Implementation of G-7 agenda challenging

London

THE Group of Seven (G-7) agenda in Cornwall, England on Friday will concentrate on ending the Covid-19 pandemic to secure a global economic recovery.

But similar to the G-7 finance ministers' spin of their "historic" global tax reform, the implementation of these aims will be extremely challenging. Aware that the United States, United Kingdom, Germany, Japan, France, Italy and Canada are well advanced in their Covid-19 vaccination campaigns, the G-7 leaders will promise to help developing nations' programmes. Aid is critical.

According to data from the World Health Organization (WHO), there were more than 172 million confirmed Covid-19 cases by early June, including 3.7 million deaths.

The likelihood, however, is that there have been far more cases and deaths in Africa, India and other developing nations.

The WHO also estimates that 1.64 billion vaccine doses have been administered worldwide, but the vast majority have taken place in the wealthier developed nations.

"Inequitable vaccine distribution is not only leaving untold millions of people vulnerable to the virus. It is also allowing deadly variants to emerge and ricochet back across the world," warned Kristalina Georgieva, MD of the International Monetary Fund (IMF) and Tedros Adhanom Ghebreyesus director-general of the WHO.

Britain is the 2021 president of the G-7 and Prime Minister Boris Johnson has pledged to ask other G-7 leaders to ensure an equitable global distribution of the Covid-19 vaccines. He has proposed several plans to prevent future pandemics, including a worldwide network of "zoonotic" research hubs to counter transmission from animals to humans, manufacturers for vaccines and other treatments and global early warning systems.

Leaders of the G-7 will follow the accord of their finance ministers. Besides the 15 per cent minimum corporate tax proposal, the finance ministers agreed to back climate change and environmental policies, proposing US$100 billion a year to help third-world nations achieve these aims.

The finance ministers noted the IMF estimate that, between now and 2025, low income countries will need around US$200 billion to respond to the pandemic and build external buffers. Also an extra US$250 billion in investment spending needs to resume and accelerate to reduce global economic, health and social inequalities and boost employment.

The finance ministers also supported an allocation of IMF Special Drawing Rights (SDRs), worth US$650 billion, to help meet the long-term global need for reserve assets.

"We urge the implementation of this allocation by the end of August 2021," the finance ministers' communique stated.

The question is how this mammoth spending will be paid. According to the May report of the Institute of International Finance (IIF), government debt ratios of developed nations have already reached 135 per cent of gross domestic product or US$63.3 trillion. The state debt of emerging nations is a lower proportion of 60 per cent of GDP, but is still a mammoth US$20.2 trillion.

For the above reasons, economists and tax experts are sceptical about the implementation of the G-7's proposed global minimum tax rate of at least 15 per cent that is aimed at drawing tax from Amazon, Google, Facebook, Apple and other large tech and multi-national companies. The claim is that the tax change will generate some US$100 billion.

US Treasury Secretary Janet Yellen said the "significant, unprecedented commitment" would end what she called a race to the bottom on global taxation. German finance minister Olaf Scholz said the deal was "bad news for tax havens around the world".

"These seismic tax reforms are something the UK has been pushing for - creating a fairer tax system fit for the 21st Century," said UK Chancellor of the Exchequer Rishi Sunak. But the question is whether this claim contradicts his promises of free ports in Britain to boost post-Brexit local and foreign investment and business.

For the proposed 15 per cent minimum tax to happen, the Group of 20 (G-20) leading economies which includes China, India, South Korea and Brazil must agree. Smaller nations such as Ireland, which has a corporate tax rate of 12.5 per cent, are also concerned. Ireland has encouraged tech companies to invest around Dublin.

Moreover, the focus on corporate taxation is likely to lead to inevitable individual tax hikes that could crimp the global recovery.

READ MORE: G-7's global minimum tax deal may nullify any tax advantage Singapore offers