L20 Priority Recommendations for the G20 Finance Ministers and Central Bank Governors’ Meeting, 20-21 September 2014

L20 Priority Recommendations for the G20 Finance Ministers and Central Bank Governors’ Meeting, 20-21 September 2014

L20 Priority Recommendations
Room Document for the G20 Finance Ministers and Central Bank Governors’ Meeting
20-21 September 2014

G20 Action for Comprehensive Growth and Quality Jobs

The G20 Finance Ministers and Central Bank Governors committed to raise G20 GDP “by more than 2% above the trajectory implied by current policies over the coming five years” in February 2014. In the months since the “2% commitment”, it has become clear that the G20 is off-target. Global growth projections from main international institutions have been revised downwards for 2014. Slowing growth in emerging economies and the increasing threat of deflation in the Eurozone represent major risks to jobs and living standards. Growth in many economies is constrained due to fiscal austerity and stagnant incomes of working families. The longer unemployment remains elevated or continues to rise, the greater the risk that it becomes “structural” due to scarring effects.

The L20 believes that a fresh approach is needed. The world’s workers need a pay rise now and expanded public investment to kick-start growth and to ensure that it is job-rich and inclusive for sound long-term economic development. The G20 Labour and Finance Ministers acknowledged the validity of such a strategy at their joint meeting in Moscow in July 2013, where you committed to “labour market and social investment policies that support aggregate demand and reduce inequality, such as broad-based increases in productivity, targeted social protection, appropriately set minimum wages with respect to national wage-setting systems, national collective bargaining arrangements, and other policies to reinforce the links between productivity, wages, and employment”. The meeting in itself displayed the need for policy coordination between government departments and policy coherence among G20 members. The fact that implementation of these commitments is overdue confirms this.

The Brisbane Action Plan must put in place comprehensive measures to “support aggregate demand and reduce inequality” as committed to in 2013, and ensure policy coherence through coordination processes at national and G20 levels.

Economic simulations conducted for the Labour 20 (L20) show that a coordinated mix of wage and investment policies could create up to 5.84% more growth in G20 countries – compared to business as usual. The results are being presented at the G20 Labour Ministers meeting and come as the OECD Employment Outlook shows tepid growth and employment stagnation continuing until 2018 with projected global growth of only just over two percent. The L20 simulations suggest that “A coordinated policy mix in the G20 targeted to increase the share of wages in GDP by 1%-5% in the next 5 years and public investment in social and physical infrastructure by 1% of GDP in each country can create up to 5.84% more growth in the G20 showing the strong internal demand effects of wage-led recovery offsetting any negative effects on net exports or private investment.” This could move beyond the 2% target and actually halve the G20 Jobs Gap anticipated to be 64 million in 2018 on unchanged policies.

For the Brisbane Summit, we suggest the following policy actions:
• Bring forward investments in public infrastructure that create jobs and improve long-term productive potential by supporting the transition to a low-carbon economy that can generate green and decent jobs: national growth and jobs plans should include investment targets for the coming 5 years and help mobilise institutional investors – including workers’ pension funds – by implementing the G20/OECD High Level Principles on Long-term Investment by Institutional Investors;
• Raise low and middle incomes to reduce inequality and to inject purchasing power into the economy;
• Strengthen workers’ rights and social protection systems so as to formalize jobs and prevent formal employment from sliding into informality;
• Reduce precarious employment and promote inclusive labour markets by boosting activity rates of vulnerable groups, notably women, young people and minority ethnic communities, including through investment in childcare facilities and the “care economy”;
• Introduce global social protection floors to ensure the provision of universal health and elder care, and ensure basic public services;
• Support youth employment by introducing youth guarantees and comprehensive youth strategies, including quality vocational training and apprenticeships, as called for by the L20 and B20, and by increasing investments in quality public education.
Such a policy package with a mix of demand enhancing and structural measures would have the support of working people.

Action on Climate Change and Green Growth

The L20 proposes that the G20 Leaders’ meeting in Brisbane commit to an ambitious and fair share in reducing emissions to ensure the success of multilateral climate negotiations in Paris in 2015:
• Contribute substantial resources to the Green Climate Fund, including public sources such as the FTT or carbon tax revenues, and support the development of green bonds as a means to provide long-term options for responsible investors;
• Express support for the need for Just Transition strategies, aimed at protecting the jobs and livelihoods of workers facing challenges in energy-intensive and climate-vulnerable sectors;
• Set attainable targets in view of food and energy security and show strong support for sustainable economic activities.
Step up the Momentum on Taxation and Financial Regulation

The L20 supports the OECD Action Plan on Base Erosion and Profit Shifting (BEPS) endorsed by the G20 to curb tax avoidance by multinational enterprises (MNEs) and the commitment to automatic exchange of information between tax authorities to curb tax evasion. Both actions need to be lived up to. The L20 is calling on G20 governments to:
• Implement the OECD Standard for Automatic Exchange of Financial Account Information, promote ratification of the Multilateral Convention on Mutual Administrative Assistance and consider some additional flexible arrangements to facilitate inclusion of developing countries;
• Adopt a robust framework for MNE transfer pricing documentation, including adoption of a comprehensive and publicly accessible country-by-country reporting system, and review the permanent establishment status to take account of the changing business model of fully digitalised businesses as the BEPS Action Plan is reaching mid-term implementation;
• Mobilise financial resources and institutional capacities to help tax administrations in developing countries enforce agreements and meet the requirements of the BEPS Action Plan and the OECD Standard.
Progress on G20-agreed financial reforms is far too slow or insufficient. A prime concern is the low level of ambition in tackling “too-big-to-fail” (TBTF) banks and in helping financial markets, and investors shift away from short-termist and speculative behaviour towards patient, productive and engaged capital investment strategies. The L20 is calling on G20 governments to:
• Instruct the Financial Stability Board, the IMF and the OECD to pursue further work on structural reforms, including internationally harmonised measures to shield retail banking from volatile trading and investment banking activities;
• Consider a financial transaction tax (FTT) on over-the-counter derivatives to dampen speculation and channel resources into economic and sustainable development;
• Address regulatory and market barriers to long-term investment strategies, mainstreaming responsible business conduct by investors and ensuring accountability and transparency of financial intermediaries, asset managers and bankers.