OECD Observer
News brief– Q1 2014

Inequality warning–; –as income taxes rise; Economy; Soundbites; Country Roundup; Sovereign borrowing to fall; Tax information sharing advances; Take tourism seriously; Plus Ça Change... 

Inequality warning–

Income inequality and social divisions could worsen and become entrenched if governments don’t act quickly to boost support for the most vulnerable in society, an OECD report argues. Budget constraints in many countries pose challenges for tackling the social fallout of the crisis, with the public spending on disability, family and unemployment benefits–these rose early on in the crisis–feeling the pressure. Coverage of social protection programmes helped many people, but many others were left with little or no support. Governments should therefore consider any further expenditure cuts very carefully, the OECD argues, pointing out that the long-term commitment to restore public finances should not happen at the cost of widening inequalities and social gaps.

To offset this, governments should target social spending and investment on the most needy, and avoid across-the-board cuts in social transfers. This is particularly true for housing and child or family benefits as these often provide vital support to poor working families and lone parents.  

For more on Society at a Glance 2014, visit www.oecd.org/social/societyataglance.htm

–as income taxes rise

The crisis has squeezed government budgets, forcing taxes to rise in many cases. Personal income tax has risen in 25 out of 34 OECD countries over the past three years, according to latest data. The average tax burden of average wage earners increased by 0.8 percentage points between 2010 and 2013, to reach 35.9%, following declines in 2007-2010. In 2013 the increases in tax burdens on labour income were largest in Portugal, due to higher statutory rates, and the Slovak Republic, where employer social security contributions were raised. The US also reported an increase as previous reductions in employee social security contributions expired.

Ireland, Slovenia and Sweden reported the largest rise in progressive taxation for single taxpayers without children, while the largest decreases were seen in Germany, Hungary and Israel.

For more detail including country by country summaries, see Taxing Wages 2014


Growth in the OECD area looks set to continue along its rather slow if positive trend, to judge by the latest leading indicators. The OECD composite leading indicators, which are based on the likes of order books, building permits and long-term interest rates, point to weaker growth in emerging markets.
GDP in the OECD area grew by 0.6% in the fourth quarter of 2013, the same rate as in the previous two quarters. Growth remained strong in the US and the UK–0.8% and 0.7% respectively–stable in Japan at 0.3%, and picked up in the EU from 0.3% to 0.4%. In Italy GDP increased by 0.1%, the first rise since 2011.

OECD-wide inflation rose by 1.4% in the year to February 2013, compared with 1.7% in January. This easing reflected energy prices, which fell by 0.4%, after an increase of 2.1% in the year to January.
Merchandise trade grew in most major economies during the fourth quarter of 2013, as export growth outpaced import growth. In Germany, import and exports grew by 2.4% and 1.1%, by 3% and 1.4% in the UK and by 1.7% and 0.4% in the US. Import growth of 3.2% outpaced exports of 1% in Japan. Both imports and exports declined in India.

The OECD area employment rate–that’s the share of people of working-age who are in work–increased by 0.1 percentage point to 65.3% in the fourth quarter of 2013, its third consecutive quarterly increase.
The unemployment rate in the OECD area stood at 7.6% in February 2014, down 0.1% from the previous month. Some 46 million people were out of work, 3.8 million less than at the peak in April 2010. The unemployment rate decreased by 0.2 percentage points to 25.6% in Spain, remained stable in Germany, at 5.1%, and rose by 0.1% in the US to reach 6.7%. It rose by 0.7% in Korea to reach 3.9%, but fell 0.1% to 3.6% in Japan.

Visit www.oecd.org/statistics for updates


Soft recovery
Even if the US is coming out of it better than Europe, it is nevertheless the limpest recovery in 70 years. 

Jean Pisani-Ferry, Le Nouvel Observateur, 6 March 2014

Hard truth
We have to stop thinking that it is despair that leads people to vote for the Front National.

Lisette Sudic, Europe Ecologie-les Verts in Le Monde 29 March 2014, before the second round of local elections on 30 March.

Trade divide
“Popular sentiment is hardening against free trade”

FT headline, 1 March 2014

The first thing you need to know about trade deals is that they aren’t what they used to be.[…] There just isn’t much more protectionism to eliminate.

Paul Krugman, in The International New York Times, 1 March 2014

Internet of no cost?
A formidable new technology–the internet of things–is emerging with the potential to push much of economic life to near zero marginal cost over the course of the next two decades.

Jeremy Rifkin, International Herald Tribune, 18 March 2014

Country round-up

Both Chile and South Africa should improve efforts to combat foreign bribery. Despite progress implementing the OECD Anti-Bribery Convention, there has been no conviction in either case, two separate reviews say.

Colombia’s natural heritage is under pressure from extractive industries, livestock grazing, urbanisation and growing car use, the OECD’s first Environmental Performance Review of Colombia says. A separate review of telecommunications urges more competition, particularly in the mobile market.
The Czech economy must take further steps to speed up convergence towards the euro area, according to the latest economic survey.

Two reports on the EU and euro area say that European economies are emerging from the crisis but delivering, weak bank balance sheets and high unemployment will bear down on growth in 2014-15.

France should do more to promote quality jobs for older workers.

Italy has raised its foreign aid contributions, reversing a falling trend, according to a review by the OECD’s Development Assistance Committee (DAC).

Strengthening the balance sheets of banks and households; sharpening innovation policy notably by engaging more small firms; and improving urban and regional frameworks: these are the main messages from three recent OECD reports on the Netherlands.

On 12 March 2014 the OECD postponed activities related to the accession process of the Russian Federation to the OECD for the time being.

Spain’s planned public sector reforms should strengthen the country’s institutions, and proposals to increase transparency and root out corruption will bolster public trust, an OECD Public Sector Review says.

Mental health issues cost the UK roughly 4.5% of GDP per year in lost productivity, benefit payments and health expenditure, a report says. Switzerland must improve its approach to mental health, notably for jobseekers.

For more reviews, see the books section or visit the Newsroom

Sovereign borrowing to fall

In an encouraging sign that the crisis may be easing, borrowing operations by OECD governments are set to decrease as borrowing needs ease. Net borrowing needs are projected to fall from US$2 trillion in 2013 to $1.5 trillion in 2014, the lowest level since 2007. However, the outlook remains fraught, given volatility and uncertainties about quantitative easing: indeed, central government marketable debt is projected to edge up a point to 77.1% of GDP in 2014. The good news is that debt ratios are increasing more slowly or stabilising.

See the Sovereign Borrowing Outlook 2014

Tax information sharing advances

More than 40 countries committed in February to a detailed timetable for adopting a new global standard for the automatic exchange of information between tax authorities developed by the OECD. The European Council also gave backing to the initiative, which will help fight global tax evasion. OECD Secretary-General Angel Gurría described the moves as “good news for everyone.” See page 47.

Take tourism seriously

Policymakers should recognise tourism’s role as a driver of jobs and growth, and boost support for the sector, the OECD says. Tourism accounts for 4.7% of GDP and 6% of employment in the developed world, and OECD countries account for over half of international tourism arrivals (57%) and spending (54%). However, market share is falling, notably in the Asia-Pacific region.

For more, read Tourism Trends and Policies 2014, visit www.oecd.org/cfe/tourism

Plus ça change…

Though life expectancy has increased by ten years since 1949, the birth rate has fallen so fast that net population growth is now at or below the rate prevailing in European countries. Moreover, inflationary pressures have until very recently been conspicuously absent […]

“Japan: The new member of the OECD” in Issue No 10, June 1964

©OECD Observer No 298, Q1 2014