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“We should agree on an in­ter­na­tion­al min­i­mum lev­el of tax­a­tion”

In his speech at the Global Solutions Summit taking place in Berlin on 18 March 2019, German Finance Minister and Vice-Chancellor Olaf Scholz endorsed an international minimum level of taxation to ensure that states are able to finance their public goods. He also called for a multilateral approach, arguing that global problems such as climate change or social inequality can only be tackled through international cooperation.

  • Date 18 March 2019

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Professor Snower,
Mr Engels,
Ladies and gentlemen,

Thank you for the invitation to this conference today to again discuss global solutions with you. I remember a very fruitful forum last year.

Quote Global Solution Summit - unilaterism
Source:  BMF

I suppose all of us agree that we need global solutions to global problems. However, these seem to be difficult times for international cooperation and fora such as the G20 – and this although the world is continuously growing closer together. Economies worldwide are closely linked through digital communication channels, supply chains, financial markets, cross-border employment and business. In this globalised world, unilateralism, the idea of a lone rider sorting things out, is just fiction.

Even if we wanted to, we could not decide on important political issues autonomously. Because our decisions are not independent of other nations’ decisions. What we do, and what we do not do, concerns other nations. Here in Europe, Brexit reveals these interdependencies very clearly. The message is clear: Unilateralism is costly, inefficient and produces no winners. The slogan of the Brexiteers was: Take back control and, unspoken: all will be better in future. But the opposite happens; this is what I mean by ‘fiction’.

There are no national answers to today’s pressing political issues, which are of a global nature. Free and fair international trade, environmental protection and the fight against climate change, international migration flows, resolving armed conflicts, supporting development in poorer countries, ensuring minimum social standards as well as avoiding tax dumping and financial regulatory arbitrage are some examples out of a long list.

Multilateralism is the right approach; only in concert will we be able to find answers to global problems and improve the well-being of all. Good solutions to global problems are never only for the benefit of one country, but embody a fair compromise across nations and regions.

The G20 plays an important part in finding global solutions. It has shown its capacity to act in the past, especially in the aftermath of the global financial crisis in 2008/2009. Since then, the G20 has moved far beyond financial regulation to a much broader agenda. The G20 has proven to be particularly effective when it cooperates with the various international organisations such as IMF, World Bank, OECD, FSB etc.

Ladies and gentlemen,

One area where I see a clear responsibility of industrialised and emerging economies toward the world is rules-based free and fair trade. Trade conflicts, as we have seen over the last months – especially between richer countries only thinking of their own short-term interest – are damaging the world economy. They reduce the welfare of people around the globe, also for those who started the conflict. Economists love to talk about win-win situations, but this is clearly a lose-lose situation. Including for the many countries that do not have an active part in the negotiations and are not being heard.

Fair trade in my view includes human rights, the International Labour Organisation’s core labour standards and environmental standards, also in global supply chains. Germany advanced these goals internationally during its G7 presidency in 2015 and during its G20 presidency in 2017. And free and fair trade must also contribute to development in poorer countries. These countries need a flexible approach to meet the above mentioned core standards.

EU trade policy has evolved to take this on board. The new generation of free trade agreements includes chapters on sustainable development with legally binding commitments. We need to further strengthen our trade policy criteria accordingly.

Trade policy has been an EU-level responsibility for a long time. It is obvious that we have much more bargaining power if we speak with one European voice. This voice represents a market of 500 million consumers – 450 million after Brexit. Only together we are able to set and enforce standards of fair trade.

What we see in trade policy holds true for many other policy areas: Even Germany with its 80-some million inhabitants is too small to have sufficient political weight on its own in a world that will have a population of 10 billion by 2050. Only as part of a strong and united Europe will we be able to defend our interests and our values – and shape our own destiny.

Africa, our neighbouring continent, is home to a growing part of the global population – probably a quarter by 2050. We certainly need to improve the situation on the ground.

This will not automatically reduce the number of refugees from Africa to Europe – I agree with Paul Collier on this point. We must go even further: People need more confidence in their future, in their prospects for an adequate life in their home countries. This will require new approaches to development cooperation. Such as the Compact with Africa, which Germany initiated within the context of the G20.

Giving people more confidence in their future in Africa also requires more political stability and healthier public finances. We must avoid excessive public debt and the well-known ‘lend and forgive cycles’ of development policy. That’s the responsibility of all important public creditors. Including China. To speak with the words of Winston Churchill: The price of greatness is responsibility. Therefore I would very much welcome China becoming a full member of the Paris Club.

Ladies and gentlemen,

The issue of healthy public finances brings me to my next point. For democratic states to function, they require sufficient tax revenue.

We have been observing for years how some large multinational corporations find ways – sometimes by exploiting legal loopholes – to shift their profits around the world with the aim of minimising their tax burden or avoiding taxes altogether. For digital companies, such practices are even easier to realise, given that they often don’t have a physical presence.

That is not acceptable. These multinationals are refusing to make their fair contribution to financing public services. And they undermine the confidence of individuals and businesses who do pay taxes – their confidence in a fair tax system that is applied uniformly.

Quote Global Solution Summit - Taxation
Source:  BMF

We have already made progress at the international level in fighting these scandalous practices, in particular with the Base Erosion and Profit Shifting agreements of the G20 and the OECD. But we need to do more. As the next step, we should agree on an international minimum level of taxation, thus ensuring that our democratic states are able to finance their public goods. Our aim is not to completely do away with tax competition, but to define a minimum standard – in order to ensure that we do not harm each other’s welfare.

I am confident that, by 2020, we will be able to agree on a plan in which Germany’s proposals for minimum taxation will play an important role.

Current discussions include the question of whether the profits of digital businesses should be taxed where value is created. The re-allocation of taxation rights needs to be analysed carefully, in particular from the perspective of an export oriented economy.

Ladies and gentlemen,

If you ask people in the street about the most pressing global issues, many will tell you that it is global warming. The impact of climate change is so obvious in too many parts of the world that it is hard to understand how some people can still deny it. By the way: Our children and their Fridays-for-future movement understand what’s at stake and organise in a truly global way.

Quote Global Solution Summit - Global warming
Source:  BMF
It is in our hands to determine the living conditions of subsequent generations on this planet. This global responsibility translates into responsibility for each and every country. So let’s face it. Pointing the finger at others will not get us anywhere. I sometimes hear the absurd argument that there is no point in reducing carbon emissions at home while new coal-fired power plants are being built in other parts of the world.

Germany’s energy supply and wealth has been built on coal. Yet, only a few weeks ago, and against quite some odds, we decided to phase-out all coal-fired plants within 20 years.

And to remember: We also decided to withdraw from nuclear energy by 2022.

With these decisions, the work is not done. The real work starts now. We simply cannot phase-out coal and nuclear energy while everything else stays the same. Reliable and affordable energy is non-negotiable for a highly industrialised economy like ours.

In order to permanently ensure a safe and affordable energy supply, we will build up a strong power network with sufficient capacity through modern power plants, storages, the use of hydrogen and of course renewable energies. This plan is ambitious, but I am sure it is the right way forward.

And yes: This plan is costly. It will require huge investments not only in energy generation and infrastructure, but also in order to give genuine and well-deserved prospects to the men and women who have built their lives on coal. Transitions have to be just! And we can afford it. I am sure it is a good investment in every way: Ecologically, socially and also economically. It will drive technological innovation – that can in turn help others to act in more climate-friendly ways.

Ladies and gentlemen,

I think that more ambition, more courage, more confidence and more willingness to compromise are what we need now to tackle global problems. To get back to a functioning multilateral order.

As in the past, the G20 will have to assume an important role in bringing together the most important players of world politics in the future. I agree with the Global Solutions Initiative that some sort of paradigm change in the G20 approach is needed. In particular, we should not only put more focus on human wellbeing by empowering people to shape their own destinies and by improving social solidarity. We should also better explain our intentions.

We should talk more about the merits of globalisation, which has lifted many people worldwide out of poverty. We should explain that in fact the G20 is trying to shape globalisation for the benefit of our citizens.

Quote Global Solution Summit - Social cohesion
Source:  BMF

These international efforts must be coupled with good policies at the national level, in particular reliable social protection for everyone and a fair distribution of the returns from economic growth. I am convinced that social cohesion is an essential prerequisite for open-mindedness and tolerance – and the most effective remedy against the growing populism we are seeing across the globe.

Let us stand together, as advocates of multilateralism and fair, rules-based trade, unmasking the adverse effects of unilateralism and protectionism. Then we will hopefully soon overcome these difficult times for international cooperation.

Thank you!