Global growth too tepid to reduce inequality – OECD

Nations move on tax dodging, without the US

PARIS, June 7, (AFP): The small pick-up in global growth expected this year is insufficient to reduce inequalities around the world, the OECD said Wednesday as it called on nations to launch reforms to remedy the situation.

“We need a more inclusive, rules-based globalisation that works for all, centred on people’s well-being” said OECD chief Angel Gurria, as the body released updated economic forecasts.

The Organisation for Economic Cooperation and Development, which provides analysis and policy advice to advanced economies, increased its forecast for global growth this year by two tenths of a percentage point to 3.5 percent on a recovery in global trade, even if remains below the levels before the onset of the global economic crisis. “This still-modest cyclical expansion is not yet robust enough to yield a durable improvement in potential output or to reduce persistent inequalities,” said the OECD’s chief economist, Catherine Mann.

She said changes to budget policies could both improve the well-being of citizens, as well as have positive effects globally.

Danish Prime Minister Lars Rasmussen, who was presiding over the OECD’s ministerial meeting, warned national policies needed to take into account those left behind by globalisation.

The OECD has found that deeper trade ties with global value chains increased productivity and well-being, but at the same also caused job losses, in particular in manufacturing.

The OECD also updated its country growth forecasts.

It cut its outlook for US economic growth by three tenths of a point to 2.1 percent after a weak first quarter.

Meanwhile, for the eurozone the OECD increased its forecast by two tenths of a point to 1.8 percent, led by Germany with 2.0 percent growth.

It raised its forecast for China by a tenth of a point to 6.6 percent, as it did for India to 7.3 percent.

The OECD confirmed its forecast that Brazil would escape recession this year.

It now sees the nation posting 0.7 percent growth instead of its earlier forecast of 0.3 percent.

More than 60 countries signed Wednesday a convention that aims to hinder multinational firms that shift profits around the globe to reduce their tax bills.

One notable absence from the convention was the United States, which judges its own rules sufficient.

“This convention is the result of very strong political will to put an end to aggressive tax planning,” said Pascal SaintAmans, director of the tax policy and administration centre at the OECD, where the convention was signed.

The Organisation for Economic Cooperation and Development, which provides policy advice to advanced economies, has spearheaded the international effort to get nations to harmonise their rules.

That would make it more difficult for multinationals to use legal loopholes to shift profits to low-tax jurisdictions using complicated accounting schemes, a practice often called tax avoidance or tax optimisation.

The initiative was undertaken amid growing outrage over large multinationals paying almost no taxes while the public in many nations faced tax and spending squeezes in the wake of the global economic crisis.

One of the convention’s main aims is to put an end to so-called treaty shopping, whereby multinationals take advantage of bilateral tax treaties between two countries to escape paying taxes.

It is a practice that has become so prevalent it is almost an “industry” according to Saint-Amans. He cited a Dutch government study that estimated there are between 8,000 and 12,000 tax lawyers whose practice is limited solely to treaty shopping.