Australia and the G20 have set an ambitious goal, but they will need to be more ambitious still if they hope to reach their global growth target over the next four years. While coming up with ideas has proved easy -- the latest meeting featured some 900 suggestions -- implementing genuine reform will prove a lot more difficult in Australia and abroad.
In his concluding remarks at the G20 Meeting of Finance Ministers and Central Bank Governors, Treasurer Joe Hockey reiterated the federal government and the G20’s commitment to increase global real GDP by an additional 2 per cent or around $US2 trillion over the next four years.
But there is plenty of work to do between now and November’s meeting of G20 leaders. The 900 plus suggestions, around 700 of which were new, would only increase global real GDP by an estimated 1.8 per cent if fully realised.
“We are 90 per cent of the way there to meet our 2 per cent growth goal,” Hockey said. “But I want to emphasise there is much more for us to do, particularly off a lower base.”
But the real work doesn’t begin until after November. Hockey is understandably pleased by the ideas and progress made at this meeting but make no mistake we have yet to achieve a single thing. Until the talk turns to action we cannot conclude anything else.
It is one thing to get together and discuss the virtues of growth and a strong reform agenda. It’s another thing entirely to get reform through parliament -- a fact that Hockey knows only too well.
The G20 has a good reputation for generating ideas but it has done a poor job of following through on them. What’s the bet that after a week of back pats and strong rhetoric, the leaders and central bank governors head back to their respective countries, lose themselves in domestic politics and never give the G20 growth target further consideration?
And who could blame them? Countries in the G20 are currently neck deep in global issues such as IS and the new war on terror, the Russia-Ukraine crisis and the ebola epidemic in West Africa.
As it stands, the G20’s push for greater growth has had an inauspicious beginning. The outlook for the global economy has eased considerably since the first Meeting of Finance Ministers and Central Bank Governors in February.
The IMF revised its economic outlook for the global economy down by 0.3 percentage points back in July and since then activity in Europe has faded, Japan contracted sharply in the second quarter and the Chinese property market deteriorated rapidly. A further cut to the global outlook is all but guaranteed.
It is also unclear whether Australia’s federal government has a pro-growth platform. If it does, it certainly isn’t a particularly inclusive agenda and fails to adequately address key deficiencies such as rising youth unemployment (Australia’s global disconnect on inclusive growth, September 12).
The G20 has, however, made stronger gains in addressing tax evasion by multinationals and it is easy to see governments pursuing this goal with greater urgency than the global growth target. That said, governments throughout the G20 face a massive issue to overcome the political influence these multinationals wield.
“We are unified in our mission to modernise global tax rules and close gaps that have emerged in recent years,” Hockey said.
Multinational tax evasion is the type of issue with which the G20 is uniquely qualified to address: both global and requiring cooperation among jurisdictions.
Global tax rules have failed to keep pace with the changing nature of business. With technology and communication improving at a rapid pace, global companies are well-placed to shift resources and profits or base their headquarters in locations with the most favourable tax systems.
But any progress on this issue will require cooperation with developing countries, many of whom have encouraged greater foreign investment through low corporate taxes.
“The G20 will continue to work with developing countries to ensure they benefit from our tax agenda,” Hockey said. “Tax evasion and avoidance is a global problem and the effects are sometimes felt hardest by the poorest people in the poorest countries.”
Finally, the G20 took the opportunity to discuss the ebola epidemic in West Africa for the first time. New estimates from the Centers for Disease Control and Prevention indicate that, in the absence of further humanitarian support, 500,000 people may be infected with the disease by the end of January as efforts to contain the disease fail.
These estimates are much higher than previous estimates and dwarf those contained within a World Bank report on the economic and financial costs of the crisis (The growing economic toll of West Africa’s Ebola crisis, September 19). With the number of infections and deaths increasing at an exponential rate there is naturally considerable uncertainty and speculation surrounding any estimates.
The G20 made progress on establishing a global growth target for the next four years. However, with G20 countries facing a variety of challenges, including war in the Middle East and the Ebola epidemic, it might take a backseat to more pressing issues.
The primary risk for the growth target is that structural reform may prove political unpalatable within many jurisdictions, including Australia, and may eventually find itself stuck in the ‘too hard’ basket. But pursuing greater growth (and more importantly, the jobs that generates) remains an admirable goal, and one that our federal government and the other G20 leaders should pursue with great urgency.