Average tax and social security burdens on employment incomes fell slightly in 24 out of 30 OECD countries in 2009 as governments struggled to shore up faltering economies amid the worst recession in decades. Whether this trend will continue this year depends on widespread pressures on public budgets.According to the 2010 edition of Taxing Wages, which looks at income taxes as well as employer and employee social security contributions, some of the biggest falls were in New Zealand, which already imposed relatively low taxes on labour incomes. Turkey and Sweden were among other countries experiencing significant reductions.
Taxing Wages focuses on the difference between the total cost to an employer of employing someone and that person’s net take-home pay, including any cash benefits from government welfare programmes. This tax “wedge” helps to figure out the tax burden. In 2009, many countries cut income taxes, especially for lower-income households and/or households with children, leading to smaller tax wedges. Some countries also reduced employer social security contributions. However, smaller tax wedges also reflected lower average wages in some countries during the crisis, and the progressive nature of some tax systems, particularly in Germany, Japan and the US. A detailed country-by-country account is available in the report and will be the subject of an OECD Observer article in July.
OECD countries agreed on 10 May to invite Estonia, Israel and Slovenia to become members of the organisation. Membership would then come to 34 countries. Together with Chile, which became a member in May (see special focus), their joining would “contribute to a more plural and open OECD playing an increasingly important role in the global economic architecture”, OECD Secretary-General Angel Gurría said.
For more, see OECD.org
Across the OECD area, unemployment among 15 to 24-year-olds has historically been just over double that of people over 25. But in 2008, the gap widened. In the face of surging youth unemployment, the OECD is advising governments to provide income support to young workers and to set up apprenticeship schemes for low-skilled youth. The OECD estimates that unemployment among young people is set to keep rising in the months ahead.
Development aid rises, but…
Despite the ongoing financial crisis, official development assistance (ODA) increased by nearly 30% in real terms between 2004 and 2009, and is expected to rise by about 36% in real terms between 2004 and 2010. In 2009, total ODA from members of the OECD’s Development Assistance Committee (DAC) rose 0.7% to $119.6 billion. In 2010, ODA is projected to reach $126 billion, an increase of nearly $6 billion over 2009. Despite the increase, there is still considerable work to be done, OECD experts say. For figures and commentary.
“While polite debate rages, the worst excesses of the pre-crisis era have returned.” Dan Roberts, business editor of The Guardian, 1 April 2010.
“The rational part of my brain says that after something like the Goldman thing no one will want to do business with them in the future. But the experienced part of my brain says that nothing significant is going to change.” Barry Ritholtz, an asset manager and the author of Bailout Nation, quoted in The New Yorker magazine, 3 May 2010.
“So much of what has happened flowed from poor corporate governance and risk management that it is important to get rigorous standards in place.” Matthew Elderfield, head of financial regulation at the Central Bank of Ireland, on banking reform, quoted in the Financial Times, 26 April 2010.
“If the OECD says it, it must be true…” Terence Corcoran, editor of the Financial Post (Canada), on the OECD’s territorial review of Toronto, on http://www.financialpost.com/, 16 April 2010.
The OECD area registered a rise in seasonally-adjusted GDP in the last quarter of 2009, up from 0.6% in previous quarters. Real GDP grew strongly in the US and Japan, by 1.4% and 1.1%, respectively. By contrast, GDP growth in the euro area slowed to 0.1%. GDP growth in France was relatively strong, at 0.6% but German GDP remained unchanged on the third quarter and in Italy GDP declined by 0.2%. The UK’s GDP edged up 0.1% after six quarters of contraction.
Meanwhile, leading indicators for March 2010 point to a slowing pace in forthcoming economic activity. In most OECD countries, these signs are tentative, though evidence of a potential halt in expansion is emerging for China and Brazil. The leading indicators, which include order books, building permits and long-term interest rates, for the OECD area increased by 0.6 points in March 2010; those for the US and Japan increased by 0.8 and 0.9 points respectively, and for the euro area by 0.5 points.
Unemployment in the OECD area was broadly stable in March 2010 at 8.7%, a rise of 0.1 percentage points compared with February. April 2010 figures for Canada were 0.1 percentage points lower than in March; in the US, they were 0.2 percentage points higher. In March 2010 the number of unemployed persons in the OECD stood at 46.1 million, 3.9 million higher than a year earlier.
Consumer prices in the OECD area rose by 2.1% in the year to March 2010, up from 1.9% in February. This small increase in inflation rates mainly reflected higher energy prices, which increased by 11.3% in the year to March, compared with 8.4% in February. However food prices rose by 0.2% in the year to March 2010, the first positive rate since September 2009.
G7 exports grew by 3.9% in the fourth quarter of 2009 and import volumes were up 3.1%. The largest rises were registered in the US and Japan, where export volumes rose by 6.4% and 6.1%, respectively, and imports rose by 3.4% and 3.0%, respectively. Compared with a year earlier, G7 export and import volumes were still down 3.3% and 5.7%, respectively.
Although data for February 2010 point to further growth, G7 trade remains more than 20% below pre-crisis levels. Continued stronger recovery in imports than in exports led to a further widening of the overall G7 trade deficit.
UK adopts bribery bill
The UK adopted anti-bribery legislation in April. Mark Pieth, chair of the OECD Working Group on Bribery said that the UK’s bill “…sends out a strong message of [the country’s] commitment to fight against bribery and helps create a level playing field for firms competing internationally” (see article by Mr Pieth in this edition). The OECD is a global leader in the fight against foreign bribery. Its Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, which has been in force for 10 years, makes bribing public officials in international business deals illegal in signatory countries (See “Ten years on: The fight against foreign bribery.
The death of Poland’s President Lech Kaczynski in a plane crash in early April left the country in mourning. The 96 victims of the crash included Mr Kaczynski’s wife, Maria, and much of the country’s military, religious and political elite. OECD Secretary- General Angel Gurria extended sympathies to the people of Poland for their loss.
Plus ça change...
“As usual there is a considerable time-lag between the change of basic conditions and the adjustment of social ideas and policies to these new conditions. But we can see a tendency in many countries to develop an active labour market policy to fulfil the new needs.” “Manpower adaptability and economic growth”, No 1, November 1962
©OECD Observer No 279 May 2010