G20: Getting the fundamentals right

Despite the slow recovery from the global financial crisis, the world is in a better place than we often believe.
As 2014 begins, it’s easier to be optimistic. In the United States, economic growth is set to rise to almost 3 percent with a million jobs created in the last year. In China growth is moderating but likely to remain over 7 percent and even the euro zone is finally growing again. Of course, the recovery remains fragile and the US taper will need deft management.
Nevertheless, it is worth remembering that globally income per capita has increased by more than 60 percent over the past decade alone and that the global middle class is expected to grow from 1.8 billion to around 3.2 billion in 10 years’ time. In many of the world’s most populous countries, such as China, India and Indonesia, many hundreds of millions have been lifted to the middle class.
Much of this has been the result of the way we think: It’s the conviction that freer trade and smaller government will strengthen prosperity; the instinct that empowered citizens can do more for themselves than government can ever do for them.
The lesson of recent history is that real progress is always built on clear fundamentals. You can’t spend what you haven’t got; no country has ever taxed or subsidized its way to prosperity; you don’t address debt and deficit with yet more debt and deficit; and profit is not a dirty word because success in business is something to be proud of.
After all, you can’t have strong communities without strong economies to sustain them and you can’t have strong economies without profitable private businesses. The challenge, everywhere, is to promote sustainable, private sector-led growth and employment.
This year, as Chair of the G20, Australia is in a unique position to help promote global growth. Economic growth is the result of global conditions as well as domestic policies.
The G20, comprising the world’s 20 leading economies, including Saudi Arabia, exists to deal with matters that are beyond the capacity of nation states to deal with individually on their own. Our agenda will focus on those issues where coordinated international action can add value: Trade, infrastructure, taxation and banking. As always, trade comes first — because every time one person freely trades with another, wealth increases.
At the very least, the G20 should renew its resolve against protectionism in favor of freer markets. Each country should commit to open up trade through bi-lateral, plurilateral and multilateral actions and domestic reforms to help businesses engage more fully in global commerce.
Over time, trade benefits everyone because countries end up focussing on what they do best. A more global economy with stronger cross-border investment eventually helps everyone because it generates more wealth and ultimately creates more jobs.
One side effect of globalization is a greater ability to take advantage of different tax regimes.
The G20 will address the issue of businesses that generate profits in order to chase tax opportunities rather than market ones. The essential principle is that you should normally pay tax in the country where you’ve earned the revenue.
For the leaders of countries generating 85 percent of the world’s GDP merely to agree on the principles needed for taxation to be fair in a globalized world would be a big step forward.
I hope to have a frank G20 leaders-only discussion about the biggest issues we face, including digitalization and its implications for tax, trade and global integration.
Almost every country has an infrastructure deficit and is struggling to finance the infrastructure it needs. Worldwide, the OECD estimates that over $50 trillion in infrastructure investment is needed by 2030.
It should be easier to get infrastructure projects off the ground — and we can do that through attracting more private capital into them through sensible pricing policies and better regulatory practices.
My hope is to bring policymakers, financiers and builders together to identify practical ways to increase long-term infrastructure financing.
The G20 assumed its current form in response to the crisis triggered by bad banking practices.
At the heart of the G20’s work is building the resilience of the financial sector: Helping to prevent and manage the failure of globally important financial institutions; making derivatives markets safer; and improving the oversight of the shadow banking sector.
Financial sector regulation is always a work-in-progress; the challenge for authorities is to keep abreast of developments, not lag behind them as they did in the lead up to the crisis.
As far as Australia is concerned, the task of the G20 is to make life easier for the people whom governments are duty bound to serve. Ultimately, the G20 is not about us in government; it’s about the people, our masters.