Are the IMF and G20 ready to get serious about tax evasion?
At the IMF Spring Meetings in DC, tax policy topped a varied agenda. Business journalist Kevin Carmichael shares the highlights, from the impact of the Panama Papers, to China’s economy and Canada’s surprisingly strong presence in Washington.
senior fellow, Centre for International Governance Innovation
The International Monetary Fund (IMF) and World Bank Group met late last week in Washington, DC, for their annual Spring Meetings.
Business journalist and CIGI senior fellow Kevin Carmichael attended the sessions and debriefed OpenCanada on whether the institutions are truly ready to tackle international tax evasion and how threatening the Chinese economy is to global financial stability.
What generated the most buzz last week?
Tax evasion. It was an easy one for the G20, as it already had endorsed the OECD’s efforts to tackle base erosion and profit shifting. The G20 (finance ministers and central bankers) met ahead of the IMF meetings and ordered the OECD to “establish objective criteria” to identify countries that remain outside the international consensus on tax transparency. The deadline is the next G20 finance ministers’ meeting in July. Also, “defensive measures” will be considered if existing tax havens fail to get on board. Panama wasn’t named, but it was clear which country was the focus on the G20’s attention and that the language was meant as a threat. Canada’s finance minister, Bill Morneau, told reporters that he didn’t think the G20 would be forced to act; in other words, Morneau and the G20 think their threat will work.
It’s too bad the G20 couldn’t show the same conviction when it comes to slow global economic growth. There was a feeling that the global economy was in slightly better shape than it was earlier this year. That’s mostly because financial markets are calmer. But growth still is weak, and the IMF once again revised its growth outlook lower. IMF Managing Director [Christine Lagarde] put it this way: policy makers are less anxious, but remain just as concerned that the global economy will fail to gain momentum. Lagarde insisted there is a “collective determination” to do something about it, but there wasn’t a lot of evidence of that.
China's economic slowdown was front of mind last year — has it gotten worse since then? Is there a consensus on what to do about it?
Ahead of the meetings, new data showed that China’s gross domestic product grew 6.7 percent in the first quarter, within the government’s target of 6.5 percent and 7 percent. That seemed to offer some comfort. And Chinese officials said much of the negative sentiment about their economy came from a lack of understanding of how China works. That could be true. It’s important to recognize that growth at 6 percent or so still is a lot of growth. Still, China is one of the things that worries the IMF most. Not because it foresees an economic collapse, but because Chinese demand is such an important factor in setting the prices for commodities on which so many emerging markets rely. And because China has piled up a lot of debt. There are a lot of red flags when it comes to China.
Lagarde responded to the Panama Papers by saying international tax rules "appear to be skewed" toward the rich. Do you think revelations from the leak came as a surprise? What’s next on this?
I suspect the only surprise was that details of how the rich and famous evade taxes would emerge in this way. I think everyone here knew that this kind of thing goes on, and the Panama Papers will put pressure on leaders to explain why they have allowed it to go on for so long. As I noted, the G20 through the OECD was getting serious about international tax evasion. The Panama Papers could provide an impetus to speed up that work. But a big push on tax is going to affect a lot of powerful people, so there will be pushback. Some took note of the fact that the G20 opted against shaming Panama by name in its communiqué. That would have been a natural thing to do given the circumstances and the public anger over the revelations. It suggests that Panama still has some powerful friends.
What are the biggest threats to the global economy at the moment and what upcoming events are worth keeping an eye on?
There are lots of threats, but I think China is key. If it can keep growth from sliding below 6 percent and its leaders continue recent efforts to communicate more clearly about what they are attempting to do, then global stability should follow. There would be no obvious reason for commodity prices to fall and for capital to flee emerging markets. But investors seem unwilling to give China the benefit of the doubt, so the slightest hint that something in China is going wrong could trigger more of the volatility that we saw earlier this year.
I would keep an eye on the Chinese data calendar and maybe the next meeting of G20 finance ministers and central bank leaders, which is scheduled for July 23-24 in Chengdu.
Did any surprises come out of the discussions?
Is disappointment the same as surprise? The meetings were dull, overall. Maybe that’s a good thing; excitement tends to correlate with crisis when it comes to the IMF. But there were no moments that I witnessed that suggested the global community was serious about breaking out of this economic malaise.
I’ll add that I was pleasantly surprised to see a strong Canadian contingent at the public discussions that took place around the meetings. Morneau, Environment Minister Catherine McKenna and Carolyn Wilkins, the senior deputy governor of the Bank of Canada, all participated in separate events. It had been a while since I had witnessed that level of engagement. It was good to see.