in the euro area and the EU, where growth came to 0.2% down from 0.8% in the previous quarter. Gross fixed investment added 0.2 percentage points to overall growth, while the contribution from private consumption continued to slow. In fact, in France, Germany and the UK, the slowdown in consumer spending removed 0.4% from overall GDP growth.
Consumer price inflation in the OECD area rose by 3.3% in the year to September 2011, compared with 3.2% in the year to August, the highest rate since October 2008. Energy prices increased by 14.2% while food prices rose by 4.2%, down from 4.6% in the year to August. Excluding food and energy, the annual inflation rate stood at 1.9%, compared with 1.8% in August. In the UK, inflation surged to 5.2%, up from 4.5% the previous month.
The OECD area unemployment rate was steady at 8.2% in July 2011, unchanged for the fifth consecutive month. The euro area unemployment rate was also unchanged at 10% for the second consecutive month and has hovered around this level since December 2010. Around 44.5 million people were unemployed across the OECD area in July 2011, down 2.0 million from July 2010 but still 11.4 million higher than in July 2008.
Trade growth slowed across major economies in the second quarter of 2011. Total goods imports of G7 and BRICS countries grew by only 1.1% in the second quarter compared to 10.1% in the previous quarter. Total goods exports slowed to 1.9%, down from 7.7% in the previous quarter.
A new OECD report, How's Life?, offering a comprehensive picture of what makes up people’s lives in 40 countries worldwide, was launched in October. It is part of the OECD’s ongoing effort to devise new measures for assessing well-being that go beyond GDP. For more, see our book review.
“Frankly, banks have done a very poor job of explaining how we contribute to society.” Bob Diamond, chief of Barclays PLC, quoted in The Times, 4 November 2011
“The world isn’t up to global coordination”. Defiant headline, Wall Street Journal, 13 September 2011
“It [the financial market] does know what to do, it knows to go up for three days and go down for three days….we’re probably due a bit of bearishness by about Friday of this week.”
Alpesh Patel, founder of Praefinium Partners, on BBC Today Business news, 28 September 2011
“What we need is a really strong steer from policymakers that they have got a strategy. But there is a feeling that none of our policymakers seem to have control of the situation.” Karen Ward, Senior Global Economist, HSBC, 11 August 2011, BBC news.
In Cannes, G20 leaders reaffirmed their commitment to phasing out inneficient fossil fuel subsidies in the medium term. Around half a trillion dollars of public money was spent last year subsidising the use of fossil fuels, a sum of money which effectively props up harmful greenhouse gas emissions. Moreover, it is a sum that could be spent on areas such as R&D. The OECD and IEA, following up a 2009 commitment by the G20 to phase out wasteful and harmful energy subsidies, note that fossil fuel support often fails to meet its intended objectives: alleviating energy poverty or promoting economic development, and instead encourages inefficiency and creates energy price volatility by blurring market signals. Furthermore, reforming these subsidies will encourage investment in renewable energies and improve their competitiveness.
Argentina has joined the OECD system for the Mutual Acceptance of Data (MAD) in the Assessment of Chemicals. Through MAD, Argentina’s non-clinical safety data related to the protection of human health and the environment must be accepted by OECD and other adhering countries. Other non-OECD countries which take part in MAD include Brazil, India and South Africa, while Malaysia and Thailand are provisional adherents. See www.oecd.org/ehs
The Brazilian economy has weathered the global economic crisis, but needs to introduce further reforms to boost its long-term growth, spur investment and further reduce poverty, the OECD’s latest Economic Survey of Brazil says. Unprecedented progress has been made on social goals including poverty reduction and inequality, the report notes, but warned about slowing growth and high inflation in the years to come.
A separate report, The OECD Integrity Review of Brazil, praises the progress made in recent years to stamp out misconduct among public workers, but underlines the need to keep up the work. In particular, co-ordination among public bodies must be improved to prevent waste, fraud and corruption in the public administration. See www.oecd.org/brazil and www.oecd.org/gov/ethics
Korea is making good progress on tackling foreign bribery, notably in intelligence gathering, the OECD Working Group on Bribery has reported. The report emphasised, however, that more work needs to be done in investigating cases and ensuring that sanctions are effective. See www.oecd.org/korea
Tough challenges remain for the economy in Ireland following a deep recession and banking crisis, but its long-term prospects now appear better than many of the other hard hit European countries, according to the OECD’s latest Economic Survey.
Switzerland’s health system is one of the best in the world, but it faces a difficult task of keeping costs manageable while dealing with rising rates of cancer, heart disease and diabetes, says a report from the OECD and World Health Organization.
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©OECD Observer No 286 Q3 2011
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