Cen­tral banks near­ing lim­its of abil­ity to stim­u­late growth: OECD

The Financial Express - - PANORAMA -

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

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