Inclusive Growth: the role of budgetary governance

Luiz de Mello

Deputy Director – Public Governance & Territorial Development

Senior Budget Officials, Rome – 12 June 2015

• Motivation and context

• What is the OECD doing in this area?

• How can budgeting contribute?

Motivation and context

Motivation

• Legacies from the crisis and long-term trends – Slow growth, persistent joblessness, widening income

inequality, low trust in institutions

• Growing body of OECD work in this area – Well-being, income inequality, structural reforms – NAEC initiative: interdependencies and complexity, policy

trade-offs and synergies, new tools and methods

• Related GOV strands of work – Regional well-being, regulation, integrity, etc. – Agenda for the Helsinki Ministerial meeting of 27-28

October 2015, and work priorities for beyond 2015

The context: slow growth and persistent joblessness

Note: OECD Economic Outlook database.

Long-term unemployment (jobless for over 1 year, % of total unemployed)

Real GDP (2007:3=100)

0

10

20

30

40

50

60

0

10

20

30

40

50

60

UnitedStates

OECD Japan Euro area

Q4 2007 Q4 2014

80

90

100

110

120

130

140

20

07

Q3

20

08

Q1

20

08

Q3

20

09

Q1

20

09

Q3

20

10

Q1

20

10

Q3

20

11

Q1

20

11

Q3

20

12

Q1

20

12

Q3

20

13

Q1

20

13

Q3

20

14

Q1

20

14

Q3

20

15

Q1

20

15

Q3

EUR JPN USA WLD

The context: widening income disparities

Note: OECD Income Distribution database.

Gini coefficients of income inequality (mid-1980s and 2013, or latest available year)

0.15

0.20

0.25

0.30

0.35

0.40

0.45

0.50

1985 2013 or latest

Increase Little change Decrease

What has the OECD been doing in this area?

Inclusive Growth: A three-pronged approach

• Multidimensionality: grounded in growth but looks at more than income (employment, education, health)

Which growth?

• Distribution-focused: not only “averages”, but also incidence and impact

Whose growth?

• Policy-relevant: broaden policy surveillance to non-income dimensions

What drivers?

An illustration of different growth path

Note: OECD calculations based on OECD National Accounts, Health and Income Distribution databases.

Median households (Average yearly change in %, 1995-2007)

• Usual metrics • GDP per capita vs

“multidimensional living standards”

• An illustration for

US and EU • Faster income growth

in the US, but slower progress in health and widening income distribution

OECD analysis of growth, wellbeing, equality

How can budgeting contribute?

Response required across all of Public Governance

• Regional development – regional wellbeing indicators, impacts on policy design

• Open government – transparency, participation, data

• Centre of government – vision, goals, coordination

• Regulation – broadening scope, nature of RIA

• Budgeting –

what needs to change?

what should we be doing differently?

(a) From a “Pro-growth” to an “Inclusive growth” fiscal framework

• Growth-friendly fiscal rules, objectives?

• Highlighting the “growth dividend” of inclusiveness?

– E.g. systematic underinvestment by bottom 40% of individuals in their education?

• Protecting and prioritising capital investment?

• Social and environmental dimensions of infrastructural investment?

(b) Evaluating multi-dimensional impacts of budgetary choices

• From income impact assessments to a multi-dimensional model?

• Systematic reform of evaluation (along lines of RIA)?

• Implications for government-wide strategic planning?

• Use of Key National Indicators as “fixed stars” for national policy-making and international becnhmarking

(c) Inclusiveness and engagement in policy-making

• Can be parliaments be “activated” as participants in policy-making across the policy cycle?

• “windows of engagement” for citizens in budget-making?

• Promoting a realistic debate on relative priorities?

• Social media, crowdsourcing, “deliberative dialogue” – opportunities and risks from new tools of engagement?