STRUCTURAL REFORMS OFFER BEST LEVER FOR BOOSTING GROWTH AND JOBS

London, April 7- Governments must reform the underlying structure of their economies to boost economic growth and create jobs, according to the OECD's latest Going for Growth report.

OECD Secretary-General Angel Gurría comments:

"The capacity of fiscal and monetary policies to further support the recovery is pretty much exhausted, so a new emphasis on implementing structural reforms is the only way to boost growth and job creation”.

"Structural reforms are essential to turn today's policy-driven recovery into self-sustained growth. It can also make significant contributions to global rebalancing and fiscal consolidation. New policy initiatives are essential to ensure that the recovery creates jobs, particularly for the young”.

Mr. Gurria presented the report in Budapest, Hungary, ahead of the informal meeting of European Union finance ministers (ECOFIN). He said the OECD's structural reform recommendations would bring a double dividend to EU countries as they rebound from the crisis. The reforms will not only boost growth and jobs, but will also improve public finances, by increasing tax revenues, lowering government spending and pushing down the debt burden.

Since Going for Growth was launched in 2005, the annual report has identified five key reform priorities to boost economic activity and raise living standards in each OECD country. This year's report, which covers major emerging economies for the first time, says that speeding up structural reforms slowed by the global recession could make a decisive contribution to the economic recovery.

Liberalisation of product markets is the first place governments should look at. Reducing barriers to entry in the retail trade and liberal professions would deliver quick income and job gains. Easing administrative burdens on business and removing barriers on foreign direct investment could also have a quick impact.

The dramatic effect of the crisis on employment worldwide reinforces the OECD's previous calls for maintaining spending on, and improving the design of, active labour market policies, particularly those that would help youth find their first job and the long-term unemployed re-enter the workforce.

Countries with high levels of unemployment should reform benefit systems and shift taxation away from labour. Pension reforms -including higher minimum retirement ages and a lengthening of working lives- would increase the number of workers and boost consumption while improving public finances.

Mr Gurría said:

"Activation and training policies for lifetime employability should be strengthened while job protection should be better balanced between permanent and temporary workers in order to help marginalised groups such as youth, low-skilled women and migrants".

This year's report includes three special chapters offering recommendations on housing policies, health care systems and the best ways to tackle current account imbalances with structural policies.

Secretary-General Gurría emphasized that "improved healthcare efficiency will be crucial if governments are to maintain quality of care without putting further stress on public finances. Savings could be close to 2% of GDP on average if best practices are adopted in areas ranging from management coordination to enhanced information on quality and prices." Potential efficiency gains would be highest in Denmark, Hungary, the Slovak Republic and the United States.

Going for Growth also finds that efficient and equitable housing policies can contribute to stronger economic growth by, for instance, making it easier for people to move for jobs.

Structural reform recommendations applicable to BRIICS too.

For the first time, Going for Growth studies reform potential in Brazil, Russia, India, Indonesia, China and South Africa, as part of the OECD's wider contribution to the G20 Framework for Strong, Sustainable and Balanced Growth.

Mr Gurría continued:

"These countries are essential pillars of the world economy and increasingly, through the G20, of its governance," Mr Gurría said. "It is in their interest, but also in everybody else's interest, that they implement structural reforms as these are part of the solution to many of our common challenges, from global imbalances to climate change”.

With the exception of South Africa, the BRIICS have fairly high employment rates. However, labour market informality is widespread, contributing to a large productivity shortfall. Strengthening social welfare and education systems would help address this problem and is desirable in its own right, according to the report.

In order to boost productivity from currently low levels, the OECD also recommends the BRIICS governments relax highly stringent regulations in product markets, lower barriers to trade and FDI, strengthen property rights and contract enforcement and deepen financial markets.

Examples of country-specific recommendations include:

- Reducing the distortions in the tax system in Brazil.

- Lowering barriers to trade and FDI in Russia.

- Reducing administrative burdens on firms in China.

- Easing job protection to reduce the dual structure of the labour market in India.

- Increase public spending on secondary education in Indonesia.

- Enhancing competition in network industries in South Africa.

The policy recommendations outlined in Going for Growth form part of the broader context of OECD work to help countries emerge from the crisis with more robust economies. Other major initiatives include work on greener growth, innovation and measuring the progress of societies.

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