Central banks nearing limits of ability to stimulate growth: OECD

THE world’s central banks are “pretty close” to the limits of their ability to stimulate economies, Angel Gurria, head of the Organization for Economic Co-operation and Development (OECD), said on Saturday. In the absence of “breakthrough, collective” policies, global growth is likely to remain weak, Gurria said in an interview with Reuters ahead of a meeting of leaders of the world’s 20 biggest economies, the G20, in the eastern Chinese city of Hangzhou.

“We have left our good central bankers to do all the heavy lifting,” said Gurria. “It has to be like a relay. Continued accommodative monetary policy, and then you get to the second relay like in the four-by-100s and the baton passes. “Now, you need to get it to the finance ministers, to the economy ministers, to the trade ministers, to the technology ministers, the science ministers, the education ministers, the competition ministers. Now is the big time for structural change.” Gurria emphasised that a combination of coordinated monetary, fiscal and structural adjustment policies are now necessary to revive growth worldwide, including in China. Nonetheless, he was relatively upbeat on the outlook for China’s growth, despite a rising debt burden and mixed progress on tackling low efficiency and overcapacity in key state-owned sectors. Gurria said that China likely could continue growing at around 6.5-7% during its current five-year plan period (to 2020) without major distortions in the structure of the economy.

In separate remarks to Reuters, Pascal SaintAmans, the director of the OECD’s Center for Tax Policy and Administration, addressed the thorny issue of multinational corporate tax liability, which the European Commission’s recent decision against Apple has brought back into sharp relief. The European Commission said this week that Apple owed up to 13 billion euros of back taxes to Ireland based on existing regulations, a decision that both Apple and Ireland, which relies on low taxes to attract investment, have vowed to fight. Apple employs a hybrid tax structure in Ireland for its overseas profits, Saint-Amans said, which enables it to dramatically reduce its tax burden by avoiding full tax residency in either the US or Ireland. Many other multinationals use similar strategies to reduce their global taxation. “You end up having hundreds of billions of profits in the middle of the Atlantic,” said Saint-Amans.

“This type of aggressive tax planning is outrageous and it’s precisely because of this type of planning that we launched BEPS.” BEPS refers to tax “base erosion and profit sharing”, and the OECD has launched an aggressive initiative to crack down on it. US lawmakers have also raised concerns that the case represents an attempt by Europe to encroach on the potential US tax base. Nonetheless SaintAmans, a leading force behind the OECD’s push to rationalise international tax policy, said that he did not believe the case was likely to serve as a precedent for tax treatment of future multinational profits.

Angel Gurria, head, OECD