On June 15th the OECD released Economic Survey of Korea 2010, the latest economic analysis of the nation. The report commends Korea for having one of the strongest post-2008 recoveries in the OECD, which was attributed to outstanding export performance and the largest fiscal stimulus package among OECD-member states. The publication consists of four sections addressing potential issues faced by the Korean economy.

According to OECD projections, the Korean economy will expand by 5.75 percent in 2010, and 4.75 percent in 2011. In order to attain comparable levels of growth in the medium-term, Korea has been advised to instate fiscal and taxation measures to increase national labor productivity levels. Currently, the service industry in particular has relatively low levels of productivity, and needs legislative assistance. Further, regulatory changes need to be carried out to reduce fiscal legislative barriers to domestic market entry, decrease obstacles for foreign direct investment, and upgrading competition policy. The use of fiscal policy is also recommended to increase the proportion of research and development activity carried out by national service sector firms.

The OECD attributes Korea’s impressive economic recovery to the Government’s strong and effective fiscal policies. The withdrawal of crisis-period stimulus measures is now recommended to ensure continued sustainable growth. The OECD added that any policy changes also provide a good opportunity for reforms to widen the national tax base, and instate firmer treatment of planned government spending targets.

Korea currently has one of the fastest aging working populations in the OECD, and the report demonstrates that without policy change, the tax-financed sections of the health system will become a large drain on Government reserves. As a remedy, the OECD proposed reforms to health payment systems, promotion of healthy aging, shifts in long-term care focus, and reduced spending on medications.

OECD forecast place Korea’s carbon-emission levels as the highest growing in the OECD over the 1990 to 2005 period. Although, the Korean Government also demonstrates great dedication to promoting a green economy. The OECD has recommended the establishment of a emissions capping and trading scheme for the economy, with possible supplementation by an additional carbon tax scheme.

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On June 9th the Organization for Economic Cooperation and Development (OECD) released a statement regarding an analysis of new fuel use and fuel subsidy data released by the International Energy Agency (IEA). According to the OECD, a new international initiative to phase out global fuel subsidies would reduce greenhouse gas emissions by 10 percent by 2050.

The OECD stated that fuel subsides currently take the form of preferential tax treatment of oil, gas and fuel production sectors. Numerous governments worldwide have also instituted tax exemptions on sector-specific fuel use, like diesel fuel use in mining, agriculture and fisheries. It was estimated that OECD-member nations currently provide USD 8 billion in fuel tax exemptions for farmers, and an additional USD 1.1 billion for the fishing industry.

The OECD criticized the tax treatment of fuel and oil production, saying that the measures were inefficient on several counts. Angel Gurría, OECD Secretary-General, claimed that Governments worldwide are encouraging the production of greenhouse gases through preferential tax treatments while at the same time using national finances to promote the use of “green energy”. The dual standard is a grossly inefficient use of tax revenues. Additionally, tax-based fuel consumption and production subsidies in poor countries are inefficient at achieving a betterment of the economy and the population. The OECD claimed that consumption subsidies are more likely to benefit the rich, as low-wage workers in developing economies often cannot afford cars.

The OECD admitted that fuel subsidy reforms are a politically challenging task. Key elements to a successful round of reforms for any nation would include a gradual phase-out out of subsidies, advance announcement of the plans, and adequate public awareness campaigns.

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On April 6th the OECD and Council of Europe released a media statement announcing that the CMAAT will be updated in order to bring it up to currently agreed upon standards of international tax transparency. The Convention, opened for signing in 1988, is an international framework which provides facilitation of multinational exchange of fiscal information. The Convention will be updated to reflect modern internationally agreed upon standards in tax transparency and exchange of fiscal information. Under the update, domestic tax law limitations will be removed and exchange of bank information will be available.

The CMAAT update will open participation in the agreement to non-Council of Europe and non-OECD nations, and invitations will be extended for new signatories, especially among developing economies. Angel Gurría, OECD Secretary-General, explained the need for the change, saying that it “…provides for the opening of the convention to countries that are not members of the Council of Europe or the OECD, thereby transforming it into an instrument to fight tax evasion worldwide.”

The CMAAT, originally drawn up under the aegis of the OECD and the Council of Europe, is currently enforced by Azerbaijan, Belgium, Denmark, Finland, France, Iceland, Italy, Netherlands, Norway, Poland, Sweden, United Kingdom, United States, and Ukraine. Canada, Germany and Spain have signed the agreement, though have yet to ratify it.

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On March 18th the Organization for Economic Cooperation and Development (OECD) announced the initiation of the first step in the most extensive and through international tax transparency assesment process that has ever been undertaken. Eighteen nations from the 91 participating members of the Global Forum on Transparency and Exchange of Information will soon undergo extensive analysis to determine the adequacy of their efforts to implement internationally agreed upon taxation standards, such as the effectiveness of the bilateral Tax Information Exchange Agreements (TIEA) which were signed by all participating jurisdictions. The first set assessment results are expected to be published before the next Global Forum meeting to be held in Singapore in September 2010. The eighteen reviewed nations will consist of Australia, Barbados, Bermuda, Botswana, Canada, Cayman Islands, Denmark, Germany, India, Ireland, Jamaica, Jersey, Mauritius, Monaco, Norway, Panama, Qatar and Trinidad & Tobago.

The peer-reviews come as a response to calls raised by G20 leaders at their Pittsburgh Summit in September 2009 for greater tax transparency and a “robust peer review mechanism” to ensure the rapid, timely and appropriate implementation of the OECD standard on information exchange. Mike Rawson, Chair of the Global Forum, commented on the upcoming reviews, saying: “…this is the most comprehensive, in-depth review on international tax co-operation ever…The peer review process will identify jurisdictions that are not implementing the standards. These will be provided with guidance on the changes required and a deadline to report back on the improvements they have made.”

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According to newly published report released March 8th, Norway had experienced a relatively mild contraction during the economic crisis. National unemployment is expected to peak at no more than 4 percent. The OECD projections claim that economic growth will remain strong in 2010 and improve further in 2011.

Norway’s current economic position has been attributed to the Government’s ability to implement significant budgetary stimulus measures and cutting the central bank interest rates by 450 basis points. Initiatives were also introduced to insure the maintained liquidity of funds for Norwegian banks, despite their heavy reliance on international finance.

To maintain Norway’s current positive standing, the OECD has suggested that a number of the policies legislated during the worldwide recession be retracted, in order to ensure that the economy doesn’t “overheat” in coming years. The primary recommendation for Norway was to withdraw the fiscal stimulus measures originally outlined within the 2010 Budget. The monetary stimulus, which amounted to 0.6 percent of GDP, is considered to be excessive by the OECD, in the light of Norway’s current standing.

The report strictly stated that Norway’s already high levels of personnel taxation should not be raised, and strong encouragement was given to reduce top marginal rates. Further, the OECD reported that the Government’s current treatment of housing taxation is economically unjustifiable and reforms should be led to phase out the current deductibility on interest paid for owner-occupied dwellings, and the discount given to housing in regards to the wealth tax. According to the report, increases to housing taxation would be adequate to balance reduced top marginal rates.

According to the report Norway needs to return to the 4 percent path of Government spending, which stated that the structural non-oil Government deficit should be no more than 4 percent of the Government Pension Global Fund (GPGF). The GPFG was implemented in 2001 for the long-term management of surplus revenues made from petroleum production within the country, and according to the OECD has had major positive effects on public finances and the economy.

Commenting on the report Sigbjørn Johnsen, Fiancne Minister of Norway, said; “OECD’s assessment of the Norwegian economy serves to stimulate the debate on important economic policy issues. We appreciate OECD’s assessment that our macroeconomic framework is serving us well.”

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