Tuesday, July 16, 2024
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Ending the pandemic and its associated economic crisis

Remarks by Secretary of the Treasury Janet L. Yellen following the Close of the G7 finance ministers meetings

By Janet L. Yellen

This was our first in-person multilateral meeting — and I can definitively say a real-life G7 meeting is much more enjoyable than the Zoom version. More importantly, our meetings this weekend emphasize the power of global cooperation in addressing the most critical issues we face.

Our most immediate task is ending the pandemic and its associated economic crisis

Fiscal policy has an important role to play in responding to crises and supporting the recovery. The International Monetary Fund (IMF) projects that the US will be the first G7 economy to return to its pre-pandemic output level. That’s in part due to our rapid vaccine rollout, but also ambitious fiscal support in policies like the American Rescue Plan.

G7 economies have the fiscal space to speed up their recoveries to not only reach pre-COVID levels of GDP but also to support a return to pre-pandemic growth paths. This is why we continue to urge a shift in our thinking from “let’s not withdraw support too early” to “what more can we do now.” Not just to end the pandemic, but to use fiscal policy to invest in addressing generational issues like climate change and inequality.

As the G7 economies face brighter prospects, we cannot forget that developing countries face limited access to vaccines and limited policy space to respond to the economic crisis. Our collective fear is that the pandemic leads to a lingering divergence where advanced economies rebound quickly, while developing countries lag and bear deep scars from the crisis for years to come.

The G7 discussed how to try to prevent that divergence, first, by helping developing countries vaccinate their populations. The surest way to do that is to keep supporting the COVAX Facility, which purchases and distributes doses to poorer countries. The government of Japan hosted a successful pledging Summit for COVAX on June 2, and I thank the countries who stepped up their contributions to this important effort. The US remains committed to the success of COVAX and will continue to disburse our $4 billion pledge, the largest to the facility. The G7 also discussed how our existing tools, such as World Bank and IMF financing, can better help fund a global immunization effort and how we can enhance our coordination to prevent and better respond to future pandemics.

We also discussed ways to provide greater economic support to developing countries through the international financial institutions that would put developing countries on a path to a strong and sustainable green recovery. The G7 reiterated our support for a new allocation of IMF Special Drawing Rights to boost global reserves and provide additional liquidity as IMF members confront the crisis. We strongly support the IMF providing clear, tailored guidance to countries on how best to utilize their new SDRs, as well as proposals to increase transparency in and accountability for how SDRs are used. The G7 also exchanged ideas on how major economies might channel our SDRs to amplify support for low-income countries, potentially by co-financing IMF programs to support green recoveries and improve vaccine access.

G7 countries also redoubled our commitment to a transformative effort to tackle climate change. President Biden recently signed an Executive Order in April committing to double US climate finance by 2024, while tripling US finance for adaptation — signalling a return to US leadership in addressing climate change. I am pleased the G7 could agree to ambitious commitments to decarbonize our economies and mobilize finance for climate action, including from public and private, domestic, and international sources. To facilitate the mobilization of private climate finance, the G7 also agreed to take action to improve the availability of consistent, comparable, and decision-useful climate-related financial information to market participants.

This commitment is in line with the president’s executive order to enable private investment to play a complementary role in meeting our net-zero emissions target while also creating well-paying jobs. We look forward to advancing this work in the coming months with the broader G20, where treasury is co-chairing the G20 Sustainable Finance Working Group.

Perhaps most notably this weekend, G7 economies came together to agree the post-pandemic world must be fairer, especially with regard to international taxation. We need to have stable tax systems that raise sufficient revenue to invest in essential public goods and respond to crises and ensure that all citizens and corporations fairly share the burden of financing government. For too long, there has been a global race-to-the-bottom in corporate tax rates — where countries compete by lowering their tax rates instead of the well-being of their citizens and natural environments.

The G7 has taken significant steps this weekend to end the existing harmful dynamic, making commitments today that provide tremendous momentum towards achieving a robust global minimum tax at a rate of at least 15 percent. That global minimum tax would end the race-to-the-bottom in corporate taxation and ensure fairness for the middle class and working people in the US and around the world.

The global minimum tax would also help the global economy thrive, by levelling the playing field for businesses and encouraging countries to compete on positive bases, such as educating and training our work forces and investing in research and development and infrastructure. And indeed the global minimum tax can help fund investments in those critical priorities.

Finally, by collaborating with one another on the global minimum tax, governments protect their national sovereignty to set tax policy, because the pressures that have forced the race to the bottom on corporate tax rates are alleviated.

This effort is far from over, and we look forward to engaging closely with the G20 and members of the OECD Inclusive Framework process in the coming weeks to finalize an agreement on the global minimum corporate tax as soon as possible.

At the same time, I look forward to taking the momentum we’ve achieved on a global reform at this G7 and working closely with members of Congress on this important initiative.



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