Amid a serious deterioration in relations with Indonesia, concerning decisions on Israeli settlements at the UN, and a curious performance by our new prime minister at CHOGM, Australia is about to take on the role of chair of the G20. It is not the ideal environment to do so. Regardless, we need to make the most of this significant opportunity.
Leading the premier group of economies for international economic cooperation and decision making is a rare privilege. It is a coveted global leadership role. Australia needs to fully utilise it if we are to live up to our reputation as a nation that punches above its weight. It is also an opportunity to deliver on a number of reforms we have long advocated through the G20, reforms that have domestic and international upsides.
The G20 grew in stature in the maelstrom of the global financial crisis. As capital markets froze and some of the world’s largest financial institutions disappeared, it is no exaggeration to say there was a genuine sense of economic Armageddon sweeping the halls of financial and economic policy-making. As experts scrambled for an off-the-shelf response (that of course did not exist), it became clear that concerted global action was necessary. Cometh the hour; cometh the G20. It proved vital in developing a coherent and co-ordinated response. Indeed, the G20 took on a sovereign position as the global forum for responding to the crisis. In no small way, it was at the instigation of Australia that the G20’s primacy was established.
A silver lining of the crisis of 2008-09 is that the evolution of the G7 into the G20 saw Australia finally get a seat at the table. As a large-to-middle sized economy, we had never sat at any of the international tables where the future of global growth and financial regulations were determined. Now, we have the opportunity to chair it and drive the agenda with vigour.
In recent years the G20 has entered a period of drift. It has not done as well as it should have in fronting up to many pressing challenges, and runs the risk of becoming a shadow of its former self. That is why world leaders are looking to Australia for strong and purposeful leadership, for Tony Abbott to take charge, not just go through the motions.
His treasurer, Joe Hockey, seems to have grasped the importance of the G20 being in antipodean hands. Hockey has been gracious enough to admit he underestimated its importance and I give him his due for that concession. It is difficult, however, to excuse Abbott’s failure to engage on this issue.
These past few months I had been anticipating a headland prime ministerial speech, or a major press conference announcing Australia’s core objectives for our 12 month G20 guardianship. My hopes have been forlorn. This turned to shock when he finally broke his silence on Monday, not with a major speech or announcement, but a photo op. With less than a week until Australia assumes the chair’s position, and in the absence of any previous major engagement on the matter, a photo op borders on treating such a prestigious position flippantly.
Abbott’s political promises to scrap Australia’s carbon price and the minerals resource rent tax are well known. But has he stopped to consider how discombobulated this appears now he is on the precipice of leading the G20? What are the Chinese or the Europeans to make of his first foray into the G20 with comments like "We know tax reform starts with abolishing the carbon tax and abolishing the mining tax"? It may come as a surprise to Abbott that carbon pricing, and resource rent taxation, are leading economic reforms across many G20 countries. They are part of the tool kit recommended by organisations like the IMF, the OEDC and the World Bank.
The world is also looking for continued leadership from Australia to ensure there is progress in stemming rampant tax evasion by multinational companies through base erosion and profit shifting. Australia led the push to address these issues by bringing them to the forefront of the G20 agenda, and tasking the OECD with examining them. The G20 has already endorsed the OECD’s action plan, and reached an agreement on achievable goals to implement when Australia hosts the G20. It is important that Abbott builds on this work. Six months ago, the then Labor government announced a $4bn integrity package to close down business tax rorts and loopholes. In short, we tidied up our own backyard ahead of our role hosting the G20. Hockey has now begrudgingly adopted most of it, despite telling a mining conference in May that “we don't like these changes and if we had a choice we would not accept them”. A small concession for Hockey is a big win for the Australian taxpayer.
That said, he will continue to allow multinational companies to claim an interest deduction against tax exempt income – even though the OECD has indicated that it is looking at rules to prevent base erosion through excessive interest deductions, or to finance the production of exempt or deferred income. The treasurer needs to continue the job of securing the revenue base and re-asserting Australia’s reform bona fides as we assume the leadership of G20. Australia can lay claim to legislation to modernise Australia’s transfer pricing rules and to protect Australia’s anti-avoidance rules. Despite opposing these changes at the time (including their prospective application), it is pleasing he is now talking about strengthening the transfer pricing rules further through the G20.
As eminent experts like Martin Wolf have recently warned, continued global growth is far from assured. Generally, I prefer to err on the side of optimism, but such respected voices cannot be ignored. Woolf said recently the recovery in western economies have "been decidedly weak … despite ultra-expansionary monetary policies". Whether you accept this assessment or not, the fact is global growth remains a challenge. Unemployment in the developed world is still too high, and there are still challenges in many of the emerging economies that have driven recent global growth. This outlook should serve to intensify calls for a rejuvenated G20.
The world is waiting, and remains hopeful that Australia’s principals will determinedly seize the opportunity to recharge the agenda, refocus it, and give the G20 renewed purpose.
Originally published on the Guardian Australia.