22 TRADE & FINANCE
INCLUSIVENESS, IMPLEMENTATION AND
INTERNATIONAL TAX TRANSPARENCY –
MOVING FORWARD ON G20’S GROWTH
AND TAX AGENDAS
To this day, economic growth
remains unsteady and uneven
across the globe. Important
uncertainties such as the
economic slowdown in emerging
market economies, the strength
of economic recovery in the euro
area or overall sluggish investment
give rise to financial and economic
turbulences, showing the
global economy to be far away
from a return to long-term and
sustainable growth.
Gabriela Ramos, Chief of Staff &
OECD G20 Sherpa
“The OECD estimates
that the rise in
inequality in the twenty
years after 1985 in 19
OECD countries reduced
cumulative growth in the
twenty years after 1990
by 5%.”
In 2014 G20 countries have committed to
taking action to “support development and
Inclusive Growth, and help to reduce inequality
and poverty”, including by lifting G20 GDP
by an additional 2% by 2018. The OECD has
since been a pivotal partner for the Turkish
2015 G20 Presidency that leads progress
on this path by focusing on “the three I’s”:
Inclusiveness, Implementation and Investment.
The goal of inclusive growth contrasts sharply
with reality. As the OECD’s latest publication on
the topic, “In it together: Why Less Inequality
Benefits All” shows, inequality is today at its
highest levels in many G20 countries. The crisis
did not make things better with the high cost
to address it. Austerity meant less government
spending in infrastructure and education. In
the decades leading up to the crisis, progress
in average living standards in emerging
economies was already characterized by high
levels of income inequality, despite a decline
in some of them. In the most advanced
G20 countries household incomes started
drifting apart between the mid-1990s and
the late 2000s. Today, the richest 10% of the
population in G20 countries earn nearly ten
(9.83) times the income of the poorest 10%
- compared to 9.3 times in the 2000s. The
young have been disproportionately affected,
especially the unskilled. They are particularly
prone to unemployment and lifelong low-paid
and insecure jobs. Female participation in the
workforce in OECD and G20 countries is in
every single country lower than that of men,
on average 30% for the G20 countries and
women are less paid, between 5 and 37% in
OECD countries. In parallel, concentration of
wealth is on the rise as well. The poorest 40%
own only 3% of total household wealth while
the wealthiest 10% own half.
The OECD estimates that the rise in inequality
in the twenty years after 1985 in 19 OECD
countries reduced cumulative growth in the
twenty years after 1990 by 5%. The reason
is that more equal societies are better at
mobilising skills and other social resources to
foster economic growth. So a first step by the
G20 to address high inequality lies in assessing
and improving the distributional impact of
existing growth policies. An “inclusiveness
filter” for the key measures put forward for
the G20 National Growth Strategies should
help favour policies that help reduce income
inequality.
Then, to tackle inequalities where they
originate, we need effective tax-and-transfer
systems. They are of particular importance
also for the needs of low-income developing
countries. Redistribution policies have been
strengthened in many emerging economies,
but tax systems could yet be more progressive.
Increased formal employment could enlarge
the tax base to also finance social protection
systems. There is still scope to make these
regimes more progressive. In advanced
economies, tax transfer systems have become
less progressive over the last two decades and
less effective at redressing inequality.
Lastly and related to aspects of redistribution,
leakages in the tax system that mostly benefit
the wealthy need to be dealt with. No inclusive
growth narrative will succeed without fighting
tax evasion and avoidance, to which the OECD
has made an essential contribution through
its work on BEPS and tax transparency. Its
continuation will be crucial for the domestic
resource mobilization aspect of the financing
for development agenda.