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Joe Hockey and the G20 headed for promise fatigue

Treasurer Joe Hockey joins a long line of leaders unable to close the gap between promise and reality. Dave Hunt/AAP

Governments are notorious for missing targets. Look no further than France or Spain’s recent fiscal calumny, despite the European Union’s excessive deficit procedure.

Closer to home, the Association of Southeast Asian Nations (ASEAN) is no better. The ASEAN Economic Community (AEC) scorecard for 2008–11 showed that member countries fulfilled only 66% of their liberalisation measures.

The AEC will not hit its targets in 2015 either. Member governments have dragged their feet, meaning ASEAN will not – for now – be a genuinely free market, as impediments to the movement of goods, services, capital and labour remain.

And even the US missed its Basel III bank capital targets in 2013, despite a G20 agreement on a December 31 deadline.

The gap between promise and reality

The problem is that countries can produce all manner of programs and legislation, but ultimately fall short of their objectives due to an “implementation deficit”. This means the procedures or regulations are in place to deliver policy implementation, but states, administrators or regulators do not enforce compliance sufficiently.

Think of a city of 10 million making a commitment to catching and fining drivers for speeding … and then installing only 30 speed cameras. That’s an implementation deficit. Or an expectations-capabilities gap, if you prefer.

Following the inauguration of the G20 in 1999, the world’s largest economies have established targets across a range of policy areas, including investment, credit access, trade, tax avoidance, clean technology, job creation and education.

Long-term and youth unemployment have emerged as deep-seated problems since the GFC. Consequently, the G20 affirmed at the July 2013 Moscow G20 labour ministerial that it would seek to revitalise labour markets via a tranche of reforms. To gauge progress, the International Organisation of Employers (IOE) and the Business and Industry Advisory Committee to the OECD (BIAC) released a report in September 2014, tracking G20 member countries’ implementation of labour market reform commitments.

The IOE-BIAC survey obtained mixed results. Fully 25% of countries did not follow through on labour market reform following the Moscow ministerial. In some cases, a number of countries went backwards.

The labour market reforms relate to widening participation, apprenticeships, education investments, youth training and mature worker employment incentives for employers, public/private participation in training programs and encouraging girls and women to enter the workforce by increasing social protection (child care, parental leave), particularly for poorer households.

So labour programs have been implemented unevenly. But how successful have the G20 countries been in achieving their objectives in other policy areas?

Since 1996, independent analysis at the G8 Information Centre at the University of Toronto has monitored how effectively the G8 and G20 have delivered upon their summit commitments.

How does it work? Countries are named and shamed. Scoring operates on a tripartite scale: +1 for “full compliance”; 0 for “partial compliance” and -1 for “lack of compliance”.

The evaluation report following the St. Petersburg G20 summit (2013) gives a broad outline of how the G20 stacks up: who’s performing; who’s under-performing; and who’s merely treading water.

So, how did we do?

To be scrupulously fair, bear in mind that many of the commitments of the Australian government were made under the ALP government prior to, and during, the September 2013 St. Petersburg summit. However, the evaluations also consider how the Coalition government has responded to, or amended, extant commitments, since taking office. It’s important to note that we can’t hold an incoming government to policies or expenditures it did not approve and was not a party to.

Australia’s performance: a mixed bag

In some respects, Australia’s record of implementation is like a curate’s egg: good in parts; rotten in others. But across a range of programs, it looks positively like a cow on ice. There are no prizes for guessing in which policy areas the Great Southern Land has slipped up.

Vocational training programs

Australia scored a big, fat zero in this category. That puts up in the same corner as Indonesia, China, Japan, South Korea, Mexico, Turkey and the US. The main criticisms were that:

“Australia has only partially complied with its country-specific commitment to provide significant additional funding for schools… Although Australia has also announced further funding for higher education, it has also announced the end of further funding under the Education Investment Fund for the foreseeable future.”

In this policy area, Australia is judged to have only “partially adhered” to its commitments. Not a good start.

Tax compliance and tax avoidance

No backsliding, but much paper shuffling in these two categories. More than half the G20 received a 0 for “partial compliance” in tax compliance. The G7 plus Argentina and India were the best performers, but more than the half the G20 delivered less than sterling performances.

Some of the worst offenders in the profit shifting and transfer pricing business are not even G20 members. Yes, I’m looking at you Belgium, Ireland, Liechtenstein and the Netherlands.

In Australia’s case, the compliance report canvasses the mining tax (and the paucity of revenue raised) and the repeal of the Mineral Resources Rent Tax. It also notes the additional resources accorded the ATO to target high-wealth individuals who engage in unlawful tax avoidance.

Job Creation

All G20 countries received a +1 for this category, with the exception of Argentina (0) and Saudi Arabia (-1). Australia received a +1 for taking steps “to create formal jobs.” The Coalition’s programs with financial backing, namely, the Job Commitment Bonus; Take Up a Job Program; the Tasmanian Jobs Program; and the Seniors Employment Incentive Payment, were singled out by evaluators.

That gets Australia a +1 for minimising tax avoidance. Indeed, Australia is lauded as a “pioneer” in tackling this thorny policy area.

My ATO contacts tell me that they’re also seriously targeting corporations engaging in egregious forms of transfer pricing, following legislation passed in recent years.

*Clean energy * From hero to zero in this area. Repeal of the Clean Energy Act, together with funding cuts for the Australian Renewable Energy Agency appear to be the main culprits. In addition, the repeal of the emissions trading mechanism led to a final evaluation of “partial compliance.” That places Australia in the same league as Canada, Italy, Japan, South Korea and Turkey. Not a very good league, either.

Credit access

An interesting category. No one scores well. Except the US, UK and Russia. Now that’s an odd ménage à trois.

The criteria for improving access to credit includes support for small businesses and individuals, more loans and more transparency for consumers and enterprises, so they are more fully informed of their credit rights and responsibilities.

Australia already has a range of programs in place, but has not taken many recent steps to improve credit access (try getting a car loan or mortgage if you’re a sole trader running your own small business, for instance. You. Are. Not. Creditworthy). For these reasons, Australia receives a 0.

Dodgy financial advisers may take some, er, credit for this.

Labour policies

The Coalition is accorded much credit in this category, as the report cites a number of 2014 initiatives. “Australia has taken actions to combat unemployment and foster the creation of decent work and quality jobs, including the actions directly aimed at under-represented and vulnerable groups.”

No mention of the collapse of the car industry, public sector retrenchment, white-collar mining redundancies or submarine offshoring. The news may not have reached Toronto yet. Score: +1.

Climate change

We’ll conclude with the most contentious area. Even as the UN Climate Change conference meets in New York, Australia has proffered no new initiatives in this area.

However, Canberra is no solo artist in this category. Ten members of the G20 are charged with foot-dragging and score a resounding -1. It’s also the emerging economies (China, Turkey, Mexico) and resource-rich countries (Australia, Canada and Russia) that are guilty as charged.

Adding fuel to the fire, Australia has openly baulked at living up to the G20’s commitment to the Green Climate Fund, which is scheduled to be capitalised and operationalised by Kyoto Protocol signatories. But the evaluators’ verdict is stern:

“Australia has failed to comply with its commitment to support the operationalization of the Green Climate Fund (GCF) through a failure to pledge any financial contribution.”

The road to Brisbane

Treasurer Hockey has declared his priority for the Brisbane G20 summit is attacking corporate profit shifting, which has seriously eroded the revenue side of the G20’s taxation base, known as “base erosion and profit shifting” (BEPS).

Briefings I’ve received in this area do not suggest to me that G5 countries (US, Japan, Germany, France and the UK) have approached this problem with sufficient seriousness (in fact, G20 diplomats will not even discuss the subject). China, too, haemorrhages capital, in the form of illicit capital outflows, but appears either unwilling or unable to address the problem head-on.

Treasurer Hockey may be well-intentioned and sincere about tackling this problem. But I suspect he will find few leaders willing to listen, let alone act.

But Hockey is right that the time to tackle this problem is long overdue. It’s a critical area of global public policy that continues to fester away, as countries bleed tens of billions in taxation revenues.

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