Combating BEPS and making sure we have fair tax systems: An OECD/G20 Venture

Download the OECD/G20 BEPS Explanatory Statement
Download the OECD/G20 BEPS Explanatory Statement

Today’s post is by Pascal Saint Amans Director of the OECD Centre for Tax Policy and Administration and Raffaele Russo, Head of the OECD Base Erosion and Profit Shifting (BEPS) Project

Last weekend, the OECD presented its first BEPS recommendations to the G20 for an international approach to put an end to so-called “stateless income”. Seven “Actions” are being proposed, as part of a 15-point plan.

Ensure the coherence of corporate income taxation at the international level, through new model tax and treaty provisions to neutralise hybrid mismatch arrangements (Action 2).

The basic idea behind hybrids is to have the same entity or transaction treated differently by different countries to avoid paying tax. A typical hybrid instrument would allow a company to treat something as debt in one country and equity in another. Hybrid transfers are arrangements that are treated as transfer of ownership of an asset in one country but as a loan with collateral in another. By playing off one country’s tax system against another, like children sometimes do with their parents when they try to get what they want, the most successful hybrids achieve double non-taxation – the company doesn’t pay tax anywhere.

Realign taxation and relevant substance to restore the intended benefits of international standards and to prevent the abuse of tax treaties (Action 6).

“Treaty shopping” is the most common form of treaty abuse. It generally refers to arrangements through which a person who is not a resident of one of the two States that concluded a tax treaty attempts to obtain benefits that the treaty grants to residents of these States. How? By setting up a shell company in one of the treaty States and routing investments through it. OECD and G20 countries have all agreed to reject treaty-shopping practices. Proposed drafts of a specific anti-abuse rule based on a “limitation-on-benefits” provision and a more general anti-abuse rule based on a “principal purpose test” have been unveiled to ensure that only “true” residents get the benefits of the treaty.

Assure that transfer pricing outcomes are in line with value creation, through actions to address transfer pricing issues in the key area of intangibles (Action 8).

Most world trade actually takes place within multinational enterprises, for example the headquarters in Germany paying a subsidiary in India to carry out research or manufacture components. This payment has to be at arm’s length to ensure that profits (or losses) are allocated among the different parts of the group in a fair and sound manner. How to apply the arm’s length principle in practice is detailed in the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. Easy in many cases, it may get extremely difficult, and subject to manipulation, when we are talking about intangibles, like famous brands, patents, algorithms or the like. Estimates of annual investment in intangibles in the United States alone are between $800 billion and $1 trillion, with a stock of intangibles of up to $5 trillion. Now, new guidance has been developed to align the transfer pricing rules with modern business.

Improve transparency for tax administrations and increase certainty and predictability for taxpayers through improved transfer pricing documentation and a template for country-by-country reporting (Action 13).

Countries have agreed that companies should report on a country-by-country basis certain key information, such as assets, sales and number of employees. This will provided tax administrations with a broad picture of the group structure and where profits are made and allocated for tax purposes. The focus can then be on those that engage in aggressive tax planning that separates the location where profits are made from where they are reported for tax purposes.

Address the challenges of the digital economy (Action 1).

The digital economy does not generate unique BEPS issues, but some of its features can exacerbate BEPS risks, such as the importance of intangibles, the mobility of users, network effects and multi-sided business models. (If you thought certain things, like an e-mail address, an app, a videogame, an Internet search, were “free”, look at how much money Internet advertising generates). It’s hard to say where certain activities or assets “are” for tax (and other) purposes. Depending on how you look at it, it could be on the computer of the user watching an ad, the firm paying for that ad, the server streaming it, the head office of the owner itself… Or take an off-line delivery service (pick your favourite): despite its considerable sales in a country like France, in theory, its French operation is only a delivery company processing orders for a firm based in (pick your favourite again). This ability to centralise infrastructure at a distance from the market and sell into that market from a remote location, generates potential opportunities to achieve BEPS. It does so by fragmenting physical operations to avoid taxation, especially when combined with the increasing ability to conduct substantial activity with very few personnel. One year from now, an agreement will be reached so that this will not be possible anymore.

Facilitate swift implementation of the BEPS actions through a report on the feasibility of developing a multilateral instrument to amend bilateral tax treaties (Action 15).

Even in the old economy, governments took steps to ensure that international taxation didn’t harm firms operating across borders. Many domestic and international rules to address double taxation of individuals and companies originated from principles developed by the League of Nations in the 1920s. The OECD has been working for years to help tax administrations and policy makers cooperate across borders. The OECD Model Tax Convention serves as the basis for the negotiation, application, and interpretation of over 3000 bilateral tax treaties in force around the world. Its Commentaries have been cited by courts in virtually every OECD member country, as well as in many non-OECD countries. Now change is coming in several key areas. But without a mechanism for swift implementation, changes to model tax conventions will only widen the gap between these models and the content of actual tax treaties. Such an implementation mechanism does exist, and it is a multilateral instrument. Difficult? Yes, but it is feasible, and developing it is necessary not only to tackle BEPS, but also to ensure the sustainability of the consensual framework to eliminate double taxation. So not only feasible, also desirable (at least by those like us who think change is needed).

Counter harmful tax practices (Action 5).

The OECD published a report on Harmful Tax Competition: An Emerging Global Issue in 1998, but 15 years later, concerns about the “race to the bottom” on the mobile tax base are as relevant as ever. The focus has shifted though. In 1998 a major concern was regimes partially or fully isolated from the domestic economy (“ring-fencing”). For example, this could take the form of giving firms resident status to avoid paying taxes in another country, but not allowing them access to local markets where they would compete with national firms. Today, across the board corporate tax rate reductions on particular types of income are of growing concern. To counter harmful tax practices more effectively, Action 5 commits the Forum on Harmful Tax Practices (FHTP) to revamp the work on harmful tax practices. Priority has been given to improving transparency, with the obligation to exchange information on rulings related to preferential regimes. The focus is now on requiring substantial activity for any preferential regime with a special focus on the “patent boxes” which are mushrooming these days. – regimes that subject certain IP income to a preferential rate of tax. Going further, the work will engage with non-OECD members on the basis of the existing framework and consider revisions or additions to the existing framework.

Useful links

OECD Policy Briefs on BEPS

The OECD Action Plan on Base Erosion and Profit Shifting: A summary (OECD Observer)

You can contact the BEPS team at CTP.BEPS at (replace ” at ” by @)

Pascal Saint Amans on fighting tax avoidance by multinationals

The climate is changing, so should we

UN climate summitThe UN Climate Summit opens today at UN headquarters in New York. The OECD’s Secretary-General, Angel Gurría, will be chairing the session on “The Economic Case for Climate Action,” where global leaders and world renowned experts, from China, India, Mexico and the United States will be discussing The New Climate Economy Report: Better Growth, Better Climate, by the Global Commission on the Economy and Climate.

The OECD Environment Directorate has produced two videos to explain key issues.

In this first one, Simon Upton, head of the Environment Directorate, discusses three things you need to know about climate change.

And this one looks at how to finance climate change action.

Useful links

OECD participation in the UN Climate Summit

OECD work on climate change

The lost decade: in search of “Social Europe”

EU social jsutice reportToday’s post was written by Craig J. Willy for the Bertelsmann Foundation which will also be publishing it.

The Bertelsmann Stiftung’s new EU Social Justice Index is unequivocal: social conditions, notably in terms of poverty and unemployment, have worsened in most EU countries since 2009, often significantly so. This reflects the financial and economic crisis, but also the eurozone’s response to it, as “the rigid austerity policies pursued during the crisis and the structural reforms aimed at economic and budgetary stabilization have had, in most countries, negative effects with regard to social justice.” The Index adds: “the cuts induced by the crisis are not administered in a balanced way throughout the population.” Only three countries – Luxembourg, Germany and Poland – have seen significant improvement in recent years.

Much of Europe appears to be settling into a “lost decade” characterized by high long-term unemployment and underemployment, and weak or no economic growth (indeed the eurozone experienced zero percent growth in the second quarter of 2014, while Italy and Germany shrank 0.2 percent). The poverty rate has risen 1.7 points to 25.4 percent, including 28 percent of children in the EU. Unemployment has reached notoriously high levels in many countries.

The Social Justice Index notes that even where there is low unemployment “the emergence of a dual labour market has been increasingly evident, with poor vertical permeability from ‘atypical’ employment relationships (enlarged low-wage sector, temporary employment) to ‘normal working conditions’.” Just as Western Europe’s unionized working class has shrunk enormously, its postwar middle class appears to also be declining.

The challenges of a multinational union

The EU has been attempting to address these problems and has had some success in stabilizing the eurozone, but European officials are painfully aware of the challenges in creating a genuine “social Europe” and addressing the flaws of the common currency.

The first problem is the difficulty in managing a multinational union: it is far easier to have public support for solidarity (risk-sharing, wealth transfers) and shared government (respect for common rules) within a country than between them. As European Central Bank (ECB) President Mario Draghi laconically noted: “The Dutch have a problem with paying for the Greeks, but not with paying for other Dutch.”

The second problem is institutional: the EU and eurozone are not a federal state or a genuine government which might decisively tackle issues one way or the other. Instead, one has to work with rules laid out in the European Treaties, with any necessary changes to account for new problems requiring unanimity among national governments and legal creativity. This leads to a lot of procrastination on the road to consensus and brinkmanship as each government extracts maximum concessions for its agreement.

Putting aside the eurozone, the social challenges of the EU as such are probably manageable. Broadly speaking, inequality in EU countries is low by global standards, certainly much lower than in the United States or the BRICS, and Europeans are attached to social models which are diverse in implementation but similar in their concern for social equity and balance between solidarity and liberty.

True, low-wage competition from Central-Eastern Europe, either in the form of delocalization or immigration, may put downward pressure on wages in certain areas and sectors. This pressure will diminish as these nations develop, and indeed some Central-Eastern European countries – notably the Czech Republic, Slovenia, and Estonia – already score higher than many Western European countries on the Social Justice Index. There is also evidence that EU migration is a net positive for national coffers of the recipient country. The gradual increase in EU-wide social standards through legislation, already seen in the Social Charter and the Working Time Directive, is plausible.

“The Delors Paradox”

Things are more challenging for the eurozone. European Commissioner for Social Affairs László Andor has argued that any effect of the EU’s social standards legislation have tended to be counteracted by the existing deficiencies of the common currency, terming this “the Delors Paradox”: “On the one hand, we introduce social legislation to improve labour standards and create fair competition in the EU. On the other hand, we settle with a monetary union which, in the long run, deepens asymmetries in the community and erodes the fiscal base for national welfare states.”

The eurozone then needs reform and policy coherence. But the currency union’s management is notoriously complex – monetary policy run by the ECB, bailouts by national ministers by unanimity, the bulk of government spending at national level, but with deficit limits enforced by the European Commission and national judges – becoming confusing even for European political leaders. French President François Hollande for example, after the EU parliamentary elections in May, seemed to confess even he was at a loss with the euro-regime: “Europe has become unreadable, I’m aware of this, distant and to be frank incomprehensible, even for the States.”

There is consensus that significant reform is necessary. Europe’s Socialist and Social-Democratic parties have said that the elitist management of the eurozone’s “Troika” bailout/reform programs – headed by the European Commission, the ECB and the International Monetary Fund – should be replaced by something more democratically accountable. The new president of the European Commission, Jean-Claude Juncker, said in his political priorities: “We have to re-balance the relationship between elected politicians and the European Central Bank in the daily management of the Eurozone,” including a permanent president of the Euro Group of eurozone finance ministers.

In the long-term, many seem to want something like a fully-fledged government for the currency area. French economist Thomas Piketty, who has attracted global attention for his work on inequality, has taken the view that at least a “Eurozone Parliament” is necessary, collectively keeping the government accountable and deciding deficit levels and the amount of common debt issued by a European Treasury. And Jörg Asmussen, state secretary in the German Ministry of Labor and Social Affairs recently wrote: “And in my view the core of integration is the Eurozone with its own parliament and its own budget provided from its own revenue sources – with Germany and France in a position of special responsibility for integration.”

The Bertelsmann Stiftung has further studied the possibility of a substantial eurozone budget through an EU unemployment benefits scheme, which would both stabilize the currency area during economic shocks and help to address social concerns.

No conceptually cohesive strategy targeting social justice across the EU

Unfortunately, agreeing that reform is needed is not the same as agreeing what those reforms should be. In many countries there is little appetite for the laborious process of Treaty change, which would entail a major continent-wide debate and unanimous ratification by the 28 member nations, including possible referenda. With eurosceptic sentiment at an all-time high in many countries, transferring even more power to European institutions may be difficult to justify to voters.

EU and national leaders will then likely have to “muddle through” in the current framework for the time being and address citizens’ economic and social demands as best they can. Time is of the essence, as the Social Justice Index notes: “Should these social divisions persist for some time, or even worsen further, this will endanger the future viability of the entire European integration project”. But so far “a conceptually cohesive strategy explicitly targeting social justice across the EU has yet to be formulated.”

Useful links

OECD work on inequality

Eradicating Ebola is a political challenge too

WHO supplies protective clothing to health workers
WHO supplies protective clothing to health workers

Today’s post is from Juana de Catheu, founder of Development Results and Donata Garrasi, Peace-building Adviser in the OECD Development Co-operation Directorate

On 18 September, the UN Security Council, in its first ever emergency meeting on a public health crisis, declared that “the ‘unprecedented extent’ of the Ebola outbreak in Africa constituted a threat to international peace and security”. NGOs have been sounding the alarm for some time. Médecins Sans Frontières’s international President Joanne Liu, said that “six months into the worst Ebola epidemic in history, the world is losing the battle to contain it.” The World Health Organization warns that things are going to get worse before they get better.

We are talking about a very complex situation in which preventive and curative responses need to be implemented quickly and simultaneously, but where the policies, capacities, resources and political factors that need to be coordinated to stop thousands more people dying or falling seriously ill are mainly absent.

The scale of this crisis and the potential destructiveness are massive. Apart from human suffering, the World Bank has warned that if the virus continues to surge in the three worst-affected countries, Guinea’s economic growth could be reduced by 2 percentage points in 2015, Sierra Leone’s by 8 percentage points and Liberia’s by 11 percentage points. But complex situations where multiple stresses act at the same time are not that uncommon, particularly in countries with a history of conflict and weak institutions. In theory there should be a lot of international experience in dealing with situations of fragility and crisis of different natures.

The issues in the current crisis are resources, capacity and trust.

Let’s start with resources. The UN has asked for $1 billion to combat Ebola. Over $50 billion in Official Development Assistance (ODA) is spent each year in the 51 so-called “conflict affected and fragile states” according to the OECD’s 2014 Fragile States Report, 2014). Some low-income fragile states, including Liberia and Sierra Leone, are among the most aid-dependent countries in the world. Maybe the ODA provided was not effective, or not enough, or not allocated to building the capacities needed to face such an epidemic. Both more and different funding is needed.

There is plenty of experience out there is setting up Multi-Partner Trust Funds to respond to particularly challenging situations. Such funds have been established in most recent crisis affected situations, from Afghanistan, to Iraq, to South Sudan. Sometimes they were slow to be set up and did not work well, in others they provided the resources needed by key actors in country to focus on their priorities. This option could, perhaps be considered for the region.

There is also a need to tap into private money and expertise, and encourage the private sector to follow the example of the Gates Foundation, that has pledged $50 million to the fight against Ebola. In some contexts, private sector operators provided basic services to the population, given the lack of state capacities or willingness (e.g. Somalia). The policy response can rest with the specialised agencies and the government of the concerned countries, but can private sector actors be brought in with funds and expertise, not only to research a vaccine, but also to help manage the response on the ground?

On the capacity issue, not only doctors and nurses who are needed, but also people who can boost the government and local civil society organisations’ capacities to manage the crisis, but also keep everything else going. A sort of a “capacity surge” to prevent weak institutions collapsing and the gains achieved in other sectors to disappear as the Ebola epidemic takes centre stage and sucks up all the resources and capacities. Maybe this could be done quickly with the help of the African Development Bank, the World Bank and the UN?

What about the governments and people in West Africa themselves? The current response, focused on the emergency health response and fundraising, has to factor in the need for a much-missing commodity: trust. Sierra Leone, Liberia and Guinea are grappling with a history of violence, mistrust of government and of others, and extreme poverty. Although things were looking up before the disease struck, these factors go a long way to explaining why the perfectly reasonable health and security messages being spread are being actively being ignored by the population. To the outside world it is baffling that they would ignore calls to check in for treatment; throw stones at doctors and burial boys; destroy treatment centres. The World Bank emphasises the urgency of combating “aversion behaviour” – a fear factor resulting from peoples’ concerns about contagion, which is fuelling the economic impact. But these countries’ history has also produced fear and mistrust of the government and authorities.

In Liberia, the West Point slum in Monrovia (also the opposition’s stronghold) was reportedly quarantined without prior consultation. It led to widespread rioting. The slum’s 50,000 to 120,000 dwellers had to suddenly pay more for increasingly scarce water, food and basic necessities. The effectiveness of the quarantine is disputable given that it took only four dollars to bribe one’s way out. Working with Paramount Chiefs, women’s associations and imams, as in some districts of Sierra Leone, is time consuming, but it is the only way populations can understand, buy into and participate in the fight against Ebola.

The risk of compounding the health crisis with a humanitarian crisis by quarantining the whole region is real. Shutting off the region entirely will be like replicating the West Point experience on a grander and more dramatic scale. It will cause rioting and will not be effective. Just as people escaped from West Point, people can escape from larger quarantine zones.

How can the international community respond effectively, now?

Don’t ignore the big political and social elephants in the room. The WHO roadmap and the Word Bank’s plans will only change behaviours if issues of trust and mistrust are factored in.

Help the region’s new generation of leaders identify priorities. These leaders should be engaging with and communicating with their citizens. No one can do it in their place.

Transparency and accountability are not a luxury. They are needed to build trust and get people on board. There are many promising big data initiatives in this area, a must given the lack of data or reliable statistical systems. What is missing is an aggregation of this emerging data and access to it.

In short the fight against Ebola can only be won with the people concerned – not without or, even worse, against them.

Useful links

The WHO Ebola virus page

The Sahel and West Africa Club

Using happiness data in policy making

BLIToday’s post is by Angus Deaton, Dwight D. Eisenhower Professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs and the Economics Department at Princeton University.

The happiness revolution is in full swing. Country statistical offices are beginning to collect data on wellbeing, the OECD has prepared a manual on how best to do it, and politicians are promising to focus, not just on economic growth and better material living standards, but on the much wider range of things that are important to people. This broadening of policy is much to be welcomed, as is the wider understanding of the inadequacies of GDP as an exclusive national target. And even if the data on wellbeing have their problems and their critics, a flawed but broader measure, such as wellbeing, can lead to better policy than a flawed but narrow one, such as income.

What are some of the things that we can do with wellbeing measures that cannot be done with standard, income based, policymaking? The concept of utility has been visible everywhere in economic texts and in economic thinking, but invisible in our databases. For goods and services that are bought and sold in markets, the invisibility of utility is not a problem because we can use prices as a guide to how much things matter to people. But that leaves uncovered the vast range of public goods and services—schools, hospitals, parks, airports, even the legal and political systems—that do not have prices. Conventional policy analysis sometimes works with “shadow” prices, the prices that would exist if these things were bought and sold. But these are hard to get right, and the numbers are often controversial. But if we can make utility visible, and measure it, then we can directly calculate how wellbeing responds to a park, or to a faster train line, and we can replace guesswork with measurement. Indeed, the “happiness” literature has estimated thousands of “happiness regressions” that show how self-reported wellbeing is affected by a wide range of circumstances, such as how income stacks up against time spent with friends, what value people place on lower pollution, or on living in a green and pleasant place.

There are many areas where people should make choices for themselves, and governments should either not interfere or should tread very lightly. Providing information is one example of light treading. If happiness regressions tell us that people are more satisfied with their lives when they choose to be clergymen, and not bar owners, or when they live in the mountains rather than in the plains, there is a role for making those facts known, perhaps endorsed by governments who might vet the quality of the research. This is what David Halpern calls “de-shrouding,” telling people how their choices might affect their wellbeing, as judged by the wellbeing of others who have already made those choices. Deshrouding would have no effect if people were fully informed, but people are often not very good at anticipating the long-term consequences of their choices. Happiness research has the potential to allow people to do better.

Even so, the results of happiness regressions must be interpreted with care. That a circumstance is correlated with life satisfaction does not automatically mean that it would be a good policy to promote more of it. Take the example of parents and children, where much of the literature finds that people who live with children are less satisfied with their lives than those who do not. Some of this is likely real, and there is good evidence that children bring a wide range of emotional experiences, including anger, stress, and worry, but also happiness and joy. Yet children do not come to people at random (blind storks?), but (usually) come to people who want them, just as those who are not parents are (usually) those who do not want children. Those who do and do not have children are different in many ways, including their tastes, not least their tastes for being parents. Comparing the wellbeing of parents and non-parents is therefore not a useful guide to young couples who are trying to decide whether or not to have children.

Consider also spatial differences in wellbeing. For example, we may discover that those who live near an airport have lower life satisfaction than those who do not. On a naïve view, people who bought houses under the flight path had no idea how much the noise would affect their lives. On a more sophisticated view, people understood that the noise was bad, but chose to live there because house prices were low, so that the noise actually provided them with an opportunity to live in a larger and more convenient house. In such a case, their low wellbeing reflects, not the noise, but that their incomes are too low to permit them to have a nice house that is also quiet. A policy of limiting noise or restricting landing hours may make such people worse off, because house prices rise, and a choice is no longer available to them. Of course, we can over-rationalize behavior, and people often do make mistakes, so that, in most cases, we have to deal with some mixture of the naïve and sophisticated.

An important question—still unanswered—is whether self-reported wellbeing is all that matters, which would simplify policymaking—or whether it is simply one thing that matters, so that people will trade it off for other good things. To illustrate the why this matters, consider that, in the U.S., once we make adjustment for educational and income differences, African Americans report substantially higher life evaluation than Whites. But African Americans suffer many deprivations beyond income and education; they are more likely to be in jail, to be banned from voting, to live in areas with low-quality schools and hospitals, to be unemployed, and to die young. Does their higher life evaluation mean that these other deprivations can be safely ignored? If not, and we refocus policy entirely towards wellbeing, we are making a mistake, just as when policy focused entirely on income.

Useful links

OECD Better Life Index

There’s no bailout option for the climate

better growth better climate reportToday’s post is from OECD Secretary-General Angel Gurría

Saving the Earth’s climate is sometimes compared to saving the world’s financial system following the crisis in 2007. But it’s not. The taxpayer saved the financial system by bailing it out a cost of trillions of dollars over a very short period, but there is no bailout option for the climate. If we let things go on as they are until disaster threatens, we’ll have no way of preventing disaster, however much we spend.

The consequences of inaction are stark. Our recent projections show that impacts of unabated climate change could dampen global GDP in 2060 by some 1.5% on average, and by almost 6% in South and Southeast Asia. ..

We have to act now. The newly-published report on the “The New Climate Economy” from the Global Commission on the Economy and Climate , argues that the next 15 years will be crucial for the world’s climate system. Beyond this, the cost of inaction on climate change will become very high and may be too great for economies to absorb .

We have to transform the global energy economy radically. Reducing emissions here and there won’t do. We have to achieve zero net emissions from the combustion of fossil fuels in the second half of this century. That’s not going to be easy. Two-thirds of electricity is generated by fossil fuels and the world’s transport system runs almost entirely on fossil fuels. Moreover fossil fuels are still relatively abundant and the exploitation of shale gas and other unconventional sources is reducing the sense of urgency that scarcity or a lack of energy security bring.

Governments and the private sector alike also see financial advantages to continued reliance on oil and gas. Investments in carbon-intensive technologies remain more profitable and attractive than those in low-carbon technologies, in many cases. Income from oil and gas taxes accounts for a considerable share of total government revenue in many countries.

To put it bluntly, there is often quite a gap between what governments are saying about climate change and what they are actually doing to combat it. If governments have inconsistent and incoherent policies, you cannot expect business to invest in the greener technologies needed to bring about lasting change.

Consumers, producers and investors react to the signals governments send them. Domestic and international policy settings influence the choice between non-fossil energy investments and fossil fuels in terms of whether the expected return justifies the risk. One policy that would send a clear, strong signal would be to put a price on carbon through a carbon tax or an emissions trading system (ETS), as more than 40 countries have already done.

We could also stop paying to make things worse. By that I mean we need to reform fossil fuel subsidies. The OECD calculated that support to fossil fuel consumption and production in our Member Countries is around $55-90 billion per year. The IEA estimates subsidies to fossil fuel consumers in developing and emerging economies at $544 billion. (The argument that these subsidies help fight poverty is unconvincing since their poor targeting makes them an inefficient way of achieving this.)

These actions will help send a clear, long-term signal that the price of emissions will rise, and governments must be frank about the distributional impacts of the transition to a zero emissions economy. But that cost can also be seen as an investment. As I said to ministers here in Paris in May for the session of the OECD Ministerial Council Meeting on promoting environmentally sustainable “greener” growth: “with the right policy mix and bold decisions, we can turn environmental sustainability into a source of growth, employment and economic resilience. Green can go hand in hand with growth.”

The Global Commission on the Economy and Climate agrees with this way of looking at things: “We have a unique opportunity now to achieve better growth and a better climate together […] the right policies, stimulating better investment in cities, land-use and energy systems could drive the transition to a more productive, more innovative low-carbon economy.”

So if we agree on what needs to be done, why it needs to be done, and how it can be done, let’s do it.

Useful links

On Oct 16, 2013, the OECD Secretary-General addressed a high-level delegation in London on achieving zero emissions. The lecture, co-organised with the London School of Economics and the Climate Markets & Investors Association (CMIA), centred on the ambitious policies needed to meet the long-term objective of achieving zero net emissions from fossil fuels in the second half of this century. Mr Gurría specifically discussed how consistent carbon price signals can help reduce fossil fuel dependence, encourage renewables and energy efficiency, foster the deployment of carbon capture and storage technologies and influence the flow of future investments in the energy sector. (Read the full speech)

OECD work on climate change
OECD Green Growth and Sustainable Development Forum To be held on 13-14 November 2014, this 3rd Forum will focus on addressing the social implications of green growth. It will examine its impact on employment, skills and income and will inform policymakers on how best to respond to changing demands, with a focus on the equity considerations of energy sector reforms.

March for the climate! UN Secretary-general Ban Ki Moon is one of thousands of people worldwide who’ll be marching on Sunday 21 September in New York to show their support for action to save the climate. You can find local events in your country by clicking on the NY link, or on this one.

Home made but global: ANDI will measure the future Australians want

BLIToday’s post is from Mike Salvaris, Director, Australian National Development Index (ANDI) Ltd

The Australian National Development Index (ANDI) could fairly be described as ambitious. It’s a five year national project to engage half a million citizens and a large team of university researchers in developing a new set of national progress measures. ANDI has evolved organically over time, and its present form reflects both its local origins and Australia’s participation in the larger global movement to develop societal progress measures “beyond GDP”.

How ANDI developed

Australian work in this field goes back at least 20 years. In 1993, a group of researchers and community groups successfully petitioned the Australian Parliament to set up an enquiry into new measures of national well-being. A Senate report in 1996 approved the idea and recommended that the Australian Bureau of Statistics (ABS) work with researchers, policy makers and community groups on this task. Two years later, Australia saw its first national conference on measuring progress which drew together several hundred researchers, policy makers and citizens from many different fields of social progress. In 2002 the ABS became the world’s first National Statistics Organisation to develop a new statistical model for measuring national progress; rather than simply putting existing data together in a new combination, it was based firmly on the idea that to measure a society’s progress, you must first be able to describe and define clearly what social progress looks like. (Sadly this pioneering project was discontinued this year due to agency budget cuts.)

Fast forward to 2008: a newly elected Labor government decides to convene the nation’s first ‘National Ideas Summit’, seeking new projects and new thinking for Australia’s next decade. The idea of an Australian National Development Index based on extensive community engagement and research was highly rated. Two years later, ANDI became a national, not-for-profit, citizen-owned company with a Board of Directors that included a number of eminent Australians.

Mike Salvaris explains the Australian National Development Index (ANDI) in The Zone.

In the last decade, the quest for better measures of progress and well-being has truly become a “new global movement”, as the OECD described it, noting some seventy current projects around the world. And while the OECD has played a crucial leadership role in the process through the Better Life Initiative, the movement itself has built up from the convergence of many different streams over perhaps forty years. Environmentalism, the women’s movement, the local community well-being movement, the UN Development Program and the example of world leading projects like the UN Human Development Index, Bhutan’s Gross National Happiness Index and the Canadian Index of Wellbeing and the OECD’s own earlier work on social indicators in the 1980s – all of these have played a part in the journey.

Australia has been both a contributor and a major beneficiary in this worldwide movement, so vigorously championed by the OECD. Australian researchers, policy makers and community leaders have been part of most of the key OECD forums and meetings, but also kept in touch with colleagues and projects all over the world: not just those in our part of it (Thailand, Japan, Bhutan, New Zealand etc), but in Europe, Canada, USA and Latin America.

In trying to design the best national model we can for Australia, we are very conscious of learning from global ‘best practice’. Today, with so many ideas and so many different projects in this field, there is much to choose from. But perhaps we should start with the common values and the shared experience that underlies most of these various endeavours.

What have we learned?

Two years ago at the Delhi World Forum, I tried to identify what I thought were the key conclusions and agreements that have emerged from this decade of intensive global work and thought about redefining society’s progress, and I’ve listed them below. These are now largely embodied in research articles and reports (like the Stiglitz-Sen-Fitoussi commission’s) but also in broader formal declarations like the Istanbul Declaration of 2009 and the Delhi OECD World Forum Communiqué in 2012.

  • GDP may be a good measure of economic output but it is a poor measure of the quality and wellbeing of society as whole, and using it this way can distort policy outcomes in practice.
  • A new model of societal progress is needed, not just new measures. True progress is an increase in equitable and sustainable wellbeing, not just in economic production.
  • Measures of true societal progress must integrate the economic, social, cultural, environmental and governance dimensions of progress; and they must consider the subjective wellbeing of people and the qualities of the society, such as justice and sustainability, not just the material outcomes.
  • The task of developing new progress measures is one that must engage citizens, scientists and policymakers. The process can be an important new tool to strengthen democracy, reverse the growing alienation of citizens, and create new shared visions of national progress.
  • It is now time to apply these new measures and processes in practice, to planning, policy-making and government, in the media and the community.

ANDI’s innovations

ANDI has taken all these lessons very seriously. And while we want to build the best features of all these models into our Australian index (allowing for own special priorities and culture) we have chosen to give special emphasis to two features that will make us a little different from our colleagues (I would never say “competitors” in the present context, although it is a term Australians naturally favour).

The first difference will be in the scale and range of ANDI’s community programme (and thus, hopefully, in its contribution to the larger democratic process). ANDI will aim to engage 500 000 Australians from all walks of life and all corners of the nation in a conversation addressing the central question: “What kind of Australia do we want?”. The programme will be carried out over 2 years, through a wide array of platforms and programmes: surveys, focus groups, town hall and kitchen table meetings, social media and blogs, school curricula, film and video. It will be funded from philanthropic, corporate and community sources, and will fully utilise the extensive networks of ANDI’s 60 partner organisations and their two million members.

A second difference is in the index itself: ANDI will produce each year an index of overall national well-being, but also twelve separate indexes and status reports in each key component domain of progress. These domain indexes will be released in different months, in order to maximise publicity, discussion and policy relevance, and aggregated into the national well-being index. The aggregate index will be weighted according to the relative priorities accorded to each of the 12 component domains. This is similar to the weighting process that is possible with the OECD’s Better life Index but in ANDI’s case, the weighting will be based on a national survey rather than the preferences of self selected individuals. Collectively these features will make for a more sophisticated policy-diagnostic tool, with the capacity to identify the key driver of change in progress and wellbeing, not just at the level of broad domains, but within each domain.

Useful links:

OECD Better Life Index

How’s life? 2013 – Measuring well-being

Australian National Development Index (ANDI)

Commission on the Measurement of Economic Performance and Social Progress