Strength in numbers
Angel Gurría, secretary-general, Organisation for Economic Co-operation and Development, tells editor John Kirton how the G7 can help set the parameters of the global recovery from COVID-19, from normalising state support to ironing out divergences on critical issues, such as how to tax the digital economy
How has COVID-19 affected the work of the Organisation for Economic Co-operation and Development?
Although the crisis has forced the OECD to operate in new ways, we are doing our best to continue our work, and support countries and the international community while taking into account three key challenges.
The first one remains the most immediate: to save lives. That means supporting health systems to put in place all the equipment and resources, staff, doctors, nurses, paramedics and infrastructure to contain the spread, cure ill patients and prepare the distribution of vaccinations. This requires extensive national planning, which the OECD is supporting, but if COVID-19 is to cease to threaten our societies and economies, we have to beat it everywhere. This means international co-operation and financing for initiatives such as COVAX is essential. As we progressively roll out the vaccine, outbreaks of COVID-19 will likely continue. Where the incidence of infections is low enough, test-trace-isolate systems should be used to contain the virus at minimum economic cost. No resources should be spared to build the capacity to do this effectively, as well as to increase the resilience of health systems and improve pandemic preparedness to prevent future crises.
Second, there’s a simultaneous need to provide economic relief and policy support to mitigate the ongoing impacts of the crisis. For the first time since the pandemic hit in early 2020, we have hope. The good news about vaccines has instilled a degree of optimism and dissipated the fog of uncertainty. There is hope, but we’re not out of the woods yet. Many countries are currently fighting a resurgence of the virus, and the re-imposition of containment measures is denting the economic rebound that had begun. Even with a slower and more cautious ‘de-confinement’ this time, further waves cannot be ruled out until most of the population is vaccinated. We assume that this will not happen until the end of 2021, given the logistical challenges. On the face of it, the projection in the latest OECD Economic Outlook for global growth in gross domestic product in 2021, at 4.2%, looks sound. But this would still leave almost all OECD economies smaller at the end of 2021 than they were at the end of 2019. And we see global GDP being some $6 trillion lower by the end of 2022 than it would have been in our pre-pandemic projections. In both human and economic terms, this pandemic will have been extremely costly. There is still a strong case for large-scale support for the economy in the remaining months of the pandemic.
Third, there’s the challenge and unique opportunity of the recovery, to “build back better”. Restoring growth is key, but quality matters just as much. The recovery must be strong, resilient, green and inclusive. Climate change remains a pressing global challenge and we must use this chance to deliver climate-compatible policy packages that restore growth while meeting our global commitments under the 2030 Agenda for Sustainable Development and the Paris Agreement.
Also, how do we make sure the next shock does not catch us so ill prepared? What kind of world will the crisis and its economic consequences leave us? How much more debt are countries going to take on to finance these necessary yet very aggressive support packages? And how much more debt will still be sustainable for companies, knowing this is being added to a situation where there was already a lot after 10 years of very low interest rates. Recall that by the end of 2019 the volume of corporate debt reached an all-time high in real terms of $13.5 trillion.
At the OECD we are reflecting on how this crisis reveals that our world’s economic and social models have not sufficiently prioritised building resilience to shocks. Building resilience will be a key priority for the OECD (and also the G7 and G20) in the months to come, as will the need to ensure a fully green and inclusive recovery and avoid locking in new difficulties for the future. The multidisciplinary nature of our work remains our main strength. We’ve created the OECD COVID-19 Hub, which we constantly update with new and fresh material from, for example, our units on small and medium enterprises, tourism and regional development, and taxes. And education – with 1.6 billion children out of school during lockdowns, mostly in developing countries, and with no tablets or teachers trained to teach at a distance, the risk of deepening inequalities remains a pressing policy challenge. And everywhere, most of the workforce in health is women, who have undertaken a double duty taking care of domestic responsibilities, while their careers have been disproportionately affected, so we urgently need to bring a gender lens to the recovery.
How is work progressing on the global taxation regime?
This year there was important work done in the context of the G20. The implementation of the tax transparency standards continues to be one of the success stories there. With continuous G20 support since 2008, multilateral cooperation has delivered significant results, notably the end of banking secrecy marking a new era of tax transparency, with close to 100 jurisdictions automatically exchanging information on financial accounts in 2019. In 2019, this exchange of information covered more than 84 million bank accounts, totalling almost €10 trillion.
The remaining issue now is how to tax the world’s increasingly digitalised economy, restore stability to the international tax framework and avoid the risk of further uncoordinated, unilateral tax measures that could trigger trade sanctions. The COVID-19 crisis has exacerbated these tax challenges even further by accelerating the digitalisation of the economy, increasing pressures on public finances and decreasing public tolerance for profitable multinational enterprises not paying their fair share of taxes. Governments’ need for revenue drove such good progress on the automatic exchange of information after the global financial crisis 10 years ago. But today the political threshold for not paying taxes is much lower, and the world’s biggest companies are paying little or none at all. We want them to pay their fair share, and to pay it where they generate their profits. These two elements of nexus and profit allocation constitute the first pillar of the G20/OECD Inclusive Framework.
Then there’s a second pillar, focused on a global minimum tax intended to address remaining base erosion and profit shifting issues. To move closer to achieving a solution, in October 2020, the G20/OECD Inclusive Framework finalised a package consisting of a Cover Statement and the Reports on the Pillar One and Pillar Two Blueprints, which were welcomed by G20 leaders in November. The G7 can champion this effort – in order to reach a global and consensus-based solution by mid-2021, as G20 leaders have committed to.
Has the COVID-19 crisis led more G7 members to turn to the OECD for advice?
In a way the G7 has been at the avant-garde of the multilateral response through the leaders’ resolute statement in March to do “whatever is necessary”. This paved the way for the G20’s mobilisation, and we have been informing the discussions that have been held across the various G20 work streams, at leaders’, ministerial and working levels – on everything from fiscal and macroeconomic policies to employment and labour, health, agriculture and trade, tourism and digital.
For example, SMEs are vulnerable because there has been a huge shock, with supply chains dismantled in many cases, people running out of money, jobs being destroyed and demand holding back. Everybody is looking at what others have done, and what works better.
We are the repository of all the questions and all the experiences. We’ve had the comparisons about health for ages. So we’re able to put together the historical and current information and the policy implications, to have an idea of what has worked well and what hasn’t.
What is your main message to the G7 leaders?
Coordination and cooperation are key. They always make the outcomes better than by doing it alone. You now have very well-documented gargantuan national efforts – in the trillions! To what extent are these coordinated? To what extent are they mutually reinforcing? We did a better job in 2008/09 – maybe because the issues were narrower, the impact was not so widespread, and it was mostly the finance ministers and central bank governors who had to coordinate. Now it’s every sector. Not a single country has been spared.
I would therefore invite G7 leaders to consider further action on three fronts. First, push further when possible, and notably on support to developing countries, particularly considering that all G7 countries are members of the Paris Club. We’re only beginning to see the impact on developing countries, where structures and health systems are weaker and governments can’t throw money at getting people out of unemployment. Most of the world’s employed are informally employed: two billion workers, representing about 61% of all workers. And how do you confine people who need to go out every day to make a living? Just a fraction of those developed countries’ trillions can offer a lot of relief to the poorest countries – and the richer countries will be better off because the others are better off. The problem will not go away until the last case goes away.
Second, lead and focus on policies for the aftermath of the crisis, now that the G20 has taken the reins in coordinating the immediate response to the crisis. Strengthening the resilience of the global economy and open markets, including through international cooperation, will be key. The G7 can help set the parameters of the recovery, addressing the underlying trends such as the digital transformation and more broadly, emerging technology, including on sensitive issues such as normalising state support and its role in the economy, levelling the playing field, reducing distortion, increasing transparency and the proper functioning of global value chains, and unwinding export restrictions.
Third, incubate solutions to build back better, including by ironing out divergences on issues that will be critical: for instance, the taxation of the digital economy, the reform of the World Trade Organization and – last but not least, the most important intergenerational responsibility we have – climate change, where the G7 should try harder to find some common ground and a common narrative.
