Thursday 28 Jan 2021 | 00:52 | SYDNEY
What's happening on

About the project

From 2012 to 2016, the G20 Studies Centre at the Lowy Institute for International Policy produced independent research on global economic governance and the role of the G20, and supported research networks in Australia and overseas. The Australian Government provided funding to establish the Centre.

The archives of the Centre’s quarterly G20 Monitors (as well as other publications from the G20 Studies Centre) are available below. The Monitor brought together opinions from Australia and around the world to discuss developments in the G20 and suggest policy ideas.

The Lowy Institute will continue to comment and publish on economic governance issues.

Latest publications

What do G20 leaders need to focus on to make Antalya a success?

The G20’s tenth leaders' summit will take place in Antalya, Turkey at the end of this week. Predictions about what will eventuate from the Summit vary from John Kirton’s declaration that it promises significant success to Matt Goodman’s cautioning against expectations of a substantial summit.

Antalya Summit preparations. (Photo: Volkan Furuncu/Anadolu Agency/Getty Image)

So what should we expect? On the balance of probabilities, I would tend towards Goodman’s caution.

The official narrative from Turkey is the summit will focus on three priority 'Is': implementation, investment and inclusiveness. As Ussal Sahbaz and Feride suggested in September, the G20 has made headway on all three. Leaders will welcome an accountability framework for G20 efforts on growth, each G20 member will deliver a strategy to boost domestic investment, and there will be enhanced support for youth employment, small and medium enterprises and women’s empowerment.

But these outcomes are modest, particularly when compared to G20 past glories.

What transpires at Antalya is unlikely to jolt global growth out of its current malaise, or address the key risks facing the global economy. The leaders communique is not expected to make a big difference in critical areas like multilateral trade, IMF reform and energy governance.

It just doesn't feel like we are preparing for a gathering that will change the world.

The G20 has made some important advances this year outside of the host’s priorities. The global infrastructure hub  is now established in Sydney, and substantive progress has been seen in minimum global standards in tax and for large global banks.

The OECD's delivery of the two-year base erosion and profit shifting project will, when implemented, modernise international tax rules and clamp down on tax avoidance by multinational corporations. It should be seen as a success story for global economic governance.

Meanwhile, the Financial Stability Board flagged at its September meeting that leaders will be able to endorse what can be viewed as the final pieces in the global financial regulatory policy puzzle: the final standard for TLAC, or total loss absorbing capacity, for 30 global systemically important banks, and Higher Loss Absorbency (HLA) requirements for the nine global systemically important insurers.

Jargonistic titles notwithstanding, these are important developments. Asking the world’s biggest and most interconnected banks and insurers to hold yet more capital will go a long way towards addressing the ‘Too-big-to-fail'phenomenon, and reduce the need for taxpayer-funded bailouts.

But back to Antalya. There are three crucial questions that should be testing leaders at this Summit: can governments deliver on growth; will the G20 provide important momentum in the lead up to the Paris UN climate change negotiations, and what will governments collectively do to address the Syrian refugee crisis?

One year on from the Brisbane G20 summit, it has become increasingly difficult to overlook the G20’s growth dilemma. The Brisbane Action Plan unveiled last November contained more than 1000 measures the G20 leaders all pledged to implement. Once in place, these measures were predicted to translate into a 2.1% boost to G20 GDP by 2018. These were difficult but necessary actions affecting trade, competition, employment, infrastructure and investment that would lead to structural reform.

Turkey has claimed significant progress in implementation but the latest IMF forecasts have not attributed any increase in growth to the G20’s efforts. And in the meantime, the international economic outlook has worsened to the point where the world economy teeters on the edge of global recession.

Ideally at this week's Summit, leaders would start by recognising they can't magically dial up more growth, that more ambition is needed to implement politically challenging structural reforms, and that much more action is required to plug investment shortfalls in 2016.

On climate change, discussions are still well short on limiting warming to the agreed 2°C and there is disagreement on key issues like climate finance. Leaders will need to go much further than their energy ministers did in October if they are to make a substantive contribution to the UN negotiations and face up to the insidiously weakened state of the world’s great multilateral institutions.

The calls from the EU and broad segments of society for the G20 to address the Syrian refugee crisis highlight another hot-button issue demanding G20 attention. I have previously written in 'Syrian Refugee Crisis: Time for the G20 to Step Up' that the G20 needs to respond to the humanitarian crisis if it wishes to remain the premier international economic forum. Consistent with G20’s core mandate on economic issues, this should be a narrow discussion not focused on ‘security' elements of the crisis, nor the root causes of refugee crises generally. The G20 isn’t a 'doing' body either. A pragmatic focus will need to be on recognising the economic/humanitarian costs of the refugee crisis, and on providing political drive to bolster the UN refugee architecture.

In The G20 and the Future of International Governance, Mike Callaghan stresses the need for more and better coordination on international economic issues.

In Antalya, the G20 Leaders need to be bold and go beyond the script officials have prepared for them. They should recognise the progress to date on investment, tax and finance; answer a few big questions on growth, climate change and refugees; and set the scene for more ambition on trade, energy and the international financial architecture in 2016.

If they can do this, they will continue Australia’s efforts to put momentum into the G20 and set a solid platform for China's 2016 Presidency.

Then we would be able to declare the Turkish Summit a success.

Meeting fatigue? G20 needs to guard its brand

The Turkish presidency of the G20 is scheduled to host an astounding 86 meetings in 2015. That's an average of more than one and a half per week and it's a lot more than the then-record 60-odd meetings held in 2014. This year's official tally also underestimates the total number of gatherings. To give one example, the Think20* grouping of G20-focused think tanks has convened 11 meetings this year, but only the November T20 summit makes it onto the official meeting list.

Scheduling all these events is a significant logistical challenge, and one that highlights the magnitude of the task awaiting future G20 hosts. But it's not just the sheer volume that's a concern.

The nature of interaction has shifted as well this year. While government officials and ministers are still there, convening ever more frequently (41 such meetings scheduled in 2015) and making most of the decisions on G20 outcomes, two new trends have also become apparent.

The first is the ever-expanding list of consultations that now includes energy ministers, agriculture ministers and trade ministers, among others. Through these interactions, the G20 is taking up more of the machinery of governments the world over. As the links within governments increase, the focus becomes more niche and 'forward leaning'. Overall, the forum feels less dynamic. There is less expectation that any meeting will yield significant advances.

The second, surprising addition has been the sheer number of 'indirect' meetings. These are the symposia, workshops and conferences where decision-makers take a back seat and the objective is to come up with ideas and innovations to influence future policy. Given there are 45 such events this year, they will account for the majority of G20 meetings. 

This means attendees at the typical G20 meeting in 2015 are more likely to be 'track two' representatives, drawn from international organisations, academia, business or some other group , as opposed to officials or ministers responsible for G20 policy.

The latest G20 Monitor calls for a top-down strategic review of G20 'second track' outreach and communications, with a particular focus on G20's formal engagement with business (B20), civil society (C20), labour groups (L20), think tanks (T20), women (W20) and youth (Y20). The main goal of this alphabet soup of engagement groups is to provide a conduit into particular segments of society. They suggest G20 policies of interest to their constituency, and give feedback on G20 actions. They have the potential to increase G20 legitimacy in the eyes of the public.

However, engagement is not a cost-free exercise, and G20 officials must weigh up the time spent on these discussions with the time that could otherwise be used to target substantive outcomes on the G20 agenda.

A frank assessment is that all engagement groups need a sharper focus that translates into fewer, more pragmatic and high-impact policy recommendations to justify ongoing investment by the G20 in second track events, particularly in the context of increased questioning of G20 dynamism and relevance.

There are several areas where the G20 can act. In the new book The G20 and the Future of International Economic Governance, Susan Harris Rimmer suggests that China commission a strategic review of G20 outreach and communications, and seeks to formalise the structure of negotiations through a three-year troika strategy. I agree. Future hosts will need to guard the 'G20 brand' more jealously, streamline engagement and cut down on the number of G20 conferences organised by international organisations.

A top-down assessment of the value of indirect meetings has become essential. The bar should be set high, and only those that can demonstrate value should be involved in the G20 process.

Engagement recommendations should become more timely and give a president the chance to respond in a considered manner to the calls from society. Barry Carin from the Centre for International Governance Innovation and I believe that, instead of disparate meetings held in the lead-up to, or during, a leaders Summit, a single, Davos-style engagement summit event early in a G20 presidency would provide an appropriate opportunity for representatives of 'society' to consult, prepare, and cogently present their views in a single public forum.

G20 presidents should also sponsor a website for collating and publicly disseminating the recommendations of all engagement groups, and guarantee funding only for those groups that have been found to add value. The focus should be on ensuring that G20 outreach is more narrowly targeted towards assisting leaders and finance ministers in making decisions that deliver substantive economic policy outcomes.

G20 bashing has become a bit of a tradition in some circles, typically by those with only indirect input into the process. Some of the criticism is valid, but much is unjustifiably harsh. Critics would do well to remember that, while there is always room for improvement in the forum itself, society also needs to improve its interactions with the G20.

*Disclaimer: the author has been a part of the Think20 process in 2015.

Photo Ercin Top/Anadolu Agency/Getty Images

G20 Monitor: G20 outreach to society in 2015

G20 engagement group representatives from Business (B20), Civil Society (C20), Labour (L20), Think Tanks (T20), Women (W20), and Youth (Y20) have contributed to the 18th issue of the G20 Monitor. The representatives address how their groups have contributed to the G20 process in 2015, their priorities for the G20, and what would constitute success in terms of possible outcomes from the Antalya Summit.

Photo: Y20

At last, progress on tax: OECD and G20 tackle the revenue challenge

A thousand pages on corporate tax shenanigans is not normally the sort of thing that captures the public imagination. But amid the technical detail of international tax rule changes proposed by the OECD lie some of the most fundamental governance developments of recent years.

The aim of the OECD-G20 Base Erosion and Profit Shifting (BEPS) package of 15 reforms released on 5 October is to help governments close the gaps that allow corporate profits to 'disappear', or be artificially shifted to low/no tax environments.

As Mike Callaghan has noted, whether tax laws can keep up with globally operating businesses and constant technological change is a fundamental challenge confronting governments.

In the forthcoming volume The G20 and the Future of International Economic Governance, Miranda Stewart suggests that tax governance is still at an embryonic stage, with no global accord, and the world remains heavily reliant on bilateral cooperation. Some key elements of global tax arrangements are not far advanced from what was agreed by the League of Nations back in the 1920s.

It's clear international tax rules have evolved much more slowly than the globalised economy. Technical progress was made at the OECD throughout the 1990s and 2000s on modern and cooperative international tax systems, but a lack of political drive meant the research didn't translate into policy. This changed with the elevation of the G20 to the leader level in 2008 and a shift in public opinion in light of incriminating examples of tax avoidance strategies by multinationals such as Google, Starbucks, and Apple.

Some 60 countries have agreed to the final BEPS package and it was also endorsed by G20 Finance Ministers in Lima last week. It is complex but can be understood in three broad areas.

The first is to end the divorce between the location of profits for tax purposes and the location of value generated. There are a number of technical matters here. Notable is an agreement to cooperate on strengthening guidelines around transfer pricing (the practice of lowering a multinational company's tax bill though the pricing of offshore transfers between its subsidiaries). Redressing a weak interpretation of the arm's length principle will make it much harder for companies to use creative risk accounting so their profits accrue in very low tax jurisdictions. Work is also ongoing regarding the interest-deductibility of a company's inter-group lending. The leader of the BEPS work at the OECD, Pascal Saint-Amans, predicts countries will converge over time to between 10-30% of earnings before investment, taxes and amortisation (although it will vary by institution and industry). This has the potential to change effective tax rates over time.

The second area is transparency, with more information set to be passed between tax authorities. G20 countries have already agreed to the automatic exchange of tax rulings by 2018. This will be joined by country-by-country reporting to tax authorities by large multinationals with annual turnover of more than $750 million. This covers 10% of multinationals but 90% of profits, and is a significant accomplishment, although already it appears a quarter of the companies affected may miss the first deadline for country-by-country reporting.

The third focus is implementation. In the post-GFC era even agreed policy is proving hard to ratify, and the delivery of a policy package needs to be seen as the 'end of the beginning'. The effectiveness of this project will be determined by widespread and consistent implementation of agreed actions. Some actions, such as the transfer pricing interpretation, can occur instantaneously, but reforms requiring amendments to tax treaties will take much longer. In another positive development, almost 90 countries are collaborating on a multilateral instrument, to be signed in 2016, that will fast-track changes to BEPS provisions for as many as 3600 bilateral tax treaties.

The risk remains that countries will go their own way to escape multilateral tax avoidance efforts, like the UK which introduced a diverted profits tax earlier this year — a development that caused embarrassment at the OECD. Global fragmentation in tax arrangements that undermines the hard-won multilateral agreements of the past two years will continue to be a threat.

It will also be important to ensure efforts to raise global tax standards do not come at the expense of the already stretched tax administration capacity of developing economies. Building enduring tax administration capacity is not a simple exercise, and it will require a concerted emphasis from G20 countries and technical bodies such as the OECD, IMF and World Bank.

Critics, including the grumpy tax ideologues at The Economist, will argue the package could be stronger, less complex, more transparent; some will hold that in a perfect world we might not tax corporate income at all. There will also be complaints about the long and messy path of implementation that lies ahead. There is some truth to all these criticisms, although they often ignore the pragmatic realities of global decision-making. Context is also important. BEPS is one element of change in international tax governance arrangements. It's part of a broader tax story.

The BEPS agenda should, however, be seen as a success story for global economic governance. It will be a valuable case study for future textbooks wanting to demonstrate how technical expertise and political drive can interact and provoke real change.

Image courtesy of Flickr user

The G20 and the Future of International Economic Governance

The G20 has become a key international forum since it was set up in 1999. When Australia began its presidency of the 2014 summit in Brisbane, many commentators suggested that Australia’s chairing of the G20 would reinvigorate it. This timely book looks at what that meeting achieved and what has happened in its wake. Crucially, it asks whether the G20 is poised to broaden its influence and scope beyond economic regulation into issues of security and climate change.

In The G20 and the Future of International Economic Governance, expert contributors, many of them inside players, assess the impact of the summit in the context of the year’s broader geopolitical challenges, including Russia’s temporary expulsion from the G8 and the failure of the US to ratify its governance reforms to the IMF. Taking stock, the authors question the effectiveness of the G20, many optimistic about the leadership it can offer on key global issues to do with trade liberalisation and international tax, not to mention climate change. Together they ask, what is the future of the G20 and other ‘Gs’?

The G20 and the Future of International Economic Governance will be available in November 2015.

Order Here


Turkey's G20 Summit approaches

By Tristram Sainsbury, a Research Fellow in the Lowy Institute G20 Studies Centre, and Hannah Wurf, a Research Associate in the G20 Studies Centre.

Next week, G20 finance ministers and central bank governors will gather for their third meeting during Turkey's presidency. With just two and half months until leaders assemble in Antalya for this year's summit, these meetings give the G20 an opportunity to confirm 2015 outcomes and demonstrate that the G20 remains the premier forum for international economic cooperation.

While Turkey is gearing up for the G20 Summit, the government remains in a precarious situation. President Erdogan's Justice and Development Party has not won the majority it needs to govern alone, and a coalition seems increasingly unlikely. The next round of elections could take place on 1 November, two weeks before the G20 summit. In the meantime, Erdogan has announced his intention to lead the summit. This is against the backdrop of a Turkish bombing campaign against ISIS, the 1.8 million-strong Syrian refugee crisis, and another terrorist attack in Istanbul this month.

This is not to downplay the successes of the Turkish G20 presidency to date. As Ussal Sahbaz and Feride Inan outline in the latest Lowy Institute G20 Monitor, Turkey has made headway on all three of its priorities this year (investment, inclusiveness, and implementation).

Turkey has introduced two initiatives to add to the G20's ongoing efforts to pursue strong, sustainable, and balanced growth: an accountability framework and country-specific investment strategies that each G20 member will prepare. Turkey has also launched a World Small and Medium Enterprise (SME) forum promoting access to finance and aimed at integrating small and medium businesses into the global economy. The narrative of 'inclusiveness' will help the legitimacy of the G20 in non-G20 countries (eg. efforts to address energy access in Sub-Saharan Africa).

However, the G20 faces some long-term dilemmas. It will need to make progress across the broader G20 agenda, including decisions on the capital requirements for too-big-to-fail banks and the final eight recommended actions as part of the two-year G20/OECD Base Erosion and Profit Shifting agenda, and outline the G20's next steps in these areas.

Moreover, the second half of 2015 is crowded with global summits, including the UN Sustainable Development Summit in late September and the UN Framework Convention for Climate Change meeting in December. Decisions made at these conferences will define the future direction in key fields of G20 interest.

Following on from the Australian presidency, there are still questions about how to boost growth (in particular, what countries will do to reach the 2% growth target) and the progress of the Global Infrastructure Hub. The Hub now has a CEO (Christopher Heathcote) and a website domain, although details remain scarce. It is expected to deliver its initial business plan at the third finance ministers' meeting.

More ambition is needed for the G20 national growth plans. Earlier this year, we highlighted the need for more accountability to encourage implementation of the plans. More recently, Adam Triggs from the Australian National University has argued that 'critical reforms in key countries are not being implemented and...there is not the political will to fill the gap'. Last week, the Treasurer announced that Australia would be redrafting its growth commitments. More countries will need to do the same.

The global economy is still experiencing sluggish growth and faces a number of ongoing risks, including the eventual raising of US interest rates, the slowing of the Chinese economy, and the ongoing Greek sovereign debt saga. The G20 will have to respond, and Turkey will need to take a lead over the coming months in order to define its reputation as G20 president.

G20 Monitor: Investment, inclusiveness, implementation, and health governance

The 16th issue of the G20 Monitor examines the three priority ‘i’s of the 2015 Turkish Presidency: inclusiveness, implementation, and investment. It explores the basis for the ‘i’s, assesses progress made on the priorities to date, and suggests policies the G20 can pursue for each priority. It also explores the prospects for further G20 attention on global health governance in light of the Ebola epidemic of 2014.