Global tax problem–
The global tax practice whereby multinationals use strategies to pay 5% in corporate taxes or less, when smaller businesses are paying up to 30%, is unfair and must be addressed, a new report shows.The practice denies governments rightful revenue, and lands other taxpayers with heavier tax bills.
“These strategies, though technically legal, erode the tax base of many countries and threaten the stability of the international tax system,” said OECD Secretary-General Angel Gurría in launching the report, which “is an important step towards ensuring that global tax rules are equitable.”
The OECD study commissioned by the G-20–Addressing Base Erosion and Profit Shifting (BEPS)–also finds that many existing rules which protect multinational corporations from paying double taxation often allow them to pay none at all. Existing rules do not reflect global economic integration or the value of intellectual property, nor the tough financial times governments find themselves in.
Meanwhile, new data show that the average tax and social security burden on employment income edged up by 0.1 percentage points to 35.6% in the OECD in 2012, adding to increases since 2010. It rose in 19 member countries, though fell in 14 and remained unchanged in one. For more details on BEPS and tax burdens, see www.oecd.org/tax.
–amid hesitant recovery
Global economic activity is picking up, but the continuing crisis in the euro area is delaying a more solid recovery, the OECD said in March. Chief Economist Pier Carlo Padoan said that the G7 economies were expected to grow at an annualised rate of 2.4% in the first quarter of 2013 and 1.8% in the second, and noted that financial markets were outpacing real activity, which was held back by low confidence.
“The global economy weakened in late 2012 but the outlook is now improving”, Mr Padoan said. “Bold policy action remains necessary to ensure a more sustainable recovery, particularly in the euro area, where growth is uneven and remains slower than in other regions.”
Jobs were a particular worry, making it all the more urgent to implement reforms that can create jobs, Mr Padoan said. The next biannual OECD Economic Outlook (No 93) will be released on 29 May.
“There is nothing worse than a training programme that leads to nothing.”
President of France, François Hollande, criticising some internships in Le Monde, 6 March 2013
Growth goes boom
“High income countries remain stuck in a contained depression.”
Martin Wolf, Financial Times, 30 January 2013
“The EU is the only one that does not protect itself against unfair competition. We have become the idiots of the global village.”
French minister, Arnaud Montebourg, in Financial Times, 11 December 2012
“Despite the boom in Asian migration to these Anglo-Saxon countries, the Middle East remains the principal destination for Asian migrants. And the emigration rate from the region is still very low at 0.6 %.”
John West, quoted on the Asian Century Institute website, February 2013
Leading indicators released in early April pointed to growth picking up in the US, Japan and Germany, and a positive outlook for China, but a weakening in prospects for France and India. OECD composite leading indicators are based on the likes of order books, building permits and long-term interest rates, and help anticipate turning points in economic activity.
Meanwhile, quarterly gross domestic product (GDP) in the OECD area fell by 0.1% in real terms in the fourth quarter of 2012, compared with growth of 0.3% in the third quarter. Destocking dragged down growth by 0.3 percentage points. A contraction in government consumption reduced GDP growth by a further 0.1 percentage point. Contributions from private consumption, fixed investment and net exports only partially offset these falls.
OECD-wide inflation rose by 1.8% in the year to February 2013, compared with 1.7% in the year to January 2013. This slight increase masks opposing movements in energy and food prices. Energy price inflation accelerated to 3.4% in February, up from 1.8% in January, while food price inflation slowed to 1.8% in February, compared with 2.1% in January. Excluding food and energy, the OECD annual inflation rate was broadly stable, at 1.6% in February.
Merchandise trade showed moderate growth in the major economies during the fourth quarter of 2012. Compared to the third quarter, the value of merchandise exports and imports for the G7 and BRICS countries increased by 1.2% and 1%, respectively, with individual performances varying widely.
Country Round Up
Colombian Justice Minister Ruth Stella
Correa at the OECD Anti-Bribery
Convention accession ceremony
Colombia became the 40th Party to the OECD Anti-Bribery Convention in January 2013. The country will now undergo systematic reviews of its implementation of its anti-bribery laws. The 34 OECD member countries plus Argentina, Brazil, Bulgaria, Russia and South Africa were already party to the convention.
Costa Rica has deposited its instrument of ratification of the Convention on Mutual Administrative Assistance in Tax Matters, a comprehensive multilateral agreement developed jointly with the Council of Europe to encourage tax co-operation and exchange of information. Signing it is encouraged by the G20.
In separate reports, the Czech Republic has been asked by the OECD to do more to improve company awareness of the international fight against bribery to which it is party, while Denmark has been urged to investigate cases more proactively and improve the enforcement of its foreign bribery laws.
France has avoided the most severe impacts of the global economic crisis and turmoil in the euro area, but must take action to boost competitiveness and create jobs, the OECD’s Economic Survey of France stated in March. The difficulties facing young people call for wide-ranging actions, the report said.
Norway should overhaul its approach to mental health issues in the workplace in order to help more people find a job or stay in work, and cut high and rising public spending, a report called Mental Health and Work: Norway warns. Spending on sickness and disability benefits is the highest in the OECD at US$18 billion per year. This is equivalent to nearly 6% of Norway’s annual GDP. That is far higher than neighbouring Sweden, where mental health issues cost some 2.8% of GDP. Mental Health and Work: Sweden, a report in the same series, says the government there should make more effort to address mental health problems among people under age 30.
The OECD area’s unemployment rate eased to 8% in February 2013, from 8.1% in January. The unemployment rate decreased by 0.2 percentage points to 7.7% in the US, but rose in Japan by 0.1 percentage points to 4.3%. By contrast, the jobless rate reached a new peak in several European
countries, including France (10.8%) and Spain (26.3%).
The employment rate, meanwhile, edged up a point compared with a year earlier, to 65.1% in the OECD area. It rose in the US by 0.5 percentage points to 67.3% of working-age people and by 0.3 percentage points to 70.9% in Japan, but fell in the euro area by 0.5 percentage points to
63.6%. Youth employment fell right across the OECD.
Development aid from OECD to developing countries fell by 4% in real terms in 2012, following a 2% fall in 2011. The continuing financial crisis and euro zone turmoil has led several governments to tighten their budgets, which has had a direct impact on development aid.
In 2012, members of the Development Assistance Committee (DAC) of the OECD provided US$125.6 billion in net official development assistance (ODA), representing 0.29% of their combined gross national income (GNI), a 4% drop in real terms compared to 2011.
Since 2010, the year it reached its peak, ODA has fallen by 6% in real terms. Excluding 2007, which saw the end of exceptional debt relief operations, the fall in 2012 is the largest since 1997. This is also the first time since 1996-97 that aid has fallen in two successive years. For more detail, see www.oecd.org/development.
Dynamic urban centres are drivers of national growth, but as an OECD report, Promoting Growth in All Regions, shows, other regions can achieve greener, more inclusive growth, too.
With case studies comparing policies used by thriving regions with those of laggards, the report recommends ways for regional governments to promote investment and improve living standards. www.oecd.org/gov/regional-policy/.
Plus Ça Change
“Discrimination would appear to be an important obstacle to full employment: non-white workers, though they comprised only 11% of the labour force in 1962, accounted for twice that share of unemployment. Particularly hard hit are the young people: the unemployment rate for the non-white teenager stood at 21% for boys and 28% for girls in 1962.”
From “Seeking a solution to US manpower problems” in Issue No 9, April 1964
©OECD Observer No 294, Q1 2013