Ministero dell'Economia e delle Finanze

Corriere della Sera - 07/01/2021

Interview by Federico Fubini

Are you confident the G20 will reach a comprehensive agreement on a global minimum tax on big companies? What are the main stumbling blocks?
The agreement on the international tax reform is based on two pillars. First, there is the question of the reallocation of profits; second, there is the question of the global minimum tax. Let me say that reaching an agreement on these two pillars would be of the greatest importance. It would allow us to build a tax system able of addressing the negative consequences of globalization and digitalization. The new rules would help governments to fight erosion of tax bases and profit shifting. I see a concrete opportunity to reach an agreement on the core elements of the two pillars in the next ministerial G20 meeting in Venice. Much work has been done but there are several details that need to be defined in-between this ministerial meeting and the next one in October, to be followed by the meeting of the heads of State and government. The coming months will be used to finalize all details. There is a broad consensus on the need to move ahead. It’s not an easy process because tax systems are complex and very diverse, reflecting national specificities and historical developments. We really have different tax systems, so finding a common solution is not easy. Therefore, a worldwide solution necessarily implies that all countries should be prepared to make concessions. However, I believe that the remaining gaps can be bridged and that we will reach an agreement. Times are clearly changing. At the G7 and G20 we are witnessing increasing awareness that national corporate tax regimes have become inadequate for large enterprises operating cross-border and benefitting from globalization and digitalization. Only an international framework based on a multilateral agreement will allow us to tax these corporations in an effective and fair way.

We hear that China is resisting any G20 agreement on a global minimum tax as it seeks to protect its own special economic zones and tax haven-based operations of Chinese tech giants. How can the G7 countries reach a deal at the G20 without Beijing’s support?
The dialogue with China is friendly. Last Friday I had a long phone call with the minister of finance Liu Kun and China is committed to continuing the dialogue. The indications are positive, significant progress has been made at the technical level, although there is still a lot of work to be done. All countries, including China, are aware that an overall agreement is now possible and that it is an opportunity that no one should miss. I think no country would like to be the one blocking a worldwide agreement. China has shown a constructive and open approach and I am confident that we will find a solution with them about the pending issues. I should stress that we are grateful for the support that China has provided to the Italian presidency this year on the work streams of the G20.

The first part of the fiscal reform implies a complex revenue-sharing arrangement on the collected revenue. Btw, we keep hearing Amazon for some reason would be exempt. Can you shed some light on how the arrangement could work in practice?
Yes, with reference to the first pillar, which is about the rules for the allocation of profits, they will apply to all multinationals with a significant global turnover and high profitability, regardless of the sector of activity. The scope of the pillar would obviously include digital companies, but not only them. The turnover and profitability thresholds are still under discussion. I believe we are not far from an agreement. Profits will be reallocated on the basis of a new nexus with the jurisdictions where the multinationals earn revenues from supplying goods and services. One important issue for multinationals is tax certainty. Tax certainty will have to be an element of the agreement, as we need to introduce new and effective mechanisms for the prevention and resolution of tax disputes, which must be able to ensure the elimination of any double taxation. With respect to the second pillar, about minimum effective taxation, the new rules are designed to ensure that multinationals are subject to a minimum level of corporate taxation in each jurisdiction where they operate. The key point is that this minimum effective taxation rate should not be fixed at too low a level. We don’t want a downward levelling of minimum rates in the OECD and in the G20. The United States proposed an effective minimum tax rate of at least 15%. In Venice, the dialogue will continue.

What about Amazon?
We will see. I don’t want to enter into such details now. It’s not useful to name any company at the moment.

You say you are hopeful that the G20 will find an agreement. But if we look into the EU, we already see a number of different approaches. On one side countries like Italy, Spain and France already have digital taxes – some even stand to lose taxation revenues. On the other side we have - some people say - “offshore-centers” like Ireland, the Netherlands, Malta and others. Once a G20 agreement is reached with China on board, how do you think we can bring the EU to come along?
The European Union dimension is important for a worldwide agreement. In the EU there are different approaches and solutions, but I don’t think the Union is and will be divided on this in the future. I would rather say that it is crucial to enhance cooperation and mutual support, so that we don’t miss the opportunity to find a global agreement. Regarding national digital taxes, it’s clear that all of these will be repealed once the new pillars are fully implemented in the coming years. These aspects will be defined in October, with our second round of discussions at G20 level. I don’t see a risk of losing tax revenues, because we are switching from national taxes to the new global pillars. Obviously, a discussion in Europe will follow. But I am confident that a new common standard at the international level will create the condition for an agreement at EU level. We have reached agreements in the past and the same will happen in the future.

The G20 is going to discuss a report on Health Services after Covid. What do you expect the main takeaways will be?
The pandemic inflicted terrible costs in terms human lives lost and suffering. It also carried heavy economic costs. There is one lesson that we have to learn: we all have to be better prepared for the future, together. For the more immediate needs of the coming weeks and months, the global response has focused on the Access to Covid-19 Tools Accelerator (ACT-A), and its vaccine pillar, COVAX. We should decisively continue to support this effort. In parallel the G20 is working on how to prepare for similar shocks in the future. In January we’ve set up a high level independent panel, proposed by the Italian presidency. The panel has been asked to identify gaps in the financial system for pandemic prevention, preparedness and response. The panel will present its report in Venice. We expect the report to be focused on two main issues. First, how we should enhance investments in global public goods on prevention, preparedness and response. And second, how we could step up a new global governance. The lesson of last year is that the world was not fully prepared. The debate about these topics was intense in the global health community and among economists and finance experts. I believe a common understanding is on its way and the G20 is well placed to examine proposals in this regard. We will discuss the report and will see how to proceed. I think the way ahead is a joint meeting between the ministers of Health and the ministers of Finance to prepare a joint report for the October G20 summit. The effort should continue after the Italian presidency as well. I am happy that we’ve started this work but certainly it will continue in the next few years.

Hopefully the world is be now more prepared for another issue such as climate change. Are you confident we have fully grasped the climate transition’s economic costs and consequences?
Climate change is one of the essential themes for the G20. The Italian G20 presidency has the three main pillars: “People, planet and prosperity”. We cannot promote shared prosperity for all without taking care of our planet. This theme has become an integral component of the G20 Finance agenda. It is now recognized that climate change and environmental degradation have a major impact on economic performance. There is also a significant consensus that a net zero transition will be achieved only if the global financial system is on board. The G20 finance track could be a key actor for building an efficient green financial market and supporting green projects in our recovery strategies. In this year we have re-launched the G20 study group dedicated to sustainable finance. We upgraded it to a full G20 working group. The idea is to have a permanent forum to discuss climate-related issues. The group is now focusing on three priorities: sustainability reporting, approaches for sustainable investments, and the role of international financial institutions. I am very happy that China and the US accepted to co-chair the group that has an opportunity to speed up efforts to tackle the climate challenge. The G20, the G7 and the COP26 are all going in the same direction. We need a common approach that also includes the private sector, important market players and citizens. In July we will also organize the G20 tax symposium focusing on the issue of carbon taxation. Raising taxes on the use of energy can be a way to speed up transition to a net zero economy. It’s not the only tool. One can also use other tools, such as regulation, research and development on new technologies.

But will European households have to pay a higher price on electricity than today, because of the accelerated decarbonization efforts?
Well, it depends on your starting point. In some countries electricity is already expensive, so I don’t think there is a common answer for all. It depends on your starting point.

Europe and the global economy are experiencing stronger-than-expected GDP growth and higher-than-expected inflation in 2021 – in your view, is this a post-recession rebound or the beginning of a sustained recovery with upward risks on inflation?
The jump in inflation that we see especially in the US seems to be partly due to transitory factors. These mostly stem from the rebound in energy and commodity prices after the pandemic lows and to shortages of key components, due to the combination of rising demand and insufficient investment in new capacity, for instance in the semiconductor industry. Looking beyond that, I believe that accommodative monetary and fiscal policies, stepped-up public investment and changes in global value chains are likely to lead to higher underlying inflation. But we are starting from a very low inflation level. We are moving from a situation in which central banks have been trying to raise the inflation rate. The increase I am talking about will be moderateand will fulfil the policymakers’ goal of raising nominal GDP growth. I believe in the euro area we are on track for that scenario, but we should closely monitor wage and price developments to verify that the pickup in inflation remains moderate.

Last year the G7 and the G20 have issued recommendations to governments to go full steam ahead with fiscal support. Do you think the G20 communiqué might include some message on this? Do you expect it will recommend keeping fiscal support at current high levels, or gradually withdrawing it by making it more targeted, maybe to investment rather than life support for households and corporates?
I can’t anticipate the content of the G20 statement, there is on-going work on that. But in the most recent G7 communiqué you can see there is broad consensus that fiscal and monetary policies should remain accommodative for as long as necessary to alleviate the social consequences of the pandemic, drive GDP and employment back to pre-crisis levels and get back to pre-crisis trends. The global economic outlook is improving, particularly in some advanced countries, thanks to progress in vaccination and continued policy support. However, the recovery remains highly uneven. Some emerging and most low-income countries are lagging behind as the infection rate is still worrying and the risk on new variant spreading is material. So conditions differ across countries, there is no one-size-fits-all solution. But we can certainly agree on the idea that fiscal support should shift focus from crisis response to growth support, as the epidemic situation improves. Even as conditions differ internationally, a coordinated approach is of the uppermost importance to avoid further divergence that can negatively affect the long-term growth outlook. Obviously, at some point in the future deficit levels will have to be reduced, debt ratios will have to be significantly and gradually reduced too. Prudent medium-term fiscal policy, together with economic growth, will allow our countries to reduce debt ratios. I think we all agree on that, but the focus now is still on getting out of this recession and supporting our economies until we are safely out.

You said we should be moving from crisis response to growth-friendly fiscal policies. How can we translate that in a way that is clear to common people?
I think policy should become more and more targeted to supporting sectors and categories, households and citizens in need and we should become more and more selective. Then we should focus on those tools that would allow us to grow at a steady rate after the pandemic. We must achieve a stable and significant rate of growth, after phasing out gradually the policies that were introduced during the emergency.

The Eurozone will reintroduce budget rules by 2023. Do you think the Stability Pact should be amended before then? In case of reform, what your priorities should be?
We support the extension of the general escape clause to 2022. And we support reopening a debate about the reform of EU budgetary rules later this year. I think that in the coming quarters we should avoid premature fiscal policy tightening in Europe that could possibly offset the growth impulse generated by the Next Generation EU program. Before we undertake a gradual fiscal consolidation process, we must return to the pre-crisis trend in real GDP growth, not only to pre-crisis level. On the second point, I believe the new rules should avoid pro-cyclicality in fiscal policy. Furthermore, the new rules should be designed in a way that is reasonably simple to administer and manage. A higher degree of national ownership is also worth considering. The debate will start later this year and it will continue next year. I trust that we will find a solution.

Do you think that there will be different rules for the most indebted countries in the Eurozone? Or you will find the same rules for everybody?
Rules should apply to everybody. So I think we will have homogeneous rules. Obviously high-debt countries should reduce the debt ratio, as I said earlier.

Germany’s CDU candidate Armin Laschet already warned that “the party is over” and we need to go back to strong fiscal rules. The Austrian minister of Finance said it’s also “immoral” for countries to ignore fiscal rules and demand solidarity. Are you concerned North-South/doves-hawks cleavages might reemerge in Europe, in post-Covid time?
Rules are necessary in a monetary union and no country should ignore rules and demand solidarity after having ignored the rules. The emergency that we face due to the pandemic was one of unprecedented nature and size. Suspending the rules was the correct decision to take. When we finally overcome the crisis, rules will be reinstated. We will discuss about the timing and the path. But obviously rules are to be back. Then we will discuss whether the rules will be the same as before or will be modified. I am confident that we will reach an agreement on future rules. EU countries always managed to reach an agreement in the past. And I believe this is no exception. The experience from last year shows that member states can rapidly reach a consensus. So to answer your question, no, I don’t think there is a risk. I think we will reach a consensus. Maybe we will have a lively debate as usual, but in the end, we will reach a consensus.

There is a big responsibility for Italy and Spain in the use of the Recovery funds. Do you think the Southern countries will be able to take advantage this time and introduce the reforms that are necessary?
If we fail, what would be the consequences for the EU? I trust we will use the funds well. This is our effort. Both in terms of investment projects and the reforms which have been agreed in order to speed up the introduction of the investment projects. This is our priority. Success will be important, first of all, for our individual countries and then for the European Union as a whole.

Vaccination hesitancy can create risks and also slow down the reopening and the recovery. Do you think Western countries should be based on volunteer efforts on set up compulsory vaccination?
This is a tricky issue from an ethical point of view. Certainly, we are now using all of the vaccines that are available every day, so far. We will see in the end how many people did not get vaccinated, and decide what do about that. This is an issue for our health minister and his EU colleagues. As I said, it is an issue with deep ethical implications. But so far, we are proceeding fast and we have nearly one third of the population fully vaccinated and more than half of the population that have got at least one shot.