G-20 finance chiefs back global tax deal, pledge to sustain recovery, watch inflation

The leaders endorsed a global deal to revamp corporate taxation.
The leaders endorsed a global deal to revamp corporate taxation.PHOTO: AFP

WASHINGTON (REUTERS) - Finance leaders from the Group of 20 (G-20) major economies on Wednesday (Oct 13) endorsed a global deal to revamp corporate taxation and pledged to sustain fiscal support for their economies while keeping a close eye on inflation.

The G-20 finance ministers and central bank governors also said in a communique issued after a meeting in Washington that the International Monetary Fund should establish a new trust fund to channel a US$650 billion (S$878.5 billion) issuance of IMF monetary reserves to a broader range of vulnerable countries.

The finance leaders noted in their statement that economic recovery “remains highly divergent across and within countries” and is vulnerable to new variants of Covid-19 and an uneven pace of vaccinations.

“We will continue to sustain the recovery, avoiding any premature withdrawal of support measures, while preserving financial stability and long-term fiscal sustainability, and safeguarding against downside risks and negative spillovers,” the G-20 finance leaders said in the statement.

Inflation watch

Given rising inflation pressures driven by supply chain bottlenecks and shortages as economies struggle to normalise, the leaders said that central banks are “monitoring current price dynamics closely.”

“They will act as needed to meet their mandates, including price stability, while looking through inflation pressures where they are transitory and remaining committed to clear communication of policy stances,” the G-20 communique said.

Bank of Italy Governor Ignazio Visco told a news conference that G-20 finance leaders still view elevated inflation in many advanced countries as caused by transitory factors that will fade, such as supply bottlenecks, semiconductor shortages, shipping delays and weather problems.

“But again, these may take months before fading away, so we have to be prepared and communicating very well, how we see the issues. And this is why we are discussing, debating it in the central bank community and in the ECB,” Visco said.

The G-20 finance leaders also pledged to work to address shortages of tools to fight the Covid-19 pandemic in low- and middle-income countries in coming months, including vaccines, therapeutics and diagnostics.

The G-20 finance leaders are meeting in Washington on the sidelines of the IMF and World Bank annual meetings, which come just days after 136 countries agreed to adopt a 15% minimum corporate tax and partially reallocate taxing rights for large profitable multinational companies to countries where they sell products and services.

The G-20 leaders endorsed the OECD tax agreement and called for swift development of so-called “model rules” to guide countries’ implementation of the deal and “ensure that the new rules will come into effect at a global level in 2023.”

New IMF reserves vehicle

The G20 also agreed to support an IMF proposal to create a new “Resilience and Sustainability Trust” to allow part of the US$650 billion in Special Drawing Rights currency reserves allocated to IMF member countries to be channelled to aid low-income countries, "vulnerable” middle-income countries and other small developing states.

“The new RST should preserve the reserve asset characteristics of the SDRs channelled through the Trust,” the finance leaders said, adding that they were open to considering options to channel SDRs to multilateral development banks.

“We call for additional IMF members to consider signing voluntary SDR trading arrangements to enhance market capacity,” they said.