Tax burdens back up
Offshore tax warning
Governance initiative launched
Anti-Bribery Convention at 10–
–Concern expressed about Chile and Argentina
Brazil in export credits pact
Innovation is the Kiwi
Farming subsidies ease
Faster EU progress urged
Plus ça change…
Average tax burdens in OECD countries have risen, experts say. In fact, after a brief reduction from 2001 to 2004, the annual Revenue Statistics shows that tax revenues as a percentage of GDP are back at the historic highs of 2000.
The average tax burden in the 30 OECD countries reached 36.2% of GDP in 2005, the latest year for which complete figures are available, up from 35.5% in 2004 and level with the historical high of 36.2% recorded in 2000. Three countries–Italy, Ireland and Korea–saw their tax burdens rise by more than a percentage point between 2005 and 2006.
The latest figures for the OECD area showed a slight increase in the proportion of revenue collected from general consumption taxes, such as value-added taxes (VAT) and sales taxes, from 6.7% of GDP in 2000 to 6.9% of GDP in 2005.
Some countries and financial centres still fall short of meeting international standards developed over the last seven years to improve transparency and cooperation in combating offshore tax evasion, say two new OECD studies.
Although the reports, Improving Access to Bank Information for Tax Purposes – the 2007 Progress Report and Tax Co-operation: Towards a Level Playing Field – 2007 Assessment by the Global Forum on Taxation, acknowledge the progress made in certain financial centres, they argue that further reform is needed in many others.
Significant restrictions on access to bank information for tax purposes remain in three OECD countries, Austria, Luxembourg and Switzerland, and in a number of offshore financial centres, such as Cyprus, Liechtenstein, Panama and Singapore.
Moreover, a number of offshore financial centres that have committed to implement standards on transparency and the effective exchange of information, developed by the OECD’s Global Forum on Taxation, have failed to do so, according to the studies from the OECD’s Centre for Tax Policy and Administration.
Lack of transparency and a failure to co-operate internationally create conditions that can be exploited by dishonest taxpayers to evade their tax obligations, and can prevent governments from lowering tax burdens for honest taxpayers.
Economic expansion will slow in the OECD area, the latest OECD composite leading indicators show. The leading indicators for August 2007 show weakening performance in the six-month rate of change, which evens out oscillations, for the top seven OECD economies. The indicator for the OECD area fell by 0.6 point in August, and its six-month rate of change was down for the second month in a row. The euro area leading indicators fell by 0.5 point in August, with a downward trend in its six-month rate of change since June 2006. The latest data point to moderating expansion in China, India and Brazil, too, but an improved outlook for Russia.
The OECD composite leading indicators incorporate a wide range of data, such as building permits, order flows, long-term interest rates and sentiment surveys in a bid to deliver early signals of forthcoming trends in economic activity.
Trend restored composite leading indicator, annualised 6-month % change
Note: Major 5 Asian countries are China, India, Indonesia, Japan and Korea
Inflation fell slightly as consumer prices rose by 1.8% in the OECD area in the year to August 2007, compared with 2% in the year to July 2007. On a monthly basis, the price level declined by 0.1% between July and August 2007 after no change between June and July. Consumer prices for energy decreased by 1.3% year-on-year in August against a rise of 0.8% in July.
However, unit labour costs in market services rose by an average of 0.7% in OECD economies in the second quarter of 2007. Growth for the quarter in the US was 1.1%, in France 0.8%, in the UK 0.1%, there was no change in Germany, and in Japan labour costs fell by 0.4%.
Unit labour costs in industry rose slightly in OECD economies in the second quarter of 2007, at an average of 0.2%. A rise in unit labour costs indicates that growth in average pay exceeds growth in labour productivity, which may create upward pressure on producer prices. OECD unit labour costs are now published quarterly.
Trade growth slowed in the G7 countries for the second quarter of 2007. Growth in goods trade volume slipped to a seasonallyadjusted 0.4% for exports while imports fell 0.4%. The US saw its quarter-on-quarter exports grow by 1.5%, Japan’s grew by 1.4% and Germany’s fell by 1.6%. Japan’s imports declined by 1.6%, Germany’s fell by 1.9% and US imports declined by 0.6%. On a year-to-year basis, G7 trade volumes continued to grow at lower rates, with both exports and imports up 2.3%.
In 2006 the total exports of goods and services of the 30 OECD countries amounted to US$9.5 trillion ($5.7 trillion for the G7), while imports were higher at $10.1 trillion ($6.4 trillion for the G7). Goods accounted for 78% of OECD exports of goods and services and 81% of imports. Exports of goods and services in OECD countries, measured in current US$, rose by a seasonallyadjusted 3.9% quarter-on-quarter in the first quarter of 2007 and imports rose 3.5%. Year-on-year export growth slowed to 12.5%, while import growth eased to 10.1%.
The unemployment rate for the OECD area was 5.4% in August 2007, the same as the previous month, though 0.6 percentage point lower than a year earlier. In the euro area, the standarised rate was 6.9% in August 2007, also the same as the previous month and 0.9 percentage point lower than a year earlier. The US rate was 4.7% in September 2007, 0.1 percentage point higher than the previous month, and up 0.1 percentage point on a year earlier.
For more details and data on OECD economic statistics, see: www.oecd.org/std/newsreleases
Development assistance is not just about how much aid is donated, but how it is managed and spent. The trouble is many recipient countries lack the strong institutional services OECD countries take for granted, such as fiscal customs and legal departments, needed to invest aid effectively.
A new initiative has just been launched to help address such weaknesses. Called the Partnership for Democratic Governance (PDG), it will assist those developing countries that need help to improve governance, strengthen capacity and deliver the services that are essential supports of effective democratic government.
The launch of the PDG was held at the UN headquarters in New York on 1 October, 2007. Among those in attendance were US Secretary of State Condoleezza Rice and OECD Secretary-General Angel Gurría (our photo). Secretary of State Rice hailed the initiative as the first concerted effort to determine how the international community can help developing country governments, notably by providing them with temporary international personnel. “Long after the good work of the Partnership for Democratic Governance is done, what will endure are stronger, more capable institutions in democratic developing countries,” the US secretary of state said.
The PDG’s founding members are Australia, Brazil, Canada, Chile, Denmark, Japan, Korea, Mexico, New Zealand, Poland, Turkey and the US, as well as the OECD, the United Nations Development Programme (UNDP), the Organization of American States (OAS), and the Inter-American Development Bank (IADB).
It is 10 years since the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, also known as the OECD Anti-Bribery Convention, was adopted, on 21 November 1997.
To mark the occasion, the government of Italy and the OECD Working Group on Bribery are hosting a special event in Rome on 21 November 2007. The event will provide an important and timely opportunity to foster broader public understanding and support of the Convention. It will also offer governments a chance to show how they have strengthened their anti-bribery legislation and systems to level the playing field for international business.
Chile should promptly adopt the necessary national legislation to improve its compliance with its international obligations under the Anti-Bribery Convention, according to a new report by the OECD Working Group on Bribery. While the Working Group notes that Chile has recently engaged in efforts to implement the Convention, it is seriously concerned that Chile has not responded to key recommendations. These include amending the law to introduce corporate liability for foreign bribery, significantly increasing sanctions for foreign bribery, ensuring that its courts have territorial jurisdiction over foreign bribery, and facilitating the lifting of bank secrecy in foreign bribery cases. In addition to the regular follow-up processes, the Working Group has exceptionally decided to review Chile’s legislation again one year from now.
Argentina’s last-minute postponement of the inspection by an anti-bribery evaluation team has also caused concern. One of 34 adherents to the OECD Anti-Bribery Convention, Argentina was expected to receive a team of experts on 24-28 September 2007 to monitor compliance in implementing the Convention’s statutes. Argentina is the second country to have postponed such an inspection. The visit has now been rescheduled for 10-14 December 2007.
Brazil in export credits pact
The world’s major civil aircraft exporting countries have announced a landmark agreement limiting government support for export deals. Signatories include both OECD countries and Brazil, which is not an OECD member and is joining a pact of this kind for the first time. It is also the first time that a non-OECD country has joined OECD countries in a trade agreement relating to export credits. In recent years, official export credit support for civil aircraft sales has covered deals valued at between $7 billion and $10 billion annually. This created some market distortions which the new pact should help to straighten out, experts believe.
OECD Secretary-General Angel Gurría hailed the accord as a breakthrough in international trade diplomacy in what is a highly competitive sector. “By creating a level playing field in official support for export deals, the agreement will focus competition for sales of civil aircraft on price and quality instead of on levels of government support,” Mr Gurría said.
For more background and details, email email@example.com or see www.oecd.org/trade and www.oecd.org/brazil
New Zealand should strengthen its support for research and innovation to boost economic growth, says a recent OECD report. Despite open and flexible markets and world-class research, GDP per head still lags behind the OECD average, the report says.
New Zealand’s situation reflects its geographical isolation, but also the small size of many firms which find it difficult to compete in world markets. And though the number of researchers has been growing fast in such smaller firms, overall investment in business R&D was still less than a third of the OECD average, the report found. New Zealand should focus on: promoting innovation in the business sector; and improving the environment for innovation, the effectiveness of competitive research funding, and the governance of the innovation system.
- See “Chinese innovation”, OECD Observer No. 263, October 2007.
- Order OECD Reviews of Innovation Policy: New Zealand at www.oecdbookshop.org.
Farming subsidies ease
Government support to farmers in OECD countries represented 27% of total farm receipts in 2006, a slight fall from the 29% share the previous year, says a new OECD report. The drop was due mainly to rising world food prices rather than changes in government subsidy policies, as less aid was needed to prop up domestic prices.
According to the OECD report, Agricultural Policies in OECD Countries: Monitoring and Evaluation, subsidies to farmers throughout the OECD remain high, amounting to nearly US$268 billion in 2006. Crop and livestock prices in OECD countries were on average 21% higher than world market prices. Subsidy levels vary widely across the OECD–from 1% of farm receipts in New Zealand to more than 60% in Iceland, Norway, Korea and Switzerland. In the EU, farm receipts provided by governments fell by a percentage point to 32% in 2006. Support to US farmers fell to 11% of farm receipts last year from 16% in 2005.
Reducing agricultural subsidies for farmers in developed countries both lowers prices for consumers and offers farmers in developing countries fairer access to world markets, the authors argue. The EU’s Single Payment Scheme for farmers introduced over the past two years is an important step in reducing the production and trade distortions caused by high levels of support, the report found.
See www.oecd.org/agr or email firstname.lastname@example.org
The unmistakable Château de la Muette at OECD headquarters in Paris is reflected in the windows of the new conference centre expected to be open for business in January 2008. The OECD headquarters renewal project also includes renovation of the 1922 château, completed in 2005, and of the main OECD office building, which is expected to re-open fully in 2009. A French-American team of architects—SCAU Macary, Menu & Delamain, and Pei, Cobb, Freed & Partners—is leading the project, which began in 2003. For more information contact email@example.com.
OECD Secretary-General Angel Gurría has received the first ever “Globalist of the Year” award from the Canadian International Council for his contribution to innovation in global governance and international affairs. The award was presented by the CIC’s chair, Co-CEO of Research in Motion, Jim Balsillie. The CIC was established earlier this year as a partnership between the Canadian Institute of International Affairs, the Centre for International Governance Innovation and the Munk Centre for International Studies at the University of Toronto, with a mission to support studies tackling major foreign policy issues in such areas as energy, trade and arms control.
Accepting the award at a ceremony in Toronto, Mr Gurría stressed his determination to reinforce the OECD’s role as a hub for global dialogue between governments, business and civil society.
Faster EU progress urged
EU member states need to provide a fresh impetus to clear the rules and red tape which are stifling competition and blocking cross-border trade and investment. This is a key message in the OECD’s first-ever Economic Survey of the European Union, published this autumn.
The services sector is the main weak spot in the EU’s internal market, the report finds. The EU Services Directive, to be implemented by end 2009, may help create Europe-wide markets, but only if member governments stop protecting service providers from outside competition.
Competition could also be strengthened in electricity, gas, telecoms, transport, ports, postal services and other so-called network industries. More competition in energy markets in particular would be generated by better linking national markets to create regional markets or a pan-European one, while networks should be separated from generation and supply activities.
The report highlights good progress in financial markets but calls for changes to Europe’s still fragmented banking industry. The report also calls for farm support to be cut and made less marketdistorting. The reform of the Common Agricultural Policy in 2003 was a step forward, but the link between subsidies and farm production needs to be broken completely.
The first EU survey is timely because 2007 marks the 50th anniversary of the Treaty of Rome. Most EU members are also OECD members and by one estimate around half of new national legislation is driven or shaped by Brussels. The EU is the world’s biggest economy and the biggest exporter.
For further commentary on the survey, contact David.Rae@oecd.org. See the report’s summary and Policy Brief at www.oecd.org/eco/surveys/eu. Order the report at www.oecdbookshop.org
No biofools - “One wants rational decisions rather than simply jumping on the bandwagon because superficially something appears to reduce emissions.” Keith Smith, University of Edinburgh and co-author with P. J. Crutzen et al. of report, “N2O release from agro-biofuel production negates global warming reduction by replacing fossil fuels”, Atmospheric Chemistry and Physics Discussions Online, quoted on www.Timesonline.co.uk, 22 Sep 2007.
Global relevance - “… in globalisation, we don’t need less multilateralism. We need more multilateralism. We don’t need less IMF. We need more IMF. The condition? The condition is that the Fund has to be both relevant and legitimate.” IMF Managing Director-designate Dominique Strauss-Kahn in a press conference, 1 October. See full transcript at www.imf.org
Weighty words - “It is possible that we spend more on healthcare because we are, indeed, less healthy. If the US could bring its obesity rates more in line with Europe’s, it could save $100 billion a year or more in healthcare costs.” Kenneth Thorpe, chair of the Department of Health Policy and Management at Emory University’s Rollins School of Public Health, in an interview with Health Affairs, a leading journal of health policy, 2 Oct.
Plus ça change…
“Investment in capital equipment may be regarded as one immediate cause of increased productivity…but the rise in productivity depends on the new technology that is built into capital equipment, and this new technology is the result of research, invention and development.” Prof. Ingvar Svennilson, “What makes an economy grow? The new dimensions of progress”. From OECD Observer No. 1, November 1962
©OECD Observer No. 263, October 2007