G20 is PM’s chance to prove he can play in the big league
BY this time next year 20 world leaders, their economic decision-makers and several thousand officials, journalists and hangers-on should have passed through Australia. It will have cost the nation about $400 million to house, feed, and secure them at the G20 for three meetings in Sydney, Brisbane and Cairns.
Large sums indeed, but for Australia and the Abbott government it is an important opportunity to provide leadership on the world stage. For Tony Abbott it will be an excellent chance to help lead the global agenda and for his many critics to be forced to eat humble pie as he is able to prove himself up to the task in international diplomacy.
The G20 arguably has become the premier forum for international dialogue. Its members represent two-thirds of the world’s population, about 85 per cent of global gross domestic product and more than 75 per cent of global trade. What originated as a finance ministers’ forum was elevated at the height of the global financial crisis to encompass world leaders; to co-ordinate an effective response in the face of a global meltdown.
Despite the pivotal role of national leaders, the G20 is still likely to be dominated by finance ministers and treasurers given that next year they will control two of the three key events. G20 members rotate their presidency – Australia has it for next year.
But with no permanent secretariat, its form of leadership is a weakness and a strength. Each president brings a new agenda. At present there are more than 60 items for consideration, ranging from Mexico’s push for green growth to French concerns about commodity price volatility, plus a concentration on crucial international issues such as promoting economic growth.
To address what some participants perceive as governance challenges, some G20 members are pushing for a permanent secretariat and formal criteria for membership selection to ensure continuity and follow-through on commitments.
The alternative, equally cogent, view argues that the body should remain nimble, with no heavy bureaucratic secretariat and with a defined and focused agenda, to reduce co-ordination challenges and make quick responses in times of crisis possible.
For now it remains nimble and Joe Hockey, who chairs the finance ministers stream, has set himself the task of paring back what is becoming an unwieldy agenda to focus the grouping to bring about better outcomes for the world.
Australia’s spotlight will fall heavily on international tax avoidance, particularly by digital companies, with the G20 desperate to shift the balance away from corporations and back to nation-states, which are seeking much-needed tax revenues. Changes to the global economy have outpaced tax systems and governments face increasing difficulty collecting tax where economic activity occurs. As the Prime Minister and Treasurer have highlighted, this “leaking bucket” of tax erosion makes it increasingly hard for governments to maintain growth-friendly tax systems.
It also makes it increasingly difficult for nations to manage their budgets in a sustainable way, while delivering much-needed services to their citizens.
Australia will lead stronger international co-operation in the G20 to combat the tax-base erosion and profit-shifting, including better exchange of information. This will modernise the international tax system and strengthen public finances.
One upshot of digital disruption is that older taxpaying companies are frequently put out of business or have their revenues severely limited by digital companies that pay little tax.
In July, at the request of G20 finance ministers, the OECD launched an action plan on “base erosion and profit-shifting”. The consensus is that national tax laws have not kept pace with global corporations, fluid capital and the digital economy. This leaves gaps that can be exploited by companies that avoid taxation in their home countries by pushing activities abroad to low or no-tax jurisdictions.
As the OECD action plan states: “The digital economy is characterised by an unparalleled reliance on intangible assets, the massive use of data (notably personal data), the widespread adoption of multi-sided business models capturing value from externalities generated by free products, and the difficulty of determining the jurisdiction in which value creation occurs.”
This raises fundamental questions as to how enterprises in the digital economy add value and make their profits, and how and where such income is assessed for purposes of taxation.
Hockey’s other key objective for the G20 next year is infrastructure and creating the right conditions to encourage substantial sums for private-sector investment.
This target aligns with global equivalents, particularly in emerging economies such as Indonesia. This is because building infrastructure will drive desperately needed growth in the short term and make economies more productive in the long term.
The OECD estimates more than $US50 trillion ($56 trillion) in infrastructure investment will be needed worldwide by 2030.
Funding requirements of that size demand co-operation between governments and the private sector. Hence the challenge is to find a viable solution to get big infrastructure projects off the ground.
Having worked together to prevent an economic collapse following the GFC, G20 nations need to find the commitment to meet the policy challenges ahead. All members have little choice but to effectively promote the funding of large-scale international infrastructure, given that without such sustained growth even the biggest nations may face years in the economic and fiscal doldrums.
If Abbott can provide international leadership and if Hockey can cut the clutter and get his fellow finance ministers to focus on efficient taxation systems and the promotion of sustained economic growth, the G20’s reputation will only be enhanced.
Ross Fitzgerald is emeritus professor of history and politics at Griffith University.
‘The Weekend Australian’, December 28-29, 2013, INQUIRER p 18.