World finance ministers complacent at threat of a synchronised downturn

G20 summit image“For the proposition that supply creates its own demand, I shall substitute the proposition that expenditure creates its own income”  (JM Keynes Collected Writings, Volume  XXIX,  p81)

G20 Finance Ministers met in Huangzhou, China recently and refused appeals from both the IMF and the OECD for “urgent collective policy action” that focussed “fiscal policies on investment-led spending”. Instead the world’s finance ministers concluded that “it’s every country for themselves”.

Keynes’s simple proposition is compelling: that expenditure will expand national (and international) income (including tax income) and thereby reduce the deficit. But it is a proposition that is anathema to OECD politicians, their friends in the finance sector and their advisers. Instead they adhere stubbornly to the antiquated classical economics embodied in Say’s Law. Continue reading

G20 should aim tax avoidance rules at the banks & super-rich

The latest OECD draft rules to regulate massive corporate tax avoidance are a real advance so long as the 44 countries concerned (90% of the world’s economy) stick to their resolve, push these measures through and resist the enormous lobbying that they can expect from a determined corporate push-back. But the past record on that is not good, and in particular Osborne is already threatening to break ranks in a manner totally discordant with all the other participants.

The new regulations should at last stop companies exploiting differences between tax regimes to achieve artificial tax avoidance on an industrial scale via what are called hybrid mismatch structures. Other draft rules will require multinationals to give tax authorities a country-by-country detailed breakdown of their activities and earnings, so that they will no longer be able to carry out their operations in high-tax countries but then artificially register their profits for tax in low or virtually no tax countries. Continue reading