Friday, September 30, 2022

World economic outlook darkening and disrupted: Cormann

 Heads of tax administrations emphasise the importance of swiftly implementing the landmark global tax agreement and enhancing collaborative work on digital transformation

World economic outlook darkening and disrupted: Cormann

Tom McIlroy
Tom McIlroyPolitical reporter

OECD boss Mathias Cormann has warned of a darkening world economic outlook, telling an international tax conference that the global rules-based order faces sustained pressure.

Speaking on the final day of the Organisation for Economic Co-operation and Development Forum on Tax Administration in Sydney, Australia’s former finance minister said disruption was growing, adding to pressure on policymakers in capitals across the globe.

“The world has entered a highly challenging and disruptive period,” Mr Cormann said.

“Pressures from economic fragmentation around the world are real and are growing.

“In the near term, we face lower growth and high inflation with negative impacts on business investment and private consumption. And the challenges facing our international rules-based order are profound.”

Amid destabilisation from Vladimir Putin’s invasion of Ukraine and his moves to annex parts of the country under the guise of sham referendums, as well as China’s growing assertiveness in the Indo-Pacific, Mr Cormann said “megatrends” such as business digitalisation and green transformation presented challenges and opportunities for governments.

“It is precisely at times like this that we need to maintain, and indeed to reinforce international co-operation,” he said.

“Deepening this co-operation, including with policymakers, will be of critical importance in meeting the challenges and realising the opportunities that the next 20 years will bring.”

Two-pillar system

Tax and revenue bosses at the conference have discussed progress on the OECD-led two-pillar global tax reform project, which includes moves to implement a global 15 per cent minimum corporate tax rate.

The 139-country deal – that will also better tax tech giants including Google and Meta in the countries in which they do business – is not expected to be fully up and running until at least 2024.

Supported by both sides of Australian federal politics, the deal has two parts.

Pillar one, which requires a multilateral treaty, will provide a formula for allocating the taxable profits of the 100 largest multinational companies – particularly big tech companies – to the jurisdictions where the activity actually takes place.

It will redistribute taxing rights on more than $US125 billion ($190 billion) of profit, replacing countries’ recently imposed digital services taxes.

Pillar two will set a minimum company tax rate of 15 per cent on any company with annual revenue exceeding €750 million ($1.13 billion). That aspect is designed to prevent countries competing to lure firms from each other with low tax rates.

The Albanese government has factored the global project into its economic plans and wants Australia to help deliver the deal.

Mr Cormann told the conference that the technical work on model rules for pillar two were essentially finished

He said once a “critical mass” of countries passed legislation for the new global minimum tax rate, the plan would very quickly become “self-perpetuating”.

He told delegates “it will not be in any country’s interest to leave money on the table for other jurisdictions to collect at their expense”.

“That is why we are quietly optimistic that the momentum is there to ensure that pillar two of this historic agreement will be implemented in time for 2024.”

Ireland’s Finance Minister Paschal Donohoe this week called for the European Union to take time to build unanimous support for the global minimum corporate tax plan.

Bob Hamilton, commissioner of the Canada Revenue Agency, said before the conference that the plan would deliver significant new revenue to countries including Australia, helping stop a global race to the bottom.

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Tom McIlroy reports from the federal press gallery at Parliament House. Connect with Tom on Twitter. Email Tom at