PWB 2019-20: DRAFT BUDGET PARAMETERS - OECD

Organisation for Economic Co-operation and Development

C(2018)98/REV1

For Official Use English - Or. English 4 July 2018

COUNCIL

Council PWB 2019-20: DRAFT BUDGET PARAMETERS

(Note by the Secretary-General) The document has been revised to take into account:

• The release by INSEE of the end-June 2018 HCPI inflation index, used in the reference periods for calculating budget indexation;

• The inclusion of the additional contribution from Lithuania in PWB 2019-20, given its intention to deposit its instrument of ratification to the OECD convention on 5 July 2018.

JT03434341

This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

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PWB 2019-20: DRAFT BUDGET PARAMETERS For Official Use

TABLE OF CONTENTS

Purpose of the Secretary-General's Draft Budget Parameters ......................................................... 3

KEY FEATURES .................................................................................................................................. 4

1. Draft Budget Parameters - Considerations and Orientations ....................................................... 6

2. STRATEGIC PRIORITIES ........................................................................................................... 15

3. 2008-2018: Ten years of increased relevance and efficiency ....................................................... 19

3.1. Increased relevance and impact of the OECD ............................................................................ 19 3.2. A track record of efficiencies - V4M initiatives ......................................................................... 20 3.3. A streamlined corporate management layer ................................................................................ 22

4. FINANCIAL PARAMETERS FOR 2019-20 ................................................................................ 26

4.1. Reduction of the Budget Base and Allocation of the MEUR 3.3 Budget reduction ................... 26 4.2. 2019-20 level of the Budget ........................................................................................................ 29 4.3. The Accession of Lithuania and Colombia ................................................................................. 32 4.4. Level and Financing of the Central Priority Fund and Long-Term Reallocations ...................... 34 4.5. Part I financing and Budget envelope ......................................................................................... 34

5. PROPOSED REALLOCATIONS TO DELIVER ON PRIORITIES ........................................ 37

6. PART II PROGRAMMES ............................................................................................................. 40

7. PRE-ACCESSION BUDGETS ...................................................................................................... 41

8. ANNEX BUDGETS ......................................................................................................................... 42

8.1. Pensions ...................................................................................................................................... 42 8.2. Publications ................................................................................................................................. 42 8.3. Investments and Asset Replacement ........................................................................................... 43

9. VOLUNTARY CONTRIBUTIONS .............................................................................................. 44

10. CONCLUSION .............................................................................................................................. 45

ANNEX I: APPLICATION OF THE INFLATION MECHANISM TO THE PART I BUDGET46

ANNEX II: PART II PROGRAMMES: BUDGET APPROPRIATIONS OVER LAST BIENNIA .............................................................................................................................................. 48

ANNEX III: SUMMARY INFORMATION ON HORIZONTAL PROJECTS FOR PWB 2019-20 ........................................................................................................................................................... 49

Horizontal Project No. 1: Going Digital Phase II – Seizing Opportunities and Addressing Challenges .......................................................................................................................................... 49 Horizontal Project No. 2: Strategic Policies for Sustainable Infrastructure ....................................... 54 Horizontal Project No. 3: Building an OECD Housing Strategy ....................................................... 60

ANNEX IV: 2008-2018 Contributions by Member ......................................................................... 64

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Purpose of the Secretary-General's Draft Budget Parameters

1. The Secretary-General's Draft Budget Parameters play a key role in the development of the OECD’s biennial Programme of Work and Budget (PWB). The Draft Budget Parameters provide:

• the main Budget assumptions underpinning the next biennium, and the estimated Part I Budget adjustments;

• the key orientations of the forthcoming Programme of Work; and • propose priority funding allocations.

2. Members are invited to discuss the Draft Budget Parameters.

3. The Part I Budget base for 2019-20 has been adjusted in accordance with the recent Council Decision of the Council on the Level and Treatment of Assessed Contributions and Fixed Fees from Colombia, Costa Rica and Lithuania [C(2018)82/REV1]. It is also proposed to adjust the Part I Budget base in line with Zero Real Growth (ZRG), based on the 2008 Resolution of the Council on the Financing of Part I of the Budget of the Organisation (hereafter the 2008 MCM Resolution).1

4. In light of discussions in the Budget Committee on the Draft Budget Parameters and the Chair’s Progress Report, and consistent with the conclusions of the 2009 Council Working Party on Priorities [C(2009)111/REV1] the Council will be invited to take a decision on 12 July 2018.

5. In accordance with Financial Regulation 4 [C(2008)92/REV1], the Secretary-General will present his formal PWB submission in October.

1 C/MIN(2008)6/FINAL

https://one.oecd.org/document/C(2018)82/REV1/en/pdf



https://one.oecd.org/document/C/MIN(2008)6/FINAL/en/pdf

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KEY FEATURES

● The value of OECD deliverables to its Membership is far greater than the OECD Budget and Members’ contributions whether on an annual or cumulated basis. Its work creates opportunities for Members’ businesses and employees throughout the world, helps save billions of dollars for taxpayers, and boosts prospects for economic growth and well-being.

● Despite the agreement reached by Members in 2008, with a view to maintaining long-term, sustainable funding for the Organisation (Resolution of the Council on the Financing of Part I of the Budget of the Organisation [C/MIN(2008)6/FINAL] adopted by the Council at Ministerial Level on 5 June 2008),through the maintenance of the real level of Part I Budget resources taking into account the rate of inflation, Members have invited the Secretariat to absorb a MEUR 3.3 shortfall for the PWB 2019-20 [C(2018)82/REV1 Decision of the Council on the Level and Treatment of Assessed Contributions and Fixed Fees from Colombia, Costa Rica and Lithuania].

● Accordingly, my draft Budget Parameters for the PWB 2019-20 reflect the Members’ request to reduce the Budget Base by MEUR 3.3, which reduces the Organisation's Budget to a level below ZNG. This reduction will be distributed as follows:

o MEUR 1.45 reduction in Corporate Services (EXD); o MEUR 1.85 spread across all other Output Areas in line with the Medium-Term

Orientations provided by Members.

● This unanticipated reduction will require adjustments to outputs even though prioritisation exercises in Committees have indicated a significant level of unmet demand for outputs, and confirmed that all outputs endorsed by Committees are of high absolute priority. Therefore, outputs for which funding will be cancelled or decreased as a result of the reduction are outputs which had unequivocal Committee support.

● In addition, the Part I Budget needs to accommodate new annual recurring cost pressures of approximately MEUR 3.4, which include:

o The 2008 Part I Scale Rules capping real increases to any Member’s contribution to 300%. From 2020 on, this cap will affect two Members (Iceland and Luxembourg) for an estimated amount of KEUR 400 per year, which will have to be absorbed by the Secretariat, as per the 2008 Part I Scale Rules;

o The reinforcement of internal compliance functions, and of physical and data security; o The necessary replacement of class II assets (large equipment); and o The requirement to perform maintenance work to safeguard class III assets (buildings), for

which no funding is planned or available, given the previous decisions taken by Council with respect to reserves for this type of assets.

● The 2008 MCM Resolution is predicated on a commitment by Members to make resources available to the Organisation that, in turn, committed to realising efficiency savings, which it did, as outlined below.

“Members undertake to provide a strong and sustainable financial foundation for the Organisation, both now and in the long term, that will allow it to maintain at least the



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quality and volume of outputs, while adapting to changing priorities. This will require strict prioritisation by Members, Budget transparency, efficiency savings by the Organisation and maintenance of the real level of Part I Budget resources taking into account the rate of inflation".

● While the 2008 MCM Resolution had no formal target for efficiency savings, the Secretariat has delivered significant results on this commitment with actual efficiencies amounting to MEUR 172 over the period 2008-18. On an annual basis, these efficiencies translate into 15.5% of the Organisation's annual Part I Budget in 2017. Over the next ten years, these past measures should continue to generate an estimated additional MEUR 310 of efficiency savings for Members.

● The 2008 MCM Resolution assumes an indexation of the Budget base by inflation (Zero Real growth, ZRG), to sustain outputs.

● Thus, in accordance with the terms of the 2008 MCM Resolution, the Budget is being prepared assuming the ZRG adjustment.

o However, it is important to note the negative impact that the 300% cap on Member contributions will have on the 2020 Budget (i.e. -0.2% impact, reducing the ZRG adjustment from 1.9% to 1.7%);

o The Part I Budget has been updated with regard to the forthcoming membership of Lithuania. Should Colombia deposit its instrument of accession in the course of the PWB process, the Part I Budget would be updated in accordance with the “Decision of the Council on the level of treatment of assessed contribution and fixed fees from Colombia, Costa Rica and Lithuania” [C(2018)82/REV1] dated 3 May 2018. However, this decision does not provide for the full coverage of recurring costs flowing from the accession of these countries. Additional Budgetary pressures are therefore expected.

o In that regard, I trust that Members will make best use of the flexibility provided by the fixed fee paid by new Members, during a phase-in period, to alleviate some of these pressures.

● Part II Budgets are being developed in parallel, according to their specific terms, and will be submitted to Council later in the year.

● Annex Budgets (Pensions, Investment and Publications) will be adjusted in accordance with relevant Council decisions, and should benefit from additional contributions provided by new Members.

● The Secretariat will continue to: o seek efficiencies; o deliver Corporate Functions (management, control and compliance) efficiently and

effectively. Corporate functions currently represent 11% of the Part I Budget, following years of efficiency savings.


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1. Draft Budget Parameters - Considerations and Orientations

Members continue to set high expectations for OECD outputs

6. There are increased demands by Members and Partners for targeted policy advice in the context of continued economic, social and environmental challenges and a concomitant need for effective national and international policy options to tackle diverse challenges including the productivity slowdown, growing inequalities, migration and climate change. The ongoing digitalisation of our economies and societies also calls for effective policy responses to leverage opportunities for businesses and citizens and tackle any risks, such as cybercrimes. Education, skills and other policies that promote opportunities for all should be a central part of the policy response to many of these challenges. The role of the Organisation is key, not only as a path-finder, but also to deliver options that advance important agendas in a complex international context.

7. My 21x21 agenda formed the basis for my mandate renewal. Through its implementation, and those of my annual Strategic Orientations, I continue to increase the relevance, inclusiveness and impact of the Organisation, building a “people-centred” growth narrative based on well-being.

8. The Organisation is also expected to continue to contribute to global agendas (SDGs, climate, etc.) and global fora, in particular the G7 and G20. Leveraging our standards on taxation, corporate governance, foreign bribery and Responsible Business Conduct (RBC), among others, is also key to the Organisation's goal of levelling the global playing field together with our work on trade, investment and competition. In this context, Members have affirmed their desire for continuous engagement with Key Partners and major emerging economies.

9. There continues to be sustained and urgent demands across policy sectors, as underscored by the 2018 Ministerial Council Meeting (MCM), my Strategic Orientations, the Ambassadors’ Informal

Convergence Paper, and PWB proposals from Committees.

OECD delivers high value to its Members

10. Over the last 10 years, the OECD has saved its Members hundreds of times the Organisation’s annual Budget. Initiatives that have benefited Members include:

• New standards for information exchange that have played a key role in helping countries raise EUR 92 billion in increased revenues, of which EUR 66 billion accrued to Members, representing more than 330 times Members’ Part I assessed contributions;

• The OECD's Anti-Bribery Convention,

The OECD has saved taxpayers hundreds of times

the value of its annual Budget. New standards for

information exchange, for example, have played a key

role in helping countries raise EUR 92 billion in increased revenues, of which EUR 66 billion accrued to Members.

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through which Parties collectively recovered at least USD 8 billion through foreign bribery enforcement actions between 2014, and mid-2017, i.e. nearly 35 times the OECD annual Budget.

11. On top of the above, the Organisation’s work allows its Members to make recurrent savings that amount to several times the value of its annual Budget, as evidenced by the following examples:

• The OECD’s Export Credit Agreement which contributes to save American taxpayers over USD 800 million per year (i.e. nearly 3.5 times the OECD’s annual Budget). Obviously, this is only a small part of the benefits accrued to the entire Membership.

• By working through the OECD’s Environment, Health and Safety Programme and agreeing on test methods and data quality standards, and by sharing the workload of chemical safety testing and assessments, Member governments and the industry save approximately EUR 150 million a year (i.e. equivalent to 75% of Members' Part I assessed contributions).

The Members' 2008 invitation to deliver additional efficiencies has been fully met by the Secretariat many times over.

12. The 2008 Resolution on the Financing of the Part I Budget, as agreed by Members, clearly enshrined the principle to preserve, at a minimum, the capacity of the Organisation to maintain the quality and quantity of its outputs through the Part I Budget, defined as at least Zero Real Growth.

13. In exchange for maintaining the level of outputs, the agreement included a concomitant commitment by the Organisation to deliver efficiencies. The Organisation has an impressive track record on continuously delivering additional efficiencies. Since 2008, major initiatives and reforms, along with the V4M project, not only increased the relevance of the Organisation, but also delivered tangible efficiencies amounting to 15.5 % of the 2017 Part I Budget (MEUR 31.1) on an annual basis.

14. Cumulative savings over the period of 2008-18 are estimated at MEUR 172.

• In addition to the savings realised, major reforms have contributed to improving the financial health of the Organisation, and will continue to generate additional savings. For example:

i. The decision to reduce the expatriation allowance to staff, as of 2012, and to transfer the resulting savings into the Post-Employment Healthcare Liability Reserve (PEHLR) will make it possible to match by 2046 the MEUR 400 projected liability. Thus, this cut in benefits, absorbed by staff, will allow to fully fund over time the PEHL liability.

ii. The Office Space Strategy, implemented in 2015, will continue to deliver savings over the coming 10 years. In total the Office Space business case estimates savings amounting to MEUR 36, of which nearly 9 have already materialised.

15. The 2008 MCM Resolution, was meant to provide a

Recurring efficiencies represent 15.5% of the annual 2017 Part I Budget, and have generated value to Members

that goes far beyond expected results.

Over the next ten years, these measures are expected to continue generating an

estimated additional MEUR 310 efficiency savings for

Members.

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strong and sustainable financing for the OECD, and to rebalance Members’ contributions; it has been successful in achieving both goals. Unfortunately, the Resolution did not allow for each Member to cover their full cost and, therefore, a hybrid formula of “capacity to pay” and cost recovery remains in effect. This has resulted in a difference between the contributions paid by countries during the phase-in period, and the contributions they pay upon integrating at scale. It should be noted that, in 2008, Members had agreed to absorb any negative difference between the two sets of fees.

The uncertain and challenging context requires Members to provide the Organisation strong support

16. As I indicated at the Head of Delegations meeting on 16 February, preparation of the PWB 2019-20 is taking place in a very challenging financial context, characterised by complex and diverse constraints.

• Despite a strong signal from Members, initially expressed in the Ambassadors’ Informal Convergence Paper, where they reaffirmed the value of the OECD, and the many benefits flowing from its outputs, and where they expressed the collective view that Members wanted the OECD’s success to continue, recent decisions by Council, and the willingness of some Members to depart from the Resolution of the Council on the Financing of Part I of the Budget of the Organisation (adopted by the Council at Ministerial Level on 5 June 2008) have created uncertainty around the sustainability of the financing for the Organisation. It is worth reminding Members that a Resolution approved by Council is binding, and that abrogating it would require consensus among the Council.

• This precarity weakens the Organisation and jeopardises its ability to develop a programme of work that can meet Members’ ambitious expectations. It also risks undermining our capacity to attract and retain the talent necessary to deliver high-quality outputs that serve the interests of all Members. At this critical juncture, Member support is needed more than ever before, to safeguard the Organisation’s long-term success, at a particularly challenging moment for international co-operation.

The draft Budget Parameters integrate the requested MEUR 3.3 Budget reduction (1.6% of the Part I Budget) adding to already foreseen Budget pressures amounting to around MEUR 3.4 (1.7% of the Part I Budget)

17. Although the MEUR 3.3 Budget reduction represents a significant cut to the Part I resources of the Organisation, as well as a reversal of the intent of the 2008 MCM Resolution, I have taken this reduction into account for this proposal. Members should be aware that this reduction is ongoing.

Therefore, it has a compounded effect, which over ten years amounts to a cut of MEUR 36.

18. The resources of the Organisation will also suffer from the impact of the recent decision relating to the contributions of three New Members:

• This decision, while recognising additional recurrent costs resulting from the accession of new Members (adding the contribution at scale from new Members to the Budget), does not allow to cover systematically the full recurrent incremental costs for new Members that have relatively smaller economies.

A Budget cut of MEUR 3.3,

and pressures of MEUR 3.4, amount to MEUR 6.7, representing the equivalent of 3.3%

of the OECD’s Part I Budget

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• Consequently, the Organisation will need to absorb additional pressures related to the accession of those countries.

19. In addition, significant cost increases need to be managed within the reduced Budget envelope. These pressures will amount to at least MEUR 3.4, and will need to be managed within the reduced Budget envelope. Addressing these pressures will require reviewing the level of services provided in certain areas, and will affect the Organisation's capacity to maintain sufficient funding for the future, thus reducing its ability to invest in transformative and innovative actions.

• The impact on some Members’ contributions resulting from the 2008 Part 1 Scale Rules setting a 300% cap in real terms on the increase of an individual country’s contribution. The agreement stated that any amount exceeding the 300% limit would have to be "absorbed in the Part I Budget of the Organisation" [C(2008)144/REV1, Appendix 4].

o Two countries will reach the 300% limit in 2020, resulting in an income reduction from assessed contributions of approximately KEUR 400 for the Organisation. Given the already severe impact of the MEUR 3.3 reduction on Part I resources, I am proposing that this additional pressure in 2020 be financed from the annual Part I savings resulting from the Office Space Strategy.

o As a result, the total effective amount of Members’ contributions in 2020 is expected to increase by 1.7% instead of the foreseen ZRG level of 1.9%.

• Implementation of new compliance functions. In line with my commitment to improve and keep the management of the Organisation at the leading edge among international organisations, the draft Budget will include a new Data Compliance Officer, an Ethics Officer as well as Whistle-blower functions. Their cost, KEUR 510, will have to be financed within the existing Budget.

• Increasing pressures on corporate service Budgets in 2019-20 to support OECD delivery of outputs and ensure a safe digital and physical work environment for staff and delegations as well as for visitors to the OECD. In the context of terrorist threats that have been particularly severe since the 2015 attacks in Paris, the Organisation has managed to increase security levels without calling on Members for additional funding.

• The table below provides the detailed estimates of the recurring pressures for the coming biennium.


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• The environment for the Publications Annex Budget is increasingly challenging. PAC has, so-far, been successful in managing the financial impact of both the Council decision to make all OECD data “open, accessible and free” (2015) and the Council decision on financing the move to accruals (C(2016)149/REV1). On the income generation side, measures included a switch to a freemium business model, the launch of premium data services and the creation of the iLibrary Partnership Programme. On the cost side, new, lower-priced, contracts have been negotiated with suppliers while investments in digital publishing systems have been maintained. However, the pressure on the Budgets of subscribing institutions on the one hand, and increasing pressure for full open access to OECD content on the other are challenges that will need to be addressed in the coming biennium.

• There is also a risk that a 2019 salary adjustment (which has yet to be agreed by the Coordination Committee on Remuneration) will generate additional Budget pressures across Part I. This anticipated risk cannot be quantified at this early stage of the PWB process, and will have to be taken into account after the CCR recommendation is made, likely in the summer.

The Part I Budget reduction and emerging pressures will affect substantive outputs of “lesser priority” (as expressed by Members)

20. I am committed to continue delivering efficiencies, and the Secretariat will make every effort to limit the impact of Budget reductions and pressures on outputs. However, the requested reduction of MEUR 3.3 is already equivalent to an adjustment below ZNG, before taking into account the MEUR 3.4 pressures. It will thus inevitably affect some outputs. I am proposing to differentiate Budget cuts per output areas, taking into account the top-down priorities expressed through the Medium-Term Orientations Survey.

Identified Part I budget pressures KEUR % of Budget

Total identified pressures and Budget reduction -6 707 -3.3%

Budget Reduction -3 300 -1.6%

Decrease resulting from 2010-16 Members' contributions -3 300 -1.6%

Sub-Total Budget Pressures -3 407 -1.7%

Security and Assets Replacements -2 050 -1.0% Security enhancement (estimated for 2018) -400 -0.2%Replacement of Class III assets -1 300 -0.6%Digital security recurring pressure -350 -0.2%

Accounting and Compliance -1357 -0.7%Impact of the 300% limit rule to assessed contributions -400 -0.2%Ethics Officer -300 -0.1%Data Protection Officer -250 -0.1%New External auditors -60 0.0%OECD contribution to ISRP -130 -0.1%Part I and Publication contribution to finance the move to accruals -217 -0.1%

Salary LiabilitiesSalary increase NA

Budget reductions require cutting into

the funding of substantive outputs


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21. Directors will need to adjust their initial PWB proposals, as discussed with Committees, which were based on the assumption that the Part I Budget envelope would remain at the same level in real terms. Proposals for adjustments shall reflect the priorities expressed in Committees. Directors are being asked, as much as possible, to target reductions in outputs that Members have considered of relatively lower priority. These adjustments will be shared with the relevant substantive committees, and in turn with the Budget Committee.

The Budget Parameters are based on a Zero Real Growth adjustment. This is required to preserve the Organisation's capacity to deliver

22. My Budget Parameters are based on the assumption that the 2008 MCM Resolution will continue to

apply, and therefore, that the 2019-20 Budgets will be adjusted by ZRG after the MEUR 3.3 reduction.

23. ZRG was one of the principles of the Resolution of the Council on the Financing of Part I of the Budget of the Organisation (adopted by the Council at Ministerial Level on 5 June 2008)2. At that time, Members recognised the unsustainability of the previous budgetary construct, and agreed on the general principle of maintaining at least the real level of resources of Part I of the Organisation’s

Budget over the long-term3.

24. In an Organisation with a budget that is more than 80% staff-based, and that has gone through many years of rationalisation, maintaining ZRG is necessary. Protecting the Organisation's delivery model requires taking into account underlying inflationary pressures. Any Budget level below ZRG, particularly in a context where significant pressures are already identified, would translate automatically in a reduction of the capacity to finance outputs through the Part I Budget and would reduce the impact and benefit of the

Organisation for its Membership.

25. Moving away from ZRG and applying ZNG, together with the MEUR 3.3 Budget reduction and the impact of the 300% limit in contributions increase, would represent a cumulative reduction of MEUR 17 for the Programme of Work over the biennium, compromising the Organisation's capacity to deliver the priorities expressed by Members. Over the next ten years,

2 C/MIN(2008)6/FINAL 3 Members undertake to provide a strong and sustainable financial foundation for the Organisation, both now and in the long term, that will allow it to maintain at least the quality and volume of outputs, while adapting to changing priorities. This will require strict prioritisation by Members, Budget transparency, efficiency savings by the Organisation and maintenance of the real level of Part I Budget resources taking into account the rate of inflation.”

In an Organisation with a budget that is more than 80% staff-based, and that has gone

through many years of rationalisation, maintaining

ZRG is necessary to maintain the capacity to deliver.

Zero Nominal Growth is not sustainable, and would represent a cumulative

reduction of MEUR 222 over the next ten years (taking in consideration the MEUR 3.3

Budget reduction)


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the cumulative reduction would amount to MEUR 220, more than the 2018 Part I Budget.

Impact of budget pressures over 10 years (MEUR 3.3 reduction; ZNG increase; 300% rule on contributions)

26. There are signs of emerging inflation across many Members' economies. The provision for ZRG in a period where there is a clear risk of rising inflation will ensure that the Organisation can continue delivering and adapt to Members’ priorities.

The 2008 MCM Resolution Financing Agreement established a solid foundation among Members 27. The 2008 MCM Resolution provided that the assessed contributions of Members to the Part I Budget

be composed of two elements:

• a base fee of 30% of the Part I Budget to be shared equally among all Members. This provision mainly benefited large countries, in particular United States, Japan, Germany, United Kingdom, France, Italy and Spain. The base fee was phased-in to reach 30% over a 10 year period, ending in December 2018;

• a principal contribution, based on relative adjusted national income, for the remaining 70% of that Budget.

• As a result, the seven largest Members’ economies benefited from the 2008 MCM Resolution. Thus, their total share of assessed contributions went from 73.2% in 2008, down to 55.1% in 2018.

28. The compromise in the Resolution on the base fee, and the principal contribution was the result of a hard-reached compromise. Transition measures were necessary to smooth the impact for certain countries.

29. Since 2009, the U.S. percentage share of the Part I Budget has been decreasing steadily, given that the U.S. assessed contribution has only been increasing by a 0.3% yearly. This minimal 0.3% increase in the U.S. contribution will continue for several years, as long as the Budget increase remains higher than 0.3%. Provided ZRG continues to apply, the U.S. will get the full benefits of the 2008 MCM

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028Part I base 201.65Lithuania at scale 1.816Colombia at scale 2.644

206.11 209.2 213.17 216.37 219.62 222.91 226.25 229.64 233.08 236.58 240.13Cut from 2010-16 Members' contributions -3.3 -3.35 -3.41 -3.46 -3.52 -3.57 -3.62 -3.67 -3.72 -3.78 -3.84Cumulated cut from 2010-16 Members' contributions -3.35 -6.76 -10.22 -13.74 -17.31 -20.93 -24.6 -28.32 -32.1 -35.94Base for 2019 + ZRG 202.81 205.85 209.76 212.91 216.1 219.34 222.63 225.97 229.36 232.8 236.29ZNG (no increase) 202.81 202.81 202.81 202.81 202.81 202.81 202.81 202.81 202.81 202.81 202.81ZNG yearly -3.04 -6.95 -10.1 -13.29 -16.53 -19.82 -23.16 -26.55 -29.99 -33.48ZNG cumulated -3.04 -9.99 -20.09 -33.38 -49.91 -69.73 -92.89 -119.44 -149.43 -182.91300% cap -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4300% cap cumulated 0.00 -0.4 -0.8 -1.2 -1.6 -2.0 -2.4 -2.8 -3.2 -3.6

Budget reduction+ZNG+300% cap -6.39 -10.76 -13.96 -17.21 -20.5 -23.84 -27.23 -30.67 -34.17 -37.72 (in %) -3.1% -5.0% -6.5% -7.8% -9.2% -10.5% -11.9% -13.2% -14.4% -15.7%Cut+ZNG+300% cap cumulated -6.39 -17.15 -31.11 -48.32 -68.82 -92.66 -119.89 -150.56 -184.73 -222.45

The seven largest Members’ economies benefited from the

2008 MCM Resolution. Indeed, their total share of assessed contributions went

from 73.2% in 2008, down to 55.1% in 2018.

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Resolution and its estimated share of the Part I Budget will reach 17.8% in 2025 compared to 20.5% in 2018 and 25% in 2008.

High Budget reallocations amounting to MEUR 5.7, will allow alignment of the PWB with Members’ priorities

30. Beginning with the Medium Term Orientations Survey every two years, a clear continuing iterative process is in place to establish Members' priorities. From my Preliminary Views, to the Heads of Delegation progressive input and my Strategic Orientations, through the work of each individual Committee, and the consolidation of these ‘top-down’ and ‘bottom-up’ elements into a proposal which is reviewed twice by Members, the prioritisation of resources is established and refined over a period of 18 months before the start of each biennium.

31. Long-Term Reallocations have totalled MEUR 10.9 since 2009, and the Central Priorities Fund has been increased from an annual level of MEUR 3.1 in 2009, to the current MEUR 5.7 each year (for the 2017-18 biennium). For 2019-20, I am proposing:

• Time-bound reallocation proposals aligned with Members' priorities, through the Central Priorities Fund (CPF), of MEUR 4.7.

• Limited Long-Term Reallocations (LTR) of MEUR 1 aligned to ‘top-down’ priorities. Given the MEUR 3.3 cut in the Part I Budget envelope, it is not possible to propose reallocation from savings for this biennium. Therefore, LTRs will be funded by reducing the CPF envelope for the current biennium (2017-18).

32. The Secretary-General’s Allocation Fund will remain stable at MEUR 0.8, which is a decrease of 17% in real terms since it was fixed at this level in 2007.

Voluntary Contribution funding is expected to be in line with previous years, with moderate growth rate

33. Preliminary indications for voluntary contributions confirm our assumptions of a continued moderate growth of this source of financing.

OECD management practices shall remain at the leading edge

34. I reiterate my commitment to ensure effective and efficient financial, administrative, communications and management practices. In particular, my Budget proposal includes the reinforcement of certain compliance functions, and some ambitious measures to maintain the OECD at the leading edge among international organisations.

35. The Secretariat will continue the implementation and reinforcement of initiatives that are worth mentioning:

Overall, the mechanisms put in

place to allow flexibility in Budget

allocation and to meet Members’ priorities

have grown from 2.9% in 2009 to 6% in 2019-

20.

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• In order to ensure a positive and productive workplace and to safeguard the reputation of the Organisation, the ethics framework has been strengthened. In this regard, 2017 was an important year, with the decisions to establish an ethics function and to develop a stand-alone whistle-blower protection policy. In the same area, the ethics training was rolled out for all OECD senior managers, an ethics intranet page was developed, and the ethics report will be issued annually instead of every two years to all staff and members.

• The risk management system, based on internationally recognised standards, drawing on the key principles of COSO’s Enterprise Risk Management is in the process of being reviewed and further strengthened notably with a view to making an explicit link between the objectives of the Programme of Work and Budget and risk identification.

• The governance framework in relation to personal data protection is being reinforced in order to align it with best standards and good practice, to demonstrate that the OECD has taken reasonable care in the treatment of personal data in case of personal data security breaches affecting the Organisation and its reputation and also to facilitate the continued receipt and transfer of personal data of European citizens, as well as grants from the EU to the OECD, by meeting the essential requirements of the EU legislation and the expectations of OECD’s Members, including European Members.

• In terms of transparency and disclosure of information, in addition to the above-mentioned annual ethics report, I decided in 2018 to make the full/detailed Internal Audit reports available to the full Membership, in addition to the summary Internal Audit reports. The Cour des Comptes has issued unqualified Financial Statements for the financial year 2017 -which represents 10 consecutive “clean” certifications in total- and the executive summaries of the External Auditor’s performance audit reports are released on the OECD website since 2017.

• Finally, thanks to the continued significant efforts made by management in 2018 to implement internal and external audit recommendations, the outstanding number of these recommendations is very limited and mostly due to the time needed for implementation.

Additional Budget from New Members

36. The Secretariat was informed by Lithuania that they intend to deposit their instrument of ratification to the OECD convention on 5 July 2018. Following C(2018)82/REV1 the proposed Part I Budget envelope thus includes an additional amount corresponding to the Part I scale estima ted contribution of MEUR 1.8 for Lithuania. The MEUR 1 annual fixed fee that will be paid in addition to the assessed contribution will be further discussed in the context of PWB for 2019-20. It is worth remembering that the assessed contribution of Lithuania will not cover its recurrent cost and therefore it is advisable to keep this additional MEUR 1 to bridge this gap. The planning assumption is that Members will agree to allocate sufficient amount of the fixed fees to cover as much as possible the recurring incremental costs arising from its accession. No additional amount for Colombia is included at this stage; should Colombia also deposit its instrument of accession to the OECD Convention in 2018, the Part I Budget would be adjusted later by its estimated contribution of MEUR 2.6 (and fixed fee of MEUR 1 to Annex budget).

Planning assumptions remain constant for around half of the Part II programmes

37. A similar Budget outlook is expected for around half of the Part II programmes, with the other Part II programmes subject to additional constraints (i.e. at, or close to, an unchanged Budget in nominal terms). Part II may face similar financial challenges and uncertainties as the Part I Budget.


C(2018)98/REV1 │ 15


2. STRATEGIC PRIORITIES

38. The OECD’s PWB 2019-20 reflects strong convergence between Members and the Secretariat on the Organisation’s priorities. In the coming biennium, we will take action to reinforce the global recovery and shape a more inclusive, people-centred and rules-based globalisation. We will not only continue to produce the best analysis and policy advice when needed, but also engage and defend multilateralism and the work of international institutions as a privileged channel for better outcomes among countries.

39. The identification of priorities is the result of a comprehensive and iterative consultation process with Members. The ‘top-down’ priorities emerge from: mandates emerging from the 2018 Ministerial Council Meeting (MCM), which are reflected in the MCM Chair’s Statement; the Ambassadors’ Informal Convergence Paper; my Strategic Orientations for 2018 [C/MIN(2018)1]; my '21 for 21' agenda; my Preliminary Views for the PWB 2019-20; the results of the Medium-term Orientations (MTO) Survey for 2019-20, which confirmed Members’ high levels of satisfaction with the allocation of Budget resources across the PWB [C(2017)115]; and my conversations with Leaders, Ministers and senior officials in OECD Member and Key Partner countries. Each Committee and Programme has translated these ‘top-down’ priorities into their own PWB proposals and integrated them with specific ‘bottom-up’ priorities identified and agreed for each policy area. The Organisation’s top priorities for the next biennium are to:

• Consolidate our core strengths and competitive advantages, including our evidenced-based and comparative policy work; data collection, measurement and analysis, and peer reviews, which are crucial to helping countries foster structural reforms and address social challenges. Our policy work will be expanded to support national reform implementation, following our work with Greece, Slovenia, Mexico and Hungary.

• Recalibrate our strategic approaches to communication to prioritise listening and engagement, and reflect on more effective ways to disseminate OECD data, analysis and outputs to key stakeholders.

• Continue developing a new growth narrative that tackles the root causes of inequality and puts people at the centre of economic policy. This includes taking forward our flagship Inclusive Growth Initiative by operationalising our fully-fledged Framework for Policy Action on Inclusive Growth, advancing our efforts to understand the Productivity-Inclusiveness Nexus, and strengthening the Business for Inclusive Growth Initiative. Across the house, we will give priority to the most vulnerable groups including youth, women, and children. Our new NAEC Innovation Lab – along with our ongoing strategic foresight and policy coherence work – will help us to develop a new economic narrative that delivers solid outcomes for growth and inclusion, a new social contract, and a new idealism.

• Move from evidence to action to tackle the main drivers of exclusion. This whole-of-OECD priority will identify concrete measures to: respond to wealth, income and spatial inequalities; deliver quality jobs, leveraging the new OECD Jobs Strategy; strengthen the links between our flagship work on education (PISA, PISA-D, PIAAC, global competence) and skills; cultivate patient-centred healthcare systems (PaRIS); facilitate the integration of migrants and refugees; bridge gender divides;

https://one.oecd.org/document/C/MIN(2018)1/en/pdf

https://one.oecd.org/document/C(2017)115/en/pdf

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and foster equal opportunities for all, including in the digital world. These efforts will encompass the development of a coherent policy framework to support resilient, efficient and inclusive housing markets. They will also include the development of an integrated, multidisciplinary, and strategic OECD roadmap for sustainable infrastructure.

• Expand our work on the factors underpinning the growing ‘geography of discontent’, with a particular emphasis on making globalisation fairer and more transparent. This will involve taking forward the OECD’s game-changing contributions to global tax transparency through the Base Erosion and Profit Shifting (BEPS) Project and the Automatic Exchange of Information initiative, and ongoing work to address the tax challenges arising from the digital transformation.

• Advance efforts to restore citizen’s trust in the fairness and transparency of government and institutions, including at the multilateral level. In this respect, strengthening the impact and coherence of our comprehensive standards — covering, inter alia, tax, investment, anti-corruption and integrity, corporate governance, responsible business conduct, SME financing, state-owned enterprises, consumer policy, digital economy, and development finance — through the OECD’s Standard-Setting Review is critical to level the global playing field. To complement this work, we will seek to develop a more holistic approach to our anti-corruption and integrity work, including anti-bribery, standards and codes of conduct, conflicts of interest, whistle-blower protection, public procurement, open government and open data, and Responsible Business Conduct, guided by the OECD Strategic Approach to Combating Corruption and Promoting Integrity.

• Reflect on measures that can make the global system work better, harnessing the full range of international economic co-operation tools to make trade and investment policy free, fair and open. We will work to safeguard the rules-based international trade system by deepening the evidence base (through our work on Trade in Value-Added (TiVA), our Services Trade Restrictiveness Index, our Trade Facilitation Indicators, and our work on trade-distorting subsidies). On the investment side, we will refine our FDI Regulatory Restrictiveness Index, develop further the investment leg of global value chains (GVCs), and seek to support the integration of small-and medium-sized enterprises (SMEs) in GVCs. To complement these efforts, we will build the case for a forward-looking and evidence-based framework on SMEs.

• Continue our leadership of policy debates on emerging issues, while reinforcing our capacity to understand and address them. Advancing our work on the Going Digital horizontal project, including through the development of new international standards on blockchain, will be at the centre of these efforts.

• “Going national” on the work we do, and develop benchmarks and comparators that help move domestic agendas forward. Efforts to build the case for selective and strategic OECD enlargement, which will ultimately position the Organisation to serve all Members better, will continue.

• Marshall our multidisciplinary expertise to advance the global policy agenda, facilitate collective action and support the case for multilateralism. We will consolidate our proven track record of providing authoritative data, evidence and policy advice to advance the governance agendas of the G20 and G7, in line with the priorities of Argentina’s G20 Presidency and Canada’s G7 Presidency in 2018, and of Japan and France in 2019. Through strengthened collaboration with other international organisations ─ including the European Commission, WTO, ILO, FAO, WHO, IMF, World Bank, Financial Stability Board, the United Nations itself and its regional economic commissions and regional development banks ─ the OECD will seek to reduce overlap, harness synergies and ensure

C(2018)98/REV1 │ 17


consistency between our respective programmes of work. Given our growing engagement with the UN system, consolidating our UN office in New York will be of strategic importance.

• Sustain our efforts to ‘go global’ to enrich our understanding of shared challenges and ensure our work and advice is tailored to diverse contexts. A key component of this work will involve intensifying our engagement with Key Partners, Accession countries and prospective members (including Argentina, Brazil, Peru, Romania, Croatia and Bulgaria) to facilitate their adherence to more OECD bodies and legal instruments. Consolidating our regional programmes – covering Southeast Asia, the Middle East and North Africa, Latin America and the Caribbean, and Eurasia – and our country programmes with Kazakhstan, Morocco, Peru and Thailand will be critical for strengthening diversity, relying on the good work done across the house, including through the OECD Development Centre. We will also strive to coordinate better our support for non-Members and integrate more emerging and developing countries in our datasets, flagship publications and analysis.

• Continue supporting the implementation of ambitious global commitments, including the 2030 Agenda for Sustainable Development, the Addis Ababa Action Agenda, and the Paris Agreement. In particular, we will renew our focus on advancing implementation.

• Enhance further the quality and efficiency of the Organisation’s, management, administrative, communications and financial systems. This includes advancing our efforts to deliver V4M, implementing existing proposals on ethics and whistleblowing policy, continue to foster diversity and strive for gender equality across the house. The forthcoming independent evaluation will document the Organisation’s progress in these areas and will help guide future efforts.

• Ensure continuous improvements in the management and operations of the Organisation so that the OECD is recognised as being a leader in these fields. This includes:

o efforts to advance staff diversity and gender balance in our workforce;

o continuing to strengthen the evaluation functions;

o continuing value-for-money initiatives and related innovation;

o reinforcing audit and compliance functions;

o promotion of horizontal collaboration; and

o sustainment of our coherent and consistent communication efforts with staff and Members. This also include continuing our efforts to better communicate and explain the Budget, use of resources at the OECD and the added value delivered to our Membership.

40. Given the constraints for this PWB, the OECD will have to ensure that key corporate services provide the necessary support to maintain the Organisation’s capacity to deliver on the expected outputs. Corporate Services priorities will therefore focus primarily on:

• Maintaining a high level of security for people, data and operations; • Delivering additional savings, where possible, by adjusting levels of service, negotiating with

providers, and improving ways of working or processes;

• Delivering on key IT projects, and system renewals, and supporting the delivery of outputs;

• Continuing to deliver economies of scale, especially in HR and Finance, to accommodate the growing volumes of outputs with almost fixed levels of resources;

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• Managing the moves required to accommodate the moderate staff growth, and make the best use of the OECD Boulogne Office Space; and

• Continuing to protect the assets of the Organisation. 41. Submissions for the Programme of Work and Budget for 2019-20 are at a very advanced stage of

development. In preparing their PWB proposals, Committees have been asked to fully incorporate the potential for capitalising on the Organisation’s unique ability to address cross-cutting, interlinked and complex policy challenges, as well as to apply strict prioritisation in their proposals, to allocate the Part I Budget to priorities.

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3. 2008-2018: Ten years of increased relevance and efficiency

42. Over the last ten years, the relevance and impact of the Organisation has strongly increased for the benefit of all Members. In a context of constant and limited resources, this outcome reflects the Secretariat’s unwavering commitment to identifying and implementing efficiencies and savings, and applying best practices to the management of the Organisation.

3.1. Increased relevance and impact of the OECD

43. OECD products have proven over time to be relevant and useful for policymaking in Member and Partner countries. End-users have consistently provided feedback that OECD products are used extensively. All Output Results in 2015-16 were used by Members, either as a basis for policy change, or as a reference in policy discussions and studies. Overall, 98.2% were used by at least five Members, 74.1%, were used by at least one third of Members, and 36% were used by at least half of Members.

44. Over and above the extensive use by Members of OECD outputs to inform policy discussions, 76% of outputs were used as a basis for policy change. In total, Members indicated that there were 314 instances where 2015-16 OECD products were used as a basis for policy change. This is particularly impressive, given that policy reform cycles across all sectors in capitals are not necessarily synchronised with the OECD’s biennial work programme.

45. This reflects an upward trend in policy impact over time, from 2005, when around 30% of OECD outputs were rated by Members as having a high impact, to over 45% in 2015-16, with a peak of over 56% during the height of the global financial crisis.

Member Impact Ratings (2005-2016)

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3.2. A track record of efficiencies - V4M initiatives

46. Since 2008, I have constantly promoted and embedded a culture of efficiency and cost consciousness in the Organisation. This has allowed, despite flat financing, for:

• an increase in the OECD’s value to its Members;

• the implementation of major reforms without requesting additional financing from Members; and

• additional funds allocated to substantive areas.

47. To reinforce further this culture of cost consciousness and ongoing improvement, I launched the whole-of-OECD Value for Money (V4M) Initiative. Since 2008, the OECD has delivered MEUR 172 in efficiencies:

• MEUR 125 by reducing staff benefits (reduction in staff allowances and temporary delays in applying the CCR salary increase recommendations) and actions to implement a thinner management structure over time;

• MEUR 26 thanks to the space rationalisation and the office space strategy; (reduction of rent cost per FTE and MEUR 9 one off effect in 2017, result of the positive outcome of negotiations on the early termination of the lease with the previous owner);

• MEUR 21 from other measures as documented in the V4M report and “The Book - Compendium of OECD Reference Documents”.

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Table: Efficiencies delivered over 10 years

48. As a result, recurring efficiencies, representing 15.5% of the annual 2017 Part I Budget, have been generated constituting additional value to Members on top of the approved Budget. Over the next ten years, these measures implemented in the past will continue to avoid costs to Members estimated around MEUR 310.

49. The V4M Initiative has reinforced the Organisation’s capacity to generate significant measurable savings. In general these 'cost avoidance savings' relate to amounts that would have been spent to handle the same or increased volume / output. They cover a spectrum of savings including:

• cost reductions that do not lower the cost of products / services when compared against historical results, but rather minimise or avoid entirely the negative impact that a price increase would have caused;

• optimising the use of resources to increase output / capacity without increasing resource expenditure.

50. In summary, these savings have allowed the Organisation to do more within a flat Budget envelope, and increased the Organisation's capacity to deliver more and better quality outputs with increasing impact.

2009 2010 2011 2012 2013 2014 2015 2016 2017 One off 2017

Estimated 2018

CumulatedMEUR

Annual efficiency from the evolution in the average staff cost compared to 2009 - 4.8 5.3 7.0 10.7 10.9 11.0 17.3 19.4 19.4 105.8

Salary savings due to divergence from CCR recommendations since 2009 (real term) 0.9 - (0.3) 1.9 1.6 - 4.1

Contribution to PEHL funding (reduction of expatriation allowances)* 0.0 0.7 1.5 2.4 3.0 3.5 3.5 14.7

Effciencies from reduced staff benefits and managerial decisions on staff structure 0.9 4.8 5.0 8.9 13.0 12.4 13.4 20.3 22.9 0.0 22.9 124.5

Office space savings (including post 2017) 9.1 (0.2) 8.9

Efficiencies from Office space densification (office at KEUR 12) - 0.4 0.8 1.3 1.6 2.6 2.9 2.0 2.9 2.9 17.4

Efficiencies froms space rationalisation and the office space strategy 0.0 0.4 0.8 1.3 1.6 2.6 2.9 2.0 2.9 9.1 2.7 26.3

Etat d'urgence - Absorption of recurring Increased Security costs 0.8 0.6 0.4 1.8

Move to accruals (2017-2027) 0.2 0.2 0.4

Contribution to CIBRF (real term) 1.3 1.2 1.2 1.2 1.2 1.2 7.3 Latvia: difference between allocation and incremental recurring costs 0.9 0.9 1.8

Free data: estimated loss of income(delta programme) [C(2011)117/REV1] 2.4 2.4 2.4 2.4 9.6

Other Efficiency Measures 0.0 0.0 0.0 0.0 1.3 1.2 3.6 4.4 5.3 0.0 5.1 20.9

Total 0.9 5.2 5.8 10.2 15.9 16.2 19.9 26.8 31.1 9.1 30.6 171.7 Part I Budget (MEUR) 171.9 170.7 182.0 184.8 188.8 192.8 194.5 196.5 200.1 201.7 Part I Budget (MEUR) in 2017 value 193.2 186.3 197.3 197.2 197.3 197.2 197.3 197.3 200.1 Equivalent Part I budget without savings 194.1 191.5 203.0 207.5 213.1 213.5 217.2 224.0 231.1 9.1 232.3 Annual efficiency (%) 0.5% 2.8% 2.9% 5.2% 8.0% 8.2% 10.1% 13.6% 15.5% 15.2%

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51. There are also many examples of improvement initiatives that may not immediately reduce costs, but provide benefits through improved process efficiency, employee productivity, improved quality and impact, improved competitiveness, etc. that over time often become cost savings. Some of the more emblematic of these initiatives include:

• ONE Secretariat and the introduction of the Way of Working Framework based on project management approaches are helping to increase not only the quality of what we produce but also staff productivity by harmonising the way OECD Outputs are produced, and by facilitating horizontal collaboration and knowledge sharing;

• improvements to the way we manage human resources that have helped to manage the mix

of skills and experience required for the efficient and effective delivery of the Programme of Work to achieve further reductions of staff costs per FTE;

• process improvements and the introduction of workflows for document clearance

processes; • clearer and more consistent guidance, and harmonised automated operational Budget

management across the Organisation; and • ONE for Members and Partners which is providing ‘Anytime, anywhere, any device’

access for delegates attending OECD meetings to meeting information and broadcast notifications through the OECD Network.

52. Efforts to drive internal efficiency are ongoing and spread across the Organisation, as evidenced by Directorates’ Biennial V4M Plans. The analysis of the progress achieved in the implementation of the 158 initiatives that were put in place over the two previous biennia indicates that approximately 44% of these are generating, or are expected to generate efficiencies for the Organisation by reducing the time and cost of producing OECD Outputs; and that these savings in time are being reinvested to increase the quality and impact of Outputs. Over 62% of the additional 63 V4M initiatives in the 2019-20 V4M Plans are expected to generate additional efficiencies.

3.3. A streamlined corporate management layer

53. It is a constant objective to develop the most efficient, streamlined and flexible management structure possible to allocate resources to substantive areas. The structure of our PWB does not allow for visibly demonstrating the efficiency of the management structure, since a significant part of resources and services delivering outputs are hosted under Output Group 6.3. Therefore I have asked our Executive Director to present a ‘fully allocated’ visual of 2017 costs of services provided by Output Group 6.3 to support the delivery of the Organisation’s outputs. The result is that after allocation of the services (e.g. office space, computers, conference rooms, and other services provided to Directorates), central functions only represent 11% of the OECD's total expenditures. This clearly demonstrates that the OECD operates with a streamlined and efficient management structure.

54. The below charts show current Budget allocations within Strategic Objective 6 by areas (Chart 1) and an estimate of how these allocations should be charged to outputs to present the full costs of outputs including services delivered by the corporate functions (Chart 2). For that purpose, the analysis distinguishes 3 main types of activities actually performed in output 6:

• services delivered;

C(2018)98/REV1 │ 23


• corporate functions (management, control, compliance); and • “horizontal substance”: some activities hosted in objective 6 relate strictly to substance (e.g.

SDD activity).

55. To improve communication in the future, and to facilitate the understanding of the OECD's Budget and financial flows, I strongly encourage that we consider how to present the Budget including a fully allocated view to Members for future PWBs.

• This will require a significant investment to adjust processes and systems; and

• at the same time, this will increase transparency and cost-consciousness, because:

i. Service providers are more accountable for the costs and quality of the services delivered; and

ii. internal clients are more sensitive to the costs they generate to the Organisation;

• Furthermore, this will also contribute to reinforcing the culture of client-service orientation within corporate areas.

56. The table below reflects the results of the simulation based on service consumption and show how corporate areas represent 11% of the total Part I Total estimated costs.

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C(2018)98/REV1 │ 25


57. The limited weight of the corporate areas compared to the overall Organisation reflects:

• the high priority given to substantive areas, and

• the Organisation's efforts to maximise the value delivered to its Members.

58. Despite the Organisation's growth, and the concomitant increase in coordination required, staffing in corporate areas has remained relatively flat compared to the growth in substantive areas, thus representing a decreasing share of the Organisation's total staff.

CHART: STAFF Evolution

59. The pressure on corporate areas to deliver always more with less, together with the culture of efficiency and cost control, has allowed the redirection of any remaining funding to the substance, and to Members’ priorities, as reflected in the next section.

33%32%

31% 30% 30%29%

27%

26%25%

20%

22%

24%

26%

28%

30%

32%

34%

-

500

1,000

1,500

2,000

2,500

3,000

2009 2010 2011 2012 2013 2014 2015 2016 2017

FTE

Staff in Output Groups 6.1, 6.3, 6.4Staff in Substantive areas (PI + PII)% of staff in Output Groups 6.1, 6.3, 6.4

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4. FINANCIAL PARAMETERS FOR 2019-20

60. In July 2018, in light of discussions in the Budget Committee, the Council will be invited to approve the level of the Part I Budget envelope for 2019-20. The below section describes the proposed financial parameters Members should take into consideration to inform their decision, namely:

• the measures put in place to manage the MEUR 3.3 reduction, and the MEUR 3,4 additional Budget pressures

• the need for at least ZRG adjustments on this reduced base Budget in line with the 2008 MCM Resolution in a context of potential salary pressures;

• the impact on recurring costs of the accession of Lithuania and the forthcoming impact for Colombia;

• the Budget Parameters for the PWB 2019-20, including:

i. the level of the Part I Budget, comprising:

1. Expected interest income

2. Level of other income

3. Calculation of ZRG

ii. the Central Priority Fund

iii. the Long-Term Reallocations 61. At the time this paper was prepared, neither final inflation data for the reference periods in respect of

the ZRG calculation, nor information about salary adjustments for 2019 and 2020, were available. Nonetheless, the data used in this paper are reasonable estimates and sufficiently robust to give Members a clear picture of the likely Budget level for the coming biennium. Adjustments will be made in September, when most final figures are available.

62. In the context of the discussion on new Members’ contributions, Members requested the Secretariat to implement a one-off Part I Budget reduction of MEUR 3.3.

63. This represents a substantial cut of 1.6% of the Part I Budget, thus setting the Budget base below ZNG level.

4.1. Reduction of the Budget Base and Allocation of the MEUR 3.3 Budget reduction

64. The reduction comes in an environment of ongoing cost-consciousness across the Organisation (see section on efficiency savings) which, through the V4M Project and other major reforms, continues to demonstrate the Secretariat’s awareness and determination to identify and implement efficiency measures. I have requested the Secretariat that the identified MEUR 3.4 additional pressures be absorbed within the existing resources. This represents a significant effort from Corporate Services.

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65. This MEUR 3.3 Budget reduction follows a 1.25% across the board cut for the 2017-18 PWB. Even if this across the board reduction did not affect the overall Budget, since it was reallocated to finance Long-Term Reallocations, it required already in the last biennium a significant effort from Directors.

66. Considering the above mentioned elements, the MEUR 3.3 Part I Budget reduction cannot simply be managed through administrative efficiencies.

67. Despite my strong preference to preserve core financing for substantive Outputs, cutting Part I resources cannot rely solely on delivering new administrative efficiencies, and will have to impact the capacity of the Organisation to deliver outputs.

68. I propose to manage the Budget reduction by means of:

• MEUR 1.45 - Achieving new efficiencies in corporate services • MEUR 1.85 - Reducing available funding for other areas

Achieve new efficiencies in corporate services (1.45MEUR)

69. It is important to bear in mind that corporate functions, which, as I have indicated, are already experiencing significant additional cost pressures, exist to support and enable substantive outputs while ensuring the smooth running of the Organisation.

70. Cuts to corporate functions will require adjusting some parameters in the services delivered, and may have an impact on substantive outputs. However, the OECD will continue to work towards management excellence and will achieve efficiencies that focus on greening the OECD, ensuring the OECD is safe and secure, and increasing the accountability of corporate service delivery.

71. The details of Budget reductions to corporate functions will be provided to Budget Committee as part of the presentation on the draft preliminary PWBs for Strategic Objective 6.

Reduction in the Outputs to be delivered (1.85 MEUR)

72. Implementation of this Budget cut is an additional challenge for the Organisation to maintain its relevance in developing and promoting better policies.

• A simple across-the-board cut may have some superficial appeal as it has no regard for current areas of highest policy priority.

• Therefore, my strong view is that a targeted approach, taking into account Members’ priorities, for applying the Budget reductions will best protect Members’ interests and the Organisation's core work.

73. The task of identifying Budget reductions to substantive work is not easy. Members have given a clear message through the MTO Survey that every policy sector covered by the substantive programme of work is a high priority for a majority of Members. This was reinforced at the Heads of Delegation (HoDs) meeting on 16 February, where Members reiterated the value placed on OECD work. Conversely, there were no strong messages for reductions in the scope or breadth of the OECD’s sectoral coverage. However, some indications were given for the most supported areas of the Programme of Work. Even if I would have preferred a fully tailored approach to allocate the cuts on a restricted number of outputs, it is not realistic considering the overall general support provided by Members to all outputs. Therefore I propose to apply a middle ground approach whereby to introduce

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some limited ponderation of the cuts per outputs based on Members’ indications for relative priorities from both the results of the MTO Survey and the HoDs discussion.

74. For all Output areas other than Corporate Services, I will apply a MEUR 1.85 Budget reduction and request Directors to identify the necessary Output cancellation and/or reduction to the following extent and principles :

a) no Budget Reduction for the Output Areas that garnered the largest number of ratings for an increase in resources in the MTO Survey (i.e. 1.3.1 - Digital Economy, 2.1.1 - Education, Economy and Society, 2.2.3 - Welfare and Social Inclusion);

b) a 2.5% cut representing 0.25 MEUR for the Output Areas that garnered the largest number of ratings for a decrease in resources in the MTO Survey (e.g. 3.1.3 - Trade and Domestic Policies, 3.2.2 - Agro-food, Trade and Development, 3.2.3 - Agriculture and Fisheries Sustainability, 4.1.3 - Corporate Governance, 4.2.2 - Finance, Insurance and Pensions);

c) a 1.5% percent reduction to all other Output Areas representing 1.6 MEUR

75. This reduction will necessarily impact the outputs discussed with the Committees in their preliminary PWBs. Therefore, Directors have submitted adjusted versions of their PWBs to their Committees. These adjusted versions will be presented to the Budget Committee during informal PWB presentations.

76. To give you some indication of the impact of the proposed reductions, there will be a need to cancel or reduce the scope of around 40 to 50 Intermediate Outputs. Our preliminary estimate is that a reduction in scope is likely for about 25% of these outputs, as alternative funding sources are unlikely to be available.

77. Based on the above assumptions, consolidated Budget reduction at Output Group level will be as follows:

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Budget Reduction by Output Group in KEUR (Budget expressed in 2018 value before reallocation)

*Calculation for the budget reduction is based on 2019 base budget by output area before Long Term Reallocations, except for some areas that were not stabilised at the time the calculation was made and for which the budget reduction was calculated on 2018 base budget. ** The percentage variations compared to the initial assumptions are related to rounding in KEUR

4.2. 2019-20 level of the Budget

4.2.1. ZRG required to maintain the capacity to deliver 78. The 2008 MCM Resolution is intended to give the OECD “a strong and sustainable financial foundation

that will allow it to maintain at least the quality and volume of outputs, while adapting to changing priorities” [C/MIN(2008)6/FINAL].

79. The 2008 MCM Resolution called for:

• strict prioritisation by Members;

• Budget transparency;

• efficiencies; and

• a Zero Real Growth (ZRG) Part I Budget.

80. It acknowledged that the real Budget cuts experienced by the Organisation for more than a decade prior to 2008 were unsustainable and harmed OECD’s ability to deliver.

Base Budget Budget Reduction* %**

Total 201,650 (3,300) -1.6%

1.1 Economic Surveillance 20,640 (304) -1.5%

1.2 Industrial and Sectoral Policies 3,147 (46) -1.5%

1.3 Science and Technology Policies 6,712 (60) -0.9%

2.1 Human and Social Capital 3,900 (18) -0.5%

2.2 Employment Policies and Social Cohesion 6,020 (61) -1.0%

2.3 Environmental Sustainability 8,228 (121) -1.5%

2.4 Health System Performance 2,384 (35) -1.5%

3.1 International Trade 5,670 (101) -1.8%

3.2 Agriculture 7,353 (156) -2.1%

3.3 Taxation 6,518 (96) -1.5%

4.1 Business Climate 6,501 (110) -1.7%

4.2 Competition and Market Efficiency 5,169 (102) -2.0%

4.3 Public Sector Economics and Governance 7,071 (102) -1.4%

5.1 Development 6,389 (94) -1.5%

5.2 Global Relations 2,491 (37) -1.5%

6.1 Corporate Management 10,265 (150) -1.5%

6.2 Statistics 9,907 (138) -1.4%

6.3 Corporate Services 65,400 (1,445) -2.2%

6.4 Corporate Visibility 8,311 (123) -1.5%

CPF/LTR 5,700 SGAF 800 CIBRF 4,025 CIBRF funding by Annex budget (1,965) CIBRF funding by Reserve 1,015


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81. The ten-year phase-in period of the 2008 Resolution of the Council On the Financing of the Part I Budget of the Organisation, has been implemented as planned. Thus, 2019-20, will be the first biennium after the "phase-in period". The 2008 MCM Resolution provided for ZRG to be a ‘floor’. However, since 2008, the approved Budgets have not exceeded this floor and have remained flat (in real terms) despite the increased relevance and impact of the Organisation for its Members. In the context of a flat part I Budget in real terms, this high level of delivery was only possible through the continuous efforts of staff and management to deliver V4M initiatives on the one hand, and on the other hand, the support of donors, mostly Member countries who have provided their support to fund some areas of the Programme of Work through VCs (clearly recognising the value added, quality and relevance of OECD outputs). This source of financing currently represents around 36% of total expenditure in Part I and the early indications are that the moderate growth trend should continue in Part I and II.

82. My assumption is that once the reduction of MEUR 3.3 is applied to the Budget base, it will be adjusted by ZRG for the coming biennium. This is necessary to maintain the relevance and impact of the Organisation, and ensure that sufficient core Part I funding from assessed contributions is allocated to substantive outputs. It also respects fully the agreement among Members in the context of the 2008 Financial Reform.

83. In an Organisation where the predominant cost driver is staff costs (81% of Part I in 2017), and after many years of streamlining the staff structure (increasing the ratio of staff per manager from 14.2 in 2010 to 17.9 in 2017), ZRG for the Budget is necessary to avoid impact on the delivery of outputs. Also, most of the other expenditures are influenced by inflation and are already maintained at a low share of the Part I expenditure, which does not provide sufficient margin for a further reduction without impacting the outputs.

Chart 1. Evolution of the Structure of Part I Budget Expenditure (2009-2017 in real terms)

2017 Part I Budget Expenditure MEUR % Staff 154.1 81% Missions 6.1 3% Intellectual Services 15.5 8% Other expenditure 14.5 8% Total 190.3 100%

0%

20%

40%

60%

80%

100%

2009 2010 2011 2012 2013 2014 2015 2016 2017Staff Missions Intellectual Services Other expenditure

C(2018)98/REV1 │ 31


4.2.2. 2019-2020 estimated Part I Budget evolution 84. Annex I sets out the calculation of ZRG for the coming biennium. It is based on available data (May

2018 inflation rate in France) and will be finalised with inflation data available at end-June 2018. On this basis, applying the data available to the inflation formula agreed to by Council results in the following ZRG adjustments: +1.5% for 2019 and + 1.9% for 2020. Consequently, taking into account MEUR 3.3 Budget reduction, the expected adjustment for Part I is currently:

• -0.1% in 2019 as a result of cumulative effect of: i. The MEUR 3.3 reduction of the Budget base including Lithuania;

ii. The application of 1.5 ZRG in 2019 to the reduced Budget base. • +1.9% ZRG in 2020 as compared to 2019.

85. Table 1 below illustrates the annual Part I Budget increases since 2008.

Table 1. Part I Budget yearly increases: 2009-2020

Year 2009 2010 2011 2012 2013 2014

Evolution (%) 2.6 3.0 0.7 1.5 2.2 2.1

Year 2015 2016 2017 2018 2019* 2020*

Evolution (%) 0.9 1.0 0.4 0.8 -0.1 1.9

*Estimated cumulative effect of the Budget cut MEUR 3.3 and ZRG

4.2.3. Salary Adjustments 86. Staff salaries are the main cost component in the PWB, with staff costs comprising 81% of the Part I

Budget.

87. At the time this document was prepared, there was no information on the salary adjustment for 2019. Provisional information is expected in June, with the final data expected to be confirmed when the report of the Coordination Committee on Remuneration (CCR) is provided in September 2018. The CCR is currently engaged in an ongoing review of the Remuneration Adjustment Methodology, which may have an impact in future biennia.

88. Table 2 shows CCR recommendations, Budget assumptions, and information about actual inflation for the period 2009-18. While the table shows that salary growth at OECD has been below inflation in France over the period, it also reflects that ZRG adjustments have been lower than salary adjustment over the last 4 years, resulting in a Budget pressure for the Part I Budget.

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Table 2. Implementation of Salary Adjustments: 2009-2018

89. As for any Budget year, there is a risk of an additional Budget pressure should a salary adjustment

materialise that is higher than the ZRG adjustment. Each 0.5% difference would represent a Budget pressure of around MEUR 0.8. Subject to a limited impact of the final salary recommendation from the CCR I intend to manage this within the same envelope.

90. The OECD has managed the recent recurring Budget pressures resulting from the negative difference between ZRG and the salary adjustments over the last four years. The increase in salary was in part compensated by the reduction the employer average contributions rate applied on salaries. This was only made possible because the average cost is reducing as a consequence of the decision to reduce staff indemnities and allowances for new employees and in part was also managed through the organisational efficiencies realised to maintain the quantity and quality of the outputs delivered to our Members.

91. In the past, many Members have indicated their strong preference to avoid deferring the implementation of CCR Recommendations. Final data on salary adjustments are expected in September (i.e. before my formal draft PWB submission on 31 October). Should CCR recommendations create an additional pressure, I will propose appropriate measures to address this issue including a possible adjustment to the contribution rate to the Indemnities and Benefits Fund (IBF).

4.3. The Accession of Lithuania and Colombia

92. At this stage of the process, the impact on the Budget of the accession of Lithuania is taken into account in the Budget envelope; the 2018 Budget base is adjusted in line with the Council decision C(2018)82/REV1 and the related increased Budget allocations to outputs will be added to the Programme of Work proposed to Council. Should Colombia finalise its accession process before the end of 2018, the Programme of Work and Budget for 2019-20 would be revised to include the additional funding from adding the contribution from Colombia.

% increase Dates % increase Dates of effect % ZRG increase Differential with CCR

2009 3.0 1.1.2009 2.0 1.1.2009 2.6 -0.41.0 1.8.2009*

2010 2.0 1.1.2010 2.0 1.1.2010 3.0 1.02011 -0.2 1.1.2011 -0.2 31.12.2011 0.7 0.92012 2.4 1.1.2012 1.2 1.1.2012 1.5 -0.9

1.2 31.12.2012*2013 2.3 1.1.2013 1.3 1.1.2013 2.2 -0.1

1.0 31.12.2013*2014 -0.8 1.1.2014 -0.8 1.1.2014 2.1 2.92015 2.1 1.1.2015 2.1 1.1.2015 0.9 -1.22016 1.7 1.1.2016 1.7 1.1.2016 1.0 -0.72017 1.6 1.1.2017 1.6 1.1.2017 0.4 -1.22018 1.4 1.1.2018 1.4 1.1.2018 0.8 -0.6

Part I Budget nominal increase (ZRG)

Budget Year

CCR recommendations

OECDsalary adjustments


C(2018)98/REV1 │ 33


93. Following the completion of the accession process in line with the Accession Roadmap adopted in 2013 and 2015, the Council invited the Republic of Lithuania to accede to the OECD Convention on 3 May 2018 and Colombia on 25 May 2018. This major historic achievement was highlighted at the 2018 MCM, with the signing of the respective Accession Agreements. As part of its decision, and in line with C(2018)82/REV1, the Council agreed that the assessed contribution to be paid by Lithuania and Colombia will be determined in accordance with the 2008 Part I Scale Rules, and to increase the Part I Budget by the level of their contributions. On a full year basis, Lithuania would pay MEUR 1.82, and Colombia MEUR 2.64, based on 2018 scale. These new Members will also pay each a MEUR 1 fixed fee for a four-year period, which will be allocated to an Annex Budget, with the allocation of the Annex Budget to be approved by the Council to finance the Capital Investment Budget and Reserve Fund (CIBRF), and some of the incremental recurring costs related to the accession of those countries which are not covered by their contributions at scale. I will propose to offset as much as possible the recurring incremental costs not covered by their Part I contributions.

94. The Secretariat was informed by Lithuania that the deposit of its instrument of accession to the OECD Convention should take place on 5 July 2018. The proposed Budget envelope thus includes Lithuania and would thus be adjusted as follows should Colombia also become Members in 2018 :

Including IncludingLithuania forPWB 2019-20

Lithuania and Colombia

K€ K€Part I Budget 2018 201,650 201,650 Lithuania annualised 1,816 1,816

Part I Base for 2018 203,466 203,466 Budget Reduction (3,300) (3,300)

Colombia annualised 2,644

Part I Base for 2019 200,166 202,810 Inflation for 2019 3,004 3,040

Part I Budget for 2019 203,170 205,850 Inflation for 2020 3,860 3,910

Part I Budget for 2020 207,030 209,760

Annex Budget - fixed fees from Post-2017 Members . Allocated to CIBRF (minimum share) 500 1,000

. Allocated to recurring costs (maximum share) 500 1,000

Total Annex Budget 1,000 2,000


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4.4. Level and Financing of the Central Priority Fund and Long-Term Reallocations

95. The Central Priorities Fund and the Long-Term Reallocations are unique Budget reallocation mechanisms that facilitate the alignment of resources to top-down priorities. Despite the real pressures we face, I am proposing to maintain the funding of the reallocation mechanisms to MEUR 5.7.

96. I will apply a limited reduction of the Central Priorities Fund from MEUR 5.7 to MEUR 4.7 for the next biennium, to maintain a level sufficient to meet Members priorities, and to release resources for the long-term needs of the Organisation. On that basis, the CPF would represent around 4% of the substantive Part I Budget.

97. While the CPF is an effective and flexible tool to support time-bound priority outputs, pressures for long-term structural adjustments have naturally grown over time. In the past, long-term reallocations were often managed by means of savings and transfers from corporate areas. However, the pressure related to the MEUR 3.3 cut on corporate and substantive areas is such that I am not in a position to propose any Long-Term Reallocations (LTR) based on cost efficiencies. At the same time, the top-down priority-setting processes have not yielded any Member consensus, or majority view, on specific substantive areas of work that should be reduced. Therefore, to allow minimum allocations securing long-term resources for key recent initiatives, I am proposing to reallocate MEUR 1 from the existing CPF envelope to finance 2019-20 LTR.

4.5. Part I financing and Budget envelope

4.5.1. Assessed Contributions 98. Members’ assessed contributions represent around 98.5% of the funding of the Part I Budget.

Variations may occur due to the impact of ‘other income’ (see next item). For 2019-20, the change in Members’ assessed contributions to Part I is currently estimated at:

-0.2% for 2019; and +1.9% for 2020.

99. Table 3 below shows the annual increases in Members’ assessed contributions for the period

2009-2020.

Table 3. Part I Members Contributions: 2009-2020

Year 2009 2010 2011 2012 2013 2014

Evolution (%) 2.3 3.0 1.5 1.4 2.1 2.1

Year 2015 2016 2017 2018 2019 2020

Evolution (%) 0.9 1.0 0.5 0.9 -0.2 1.9

100. However, the limitation on some Members contributions resulting from the 2008 Part 1 Scale Rules setting a 300% cap in real terms on individual country’s contribution increase is expected to

C(2018)98/REV1 │ 35


materialize for the first time in 2020. The 2008 agreement stated that any amount exceeding the 300% limit would have to be "absorbed in the Part I Budget of the Organisation" [C(2008)144/REV1, Appendix 4].

101. Therefore, if as expected, two countries reach the 300% limit in 2020, it will result in an income reduction from assessed contributions of approximately KEUR 400 from Members.

102. As a result, the total effective amount of Members’ contributions in 2020 is expected to increase by 1.7% instead of the foreseen ZRG level expected at 1.9%.

103. The reduction in income will be managed by adjusting the level of Part I Budget expenditure.

4.5.2. Other Income 104. In relation to ‘Other income’ in the Part I Budget, which offsets Members’ assessed

contributions, I have reviewed carefully the relevant trends and options for this element of revenue to set a prudent level for these Budgets.

105. ‘Other income’ in the Part I Budget mainly relates to interest on general treasury, as well as rent from Delegations and non-Member participation fees. Interest income levels are impacted by two factors: the prevailing available rates of interest, and the size of the treasury. While treasury balances have remained healthy through 2016 and 2017, due to increasing acceptances of voluntary contributions and overall improved timeliness of payments of assessed contributions, interest rates continue to decline. In addition, the level of arrears in assessed contribution were at its highest at the end of 2017/beginning of 2018. As has been reported regularly to Members, it has been increasingly challenging to meet income Budget targets, despite an effective short-term investment strategy that consistently outperforms the market rates for short-term investments. There is no sign that this trend will reverse materially in the next biennium, and I do not want the Organisation take greater risks with its treasury investments. I therefore propose to maintain the prudent investment strategy. This will translate into an unchanged level of interest income for 2019 and 2020 at KEUR 800. A fundamental assumption is, however, that Members will pay their contributions on time. The resulting Budget Budgeted level of interest income for the period 2019 to 2020 is set out in Table 4.

Table 4. Evolution of Interest Income: 2011-2020

Year 2011 2012 2013 2014 2015 2016 2017 2018* 2019* 2020*

Budgeted (K€) 1 080 1 380 1 500 1 500 1 500 1 500 1 000 800 800 800

Actual (K€) 1 709 2 126 1 851 1 747 1 703 1 475 1 209 800 800 800

General Treasury Average Return ** 1.65% 1.75% 1.42% 1.29% 1.11% 0.88% 0.65% 0.50% 0.50% 0.50% * Forecast for 2018 and proposed for PWB 2019-20 106. Concerning non-Member fees, I am assuming a continuation of the positive trend experienced in

recent biennia, in line with our efforts to seek greater participation by non-Members in our work. I therefore propose to increase the Budget estimate for this item from KEUR 940 in 2018 to KEUR 1 050 in 2019 and KEUR 1 070 in 2020, representing an increase of around 12% compared to the previous biennium. This additional increase in “Other Income” will, as per our regulation, reduce the contributions from Members.


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107. More broadly, given the Budget pressures the Organisation continually faces in terms of meeting Members’ demands for outputs and financing needs in corporate areas, I would propose to suspend sine die using "Other Income" to offset Members’ contributions to the Budget. The Budget Committee may consider limiting the pressure of the MEUR 3.3 Budget reduction by freezing the level of income offsetting their contribution at the same level than in 2018. This amount of KEUR 100 would preserve the reduction of MEUR 3.3 on Member contributions while offering the Secretariat additional funding in relation to the increased participation of non-Members.

4.5.3. Budget Evolution 2018-2020 108. Table 5 provides a summary of the expected Budget Evolution from 2018 to 2020, showing the

Budget increase and its main financing components.

Table 5. Expected Budget Evolution 2018-2020

Part I Budget 2018 2019 2020KEUR

APPROPRIATIONS (Budget base)* 203,466 203,170 -0.1% 207,030 1.9%

FINANCINGContributions excluding 300% limit 200,946 200,550 -0.2% 204,380 1.9%

Members contributions to be paid 200,946 200,550 -0.2% 203,980 1.7%

Amount in excess of 300% limit 400

Other IncomeNon-Members Participants fees 940 1,050 11.7% 1,070 1.9%Interest income 800 800 0.0% 800 0.0%Rental of office and parking 680 670 -1.5% 680 1.5%Sundry income 100 100 0.0% 100 0.0%Sub-total other income 2,520 2,620 4.0% 2,650 1.1%

Total Financing 203,466 203,170 -0.1% 207,030 1.9%

Funding reduction resulting from 300% limit on Members contributions -400Total available financing 203,466 203,170 -0.1% 206,630 1.7%

* including Lithuania

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5. PROPOSED REALLOCATIONS TO DELIVER ON PRIORITIES

109. The strategic priorities established over the period up to and including the recent MCM require an ambitious and comprehensive response:

• The Central Priorities Fund (CPF) will amount to KEUR 4.700 per year allocated to 28 initiatives representing new strategic priorities.

• The Long-Term Reallocations (LTR) will amount to KEUR 1.000 though the financing of 6 essential initiatives that will support the continuation of related activities.

• To leverage the impact of the reallocation mechanisms, and in particular for the time-bound reallocations financed from the CPF, I have required that the financing of each initiative should include at least a 30% contribution from the Part I Budget and, when possible, resources from Voluntary Contributions. Consequently, a further MEUR 6 from the Part I Budget is channelled each year to the CPF initiatives selected, which means that reallocations for top priorities will amount to around 6% of the Part I Budget per year for the coming biennium.

110. In addition, my draft Budget Parameters include, as required in Council decision C(2015)187/REV3,

proposed Horizontal Projects for the PWB 2019-20. In line with Members' strategic priorities expressed through the Ambassadors’ Informal Convergence Paper and related discussions, I propose three new Horizontal Projects: Going Digital Phase II – Seizing Opportunities and Addressing Challenges, Strategic Policies for Sustainable Infrastructure, and Building an OECD Housing Strategy. Given the importance of these subjects, it is proposed they receive time-bound funds from the CPF. As per the procedures set out in document C(2015)187/REV3, information on these Horizontal Projects is set out in Annex III.

111. The overall level of reallocations and Budget flexibility that had increased steadily over the previous biennium will decrease for 2019-20, given the already challenging financial context for the Organisation in regard of the Budget base reduction and the other Budget pressures. As such, any additional Budget pressures may translate in further reductions of allocations to Member priorities.



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Table 6. Summary of Budget Reallocations 2009-2018

112. The list of the proposed CPF and LTR allocations for 2019-20 are set out in Table 7, presented by the

leading Output Area. I consider that these allocations represent the best combination of time-bound and long-term resource allocations to key priorities as expressed by Members. Information on the content of proposals, including contributions from other areas, will be provided in Directorates’ presentations of their Preliminary PWB Submissions to Budget Committee and in separate summary notes also provided to the Budget Committee.

Appropriations 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020KEUR

Part I Budget 171,895 170,715 182,025 184,754 188,820 192,780 194,520 196,470 200,050 201,650 203,170 207,030

Of whichLong-term reallocations 1,100 1,400 2,366 3,792 1,210 1,850 2,500 2,500 1,355 1,355 1,000 1,000 CPF and other short-term reallocations 3,050 3,340 3,792 4,802 4,800 4,800 4,800 4,800 5,699 5,699 4,700 4,700

Leverage on CPF (amount) 2,050 2,050 7,600 6,650 8,080 7,830 5,560 5,630 (percentage) 30% 30% 61% 58% 59% 58% 54% 55%One-off reallocations 1,460 SGAF 800 800 800 800 800 800 800 800 800 800 800 800 Total allocations 4,950 5,540 6,958 9,394 8,860 10,960 15,700 14,750 15,934 15,684 12,060 12,130 % reallocated resources 2.9% 3.2% 3.8% 5.1% 4.7% 5.7% 8.1% 7.5% 8.0% 7.8% 5.9% 5.9%

C(2018)98/REV1 │ 39


Table 7. Proposed CPF Allocations and Long Term Reallocations

2019 2020 2019 2020

1.1 1.1.3 Housing market policies for sustainable and inclusive growth (HP) 300 300 600

1.1.3 NAEC Innovation Lab – new approaches to a complex world 150 150 300

1.2 1.2.1 Inclusive GVCs - Enhancing SME participation in GVCs 100 100 200

1.2.1 New SME Flagship: SME and Entrepreneurship Outlook: Benchmarking Trends and Policies 200 200 400

1.3 1.3.1 Going Digital II: Implementing Strategies to Make the Digital Transformation work for All (HP) 175 175 350

1.3.1 Going Digital II: Policy and Practical Guidance for Making the Digital Transformation Work for All (HP) 350 350 700

2.1 2.1.1 Support for the Education Sustainable Development Goal (SDG4) 275 275 550

2.1.4 Effective Lifelong Learning Policies: How countries could more effectively address the skill development needs across the life-course 150 150 300

2.2 2.2.1 Productivity, diversity and inclusiveness: Uncovering the nexus 140 140 280

2.2.2 Integration of Migrants - Settling In .Strengthening the OECD capacity to monitor and assess integration policy and facilitating coordination across directorates 75 75 150

2.2.3 Management of OECD Gender Initiative 100 100 200

2.2.3 Policy solutions to promote equality of opportunity and inclusive growth 200 200 400

2.2.3 Rethinking the role of the State in the Digital era: how can social protection and inclusive growth respond to the risks that matter? 130 130 260

2.3 2.3.4 Leveraging new technologies for transport and mobility services to foster green and inclusive growth 80 80 160

2.3.5 Towards inclusive Green Growth 130 130 260

3.1 3.1.2 Trade, Investment and Intangibles: Adapting to New International Business Strategies 200 200 400

3.3 3.3.1 Assessing the Impact of Exchange of Information 150 150 300

3.3.1 Catalysing Carbon Pricing 100 100 200

4.2 4.2.2 Strategic Policies for Sustainable Infrastructure (HP) 350 350 700

4.2.2 Going Digital II: Getting ready for the blockchain revolution 280 280 560

4.3 4.3.1 Accelerating Gender Mainstreaming: a new OECD Platform to support the SDGs 230 230 460

4.3.1 Addressing Global Emerging Anti-Corruption and Integrity Issues 100 100 200

4.3.1 Policy Coherence for Sustainability and Green Growth: the Paris Collaborative on Green Budgeting 150 150 300

4.3.5 Reviving multilateralism through effective international rule-making 80 80 160

5.1 5.1.1 Addressing the impact challenge: operationalising impact measurement of investments in IG and to achieve SDGs 100 100 200

5.1.3 Reaping the benefits from the sustainable ocean economy for developing countries 175 175 350

5.2 5.2.1 Supporting the Global Level Playing Field through Enhancing Convergence with OECD Standards by Partners 100 100 200

5.2.1 Maintaining the engagement with China, for a level playing field and a rules-based, inclusive globalisation 100 100 200

5.2.2 Strengthening the global impact of OECD tools, standards and evidence through strengthened co-operation with the United Nations 200 200 400

6.1 6.1.2 Standard-Setting Review 100 100 200

6.1.2 Strengthening Internal Audit in the OECD 50 50 100

6.1.3 Upgrading Analytical and Methodological Capacities to Improve Policymaking and Anticipate Emerging Issues 200 200 400

6.2 6.2.1 Achieving the SDGs beyond OECD borders: measuring distance to the SDG targets for non-OECD countries, and assessing global contributions to the 2030 Agenda 200 200 400

6.2.1 Business and Investment for Sustainability, Inclusive Growth and Well-Being 230 230 460

6.2.1 Going Smart Data: increasing the data science assistance to all directorates 50 50 100

4 700 4 700 1 000 1 000 11 400HP: Horizontal Projects

TOTALS

Output Group

Output Area Title CPF LTR TOTAL

biennium

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6. PART II PROGRAMMES

113. For Part II programmes, the current assumption is that Budgets will increase in line with Part I, subject to specific circumstances requiring governing bodies to consider adjustments unless any other agreement has been established by their governing bodies.

114. Annex II sets out the list of Part II programmes with their Budgets in nominal terms since 2009, showing negative impacts for those programmes that were under pressure either by ZNG policy or by a reduction in their membership.

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7. PRE-ACCESSION BUDGETS

115. As mentioned above, the PWB planning includes Lithuania as new Member, and will potentially include Colombia, once it deposits its instrument of accession. At this stage no assumptions is made with respect to Costa Rica joining the Organisation during the course of the 2019-2020 biennium.

116. With regard to new candidate countries entering into pre-accession process during the next biennium. Such situations, if they occur, will be addressed on a case by case basis, and any additional Budget proposals will be submitted to Council as and when necessary.

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8. ANNEX BUDGETS

8.1. Pensions

117. The Pensions Annex Budget receives contributions from Members and staff, and is the source of funding for the Pension Budget and Reserve Fund (PBRF). The Pensions Annex Budget is adjusted according to an approved mechanism (see C(2004)203 and C(2005)49) based on a weighted combination of retrospective inflation (20%) and salary adjustments applicable to active staff (80%). The level for the Pensions Annex Budget will be communicated once the final salary adjustment data for 2019 is known.

8.2. Publications

118. As mentioned earlier, on 1 July 2015 we succeeded in implementing the Council decision of December 2011 on publishing reform [C(2011)117/REV1] by making 100% of Part I data “open, accessible and free”. This was a major achievement, which was made possible by the “Delta” project that implemented a number of important measures to help ensure the sustainability of the Publications Annex Budget. Among these was the introduction of the highly innovative “Freemium” model whereby iLibrary subscribers can choose to pay for value-added services4 to complement the standard free services.

119. In the 2011 Council decision, Members requested that the Publication Annex Budget and Publications Reserve be reviewed at the end of the implementation of the reform by end-2015. In 2014, the Council extended the implementation period to March 2016 to assess better the financial impact of the move to 100% free Part I data, in line with the annual sales and subscription renewal cycle [C(2014)135]. As part of this decision, measures to mitigate the financial risks inherent in the reform were prolonged to end 2016:

• holding at ZNG, Members’ annual contributions to the Publications Annex Budget; • maintaining the automatic carry-forward facility in the Publications Annex Budget; and • maintaining the Publications Reserve to manage the risk of declining revenues, with the

authorisation to use it to cover any deficit in the Publications Annex Budget during this period.

120. Following this review, the Council agreed in 2016 to maintain the financial arrangements set in the 2011 publishing reform, as well as to move to accruals accounting for Publication income as of 1 January 2017, resulting in a one-off technical Budgetary adjustment of MEUR 4.2 on 1 January 2017. To finance this adjustment, the Council agreed on a 10 year financing plan including an annual contribution from the Publication Annex Budget of KEUR 100 which has created an additional financial pressure on the Publication Budget.

4 Such as downloading, copy-pasting or making printed copies for books, or have access to a range of time-saving, ready-to-download tables, training and customer support services for datasets





C(2018)98/REV1 │ 43


121. As was the case for the 2010 and 2016 Members, I will propose that the contributions from Lithuania and Colombia are added to the Publications Annex Budget.

8.3. Investments and Asset Replacement

122. The Resolution of the Council on the Creation of a Capital Investment Budget and Reserve Fund (CIBRF) for the Replacement of the Organisation’s Fixed Assets [C(2011)144/FINAL] established the Capital Investment Budget and Reserve Fund (CIBRF) with effect from 1 January 2013, to provide for the replacement and renewal of longer-term fixed assets.

123. The Investment Annex Budget helps finance the cost of Class 1 assets, via the CIBRF. The Council Resolution provides for the Investment Annex Budget to be increased in line with ‘established practice’. This implies that it should be increased in line with the Part I Budget, to safeguard the real value of the funding of the asset replacement plan.

124. Since 2013, in line with the Council Resolution, a transfer of MEUR 1.2 each year is also made into the CIBRF to help finance Class 2 asset replacement. This is being achieved through measures focussed on the corporate service areas.

125. In 2013, the Council agreed to add a third component in the CIBRF for Class 3 long-term asset as from 1 January 2014 [C(2013)152]. As mentioned earlier, Class 3 asset replacement remains very largely unfunded and represents a long-term financing risk for the Organisation.

126. The Multi-Year Investment Plan (“the Plan”) sets out investment priorities to be financed by the CIBRF as part of the PWB process.

● The plan provides greater visibility for the planning and execution of investments in fixed assets by proposing investment expenditures over a four year period (i.e. two biennia).

● The first Plan was presented in the 2013-14 PWB.

● As foreseen in the Council Resolution, at the end of the first biennium covered by the Plan, the planned investments may be updated for the remaining period of the Plan and the following biennium.

● A revision of the Plan for the period 2019-20 will be provided to the Budget Committee, as part of the submission for Output Group 6.3 Corporate Services.

https://one.oecd.org/document/C(2011)144/FINAL/en/pdf


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9. VOLUNTARY CONTRIBUTIONS

127. Voluntary contributions (VCs) play an essential role in delivering high-quality outputs that are relevant to all Members.

● They are fully integrated in the Work Programme and underpin the delivery of its outputs.

● The cost recovery processes put in place by Members has reduced the cross-subsidisation that existed before 2010.

● Comprehensive information is provided to Members regularly in the Budget Committee, and is being constantly improved, with online information now available.

● However, indications are for an overall increase in line with recent trends.

● More information on expected VC funding will be provided by Directors in their individual presentations to Budget Committee.

o Information on the level and use of these funds is provided in the individual preliminary PWB submissions being finalised in each Output Area.

● Consolidated information will be provided to the Budget Committee when finalised.

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10. CONCLUSION

128. The current Budget assumptions for 2019-20 have been established in accordance with the processes and methods endorsed by the Council. I have listened to Members and made a proposal which makes a recurrent reduction to the Budget base of MEUR 3.3, starting in 2019. Apart from this reduction, I reflect the commitments taken in 2008, to provide a strong and sustainable financial foundation for the Organisation to maintain the quality and volume of outputs, while adapting to changing priorities, ensuring strict prioritisation, efficiency savings, and maintenance of the real level of Part I Budget resources.

129. In addition, the Part I budget needs to accommodate new recurring cost pressures of approximately MEUR 3.4 per year.

130. The budget cut of MEUR 3.3 together with these additional new MEUR 3.4 pressures amount to MEUR 6.7 per year (equivalent to 3,3% of the OECD’s Part I Budget). Despite my strong preference to preserve core financing for substantive outputs, such a cut on Part I resources cannot rely solely on delivering new administrative efficiencies and will have to impact the capacity of the Organisation to deliver outputs. So, the reduction will be achieved by means of:

• MEUR 1.45 - Achieving new efficiencies in corporate services • MEUR 1.85 - Reducing available funding for other areas

131. The Organisation will continue with its track record of continuously delivering efficiencies like the M EUR 172 cumulative efficiencies over the 2008-18 (that will continue to avoid costs of 15.5% of the annual budget) or the decision to reduce the expatriation allowance to staff, as of 2012, and to transfer the resulting savings into the Post-Employment Healthcare Liability Reserve (PEHLR) that will make it possible to match by 2046 the MEUR 400 PEHL projected liability.

132. My key assumptions for the Part I Budget are based, at this time, on best estimates. Once more, I intend to maintain an ambitious degree of Budget flexibility and a significant scale of reallocations in line with Members’ priorities and their urgent call for action and assistance. I am confident that the funding proposals made to allocate the central priority funds are well-aligned to these priorities. They will provide a foundation to deliver the sound policy analysis, advice and recommendations that will support the reform efforts of policymakers in Member and Partner countries and respond to their urgent call for action.

133. We will also maintain our strong record of efficient and effective management of Members’ resources, notably through savings and reallocations in the corporate services areas.

134. In compliance with the 2009 Recommendation from the Working Party on Priorities, I look forward to early agreement on the main Budget parameter (ZRG), as this will establish a sound basis for moving to the final stages of our preparations of the PWB 2019-20. Departure from ZRG would mean a cumulative reduction of MEUR 222 over the next ten years, that would be incompatible with Members’ expectations regarding the Organisation delivery and impact for their governments.

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ANNEX I: APPLICATION OF THE INFLATION MECHANISM TO THE PART I BUDGET

1. The Resolution of the Council on the Financing of Part I of the Budget of the OECD [C/MIN(2008)6/FINAL] provided in general terms a formula for calculating host country inflation for Budgeting purposes, as follows:

“[The rate of inflation in the host country will be] measured as a three-year moving average of inflation defined under footnote 1, comprising the two preceding years and the projection for the current year.” 2. Footnote 1 states that “Zero real growth in the OECD Budget is generally regarded as zero nominal growth adjusted for host country inflation.”

3. In applying this method to the Part I Programme of Work and Budget (PWB) for 2009-10 and beyond the Secretariat and the Budget Committee established:

• the appropriate reference period, taking into account the robustness of input data;

• the input data source; and

• provisions for the second year of the biennium, since the second year calculation was not covered explicitly by the Resolution.

I. The Reference Periods 4. The Reference period runs from July to June, with three advantages:

• It gives relatively greater weight to actual data than projections (two thirds).

• Projections about future inflation are robust since they are sourced from available data in the Organisation.

• It is consistent with the reference period used by the Coordination Committee on Remuneration (CCR) for calculating salary changes, which is appropriate given the importance of remuneration adjustments in total Budget pressures.

5. In respect of the PWB 2019-20, four reference periods will be used:

Reference period Budget 2019 Budget 2020

a) Inflation for July 2016 to June 2017 One third n/a

b) Inflation for July 2017 to June 2018 One third One third

c) OECD Projection for July 2018 to June 2019 One third One third

d) Projection for July 2019 to June 2020 n/a One third


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II. Sources of Data 6. The Secretariat is using OECD data, which is in turn based on Eurostat’s harmonised indices of consumer prices. Inflation data at end-June are usually available mid-July.

7. Regarding projections, the OECD produces quarterly information, made available publicly when the OECD Economic Outlook is published. This means that the data used for Budget planning purposes for the first year of the biennium is that which is available in June of the year preceding the biennium.

8. Regarding the last projection, for July 2019 to June 2020 (the fourth year of the mechanism), provisions do not exist for the full period. The agreed mechanism was to use the mid-point between the European Central Bank’s medium-term inflation target of 2% and the average of the first two years of the reference period [i.e. b) and c) above].

9. The Secretariat underlines that in a reference period of rising inflation, the Budget increases delivered by the mechanism will be less than current inflation. The opposite effect applies in a period of decreasing inflation. In other words, there is a lag effect. Over time, these differences may be expected to even out. Moreover, respect for a stable methodology over years should also provide greater stability in the long-term.

10. The current provisional outcome, using projections at end-May 2018, can be summarised as follows:

Budget 2019 Budget 2020

July 2016 to June 2017 0.8 July 2017 to June 2018* 2.4

July 2017 to June 2018* 2.4 July 2018 to June 2019 1.4

July 2018 to June 2019 1.4 July 2019 to June 2020 2.0

Average 1.5 Average 1.9

* Provisional dat relaeased by INSEE on 29 June 2018 to be confirmed by mid-July 2018. 11. Once finalised, these averages will be applied to the Base Budget for 2019 and 2020.

12. Simulation of PWB 2019-20 with current provisional data:

Budget Year Base KEUR

Part I Budget base 200 166

Adjustment: + 1.5% + 3 004

Part I Budget 2019 203 170

Adjustment: + 1.9% + 3 860

Part I Budget 2020 207 030

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ANNEX II: PART II PROGRAMMES: BUDGET APPROPRIATIONS OVER LAST BIENNIA

Fund Programmes 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018KEUR

Part II30 - International Energy Agency (IEA) 25,702 26,612 26,612 26,612 26,612 26,626 27,190 27,462 27,671 27,85031 - Development Centre (DEV) 5,638 5,932 5,958 5,970 6,037 6,150 6,250 6,267 7,327 7,35632 - The Sahel and West Africa Club (SWAC) 2,194 2,173 2,153 1,862 1,600 1,600 1,800 1,800 2,232 2,02333 - OECD Nuclear Energy Agency (NEA) 10,407 10,407 10,407 10,407 11,113 11,113 11,050 11,160 11,266 11,50034 - NEA Data bank (NEA DB) 2,954 2,954 2,954 2,954 3,099 3,109 3,149 3,149 3,187 3,27235 - Centre for Educational Research and Innovation (CERI) 3,530 3,530 3,559 3,532 3,534 3,534 3,534 3,534 3,477 3,38036 - Joint OECD/ITF Transport Research Centre (JTRC) (merged with ITF as from 1,074 1,114 1,114 1,114 1,114 1,114 1,118 1,138 - -37 - International Transport Forum (ITF) 4,850 4,997 4,997 4,997 4,750 4,750 5,165 5,205 6,380 6,49738 - Chemicals Management Programme (CHEM) (new name as from 2017) 1,822 1,830 1,841 1,841 1,826 1,826 1,827 1,828 1,830 1,83039 - Steel 678 678 678 672 678 676 676 676 676 67640 - Biological Resource Management for Sustainable Agricultural Systems (CRP) 770 770 771 759 703 703 695 695 695 69541 - Co-operative Action Programme on Local Economic and Employment

Development (LEED)1,322 1,390 1,415 1,435 1,270 1,247 1,261 1,302 1,273 1,284

42 - Programme for International Assessment of Adults Competencies (PIAAC) 4,080 4,100 4,254 5,432 4,574 2,455 4,119 4,221 2,685 2,18843 - Financial Action Task Force on Money Laundering (FATF) 2,774 3,087 3,265 3,372 3,447 3,511 4,043 4,094 4,469 4,69544 - OECD Global Science Forum (GSF) 556 558 561 561 561 561 561 561 561 56145 - Agricultural Codes and Schemes for International Trade (CODES) 1,031 1,052 1,075 1,095 1,119 1,142 1,136 1,169 1,180 1,18946 - Network on Fiscal Relations accross levels of Government (NFR) 329 338 340 319 353 339 342 346 310 31247 - Shipbuilding 371 380 383 389 363 371 353 356 347 34948 - Global Forum on Transparency and Exchange of Information for Tax purpose - 2,930 3,258 3,445 3,574 3,610 3,940 4,022 4,019 4,08049 - Programme for Teaching and Learning International Survey (TALIS) - - - - - - - 1,675 1,975 1,86962 - German Linguistic Section 1,626 1,675 1,687 1,712 1,750 1,786 1,803 1,822 1,842 1,85763 - Italian Linguistic Section 480 475 350 350 335 335 320 320 320 32064 - International Service for Remunerations and Pensions (previously IOS and JPAS) 5,440 5,440 5,500 5,056 5,253 5,466 5,532 5,773 6,186 6,43765 - Reimbursable Posts 1,575 1,692 1,520 1,631 1,845 1,885 2,222 2,306 2,357 2,43767 - Programme for International Student Assessment (PISA) 5,375 4,957 5,440 5,965 5,504 5,410 5,983 5,846 5,537 5,68768 - Programme on Institutional Management in Higher Education (IMHE) 874 1,026 1,038 1,121 910 1,065 745 756 - -69 - Centre for Effective Learning Environments (CELE) 540 546 443 329 - - - - - -74 - Management of the OECD Medical Care System (OMESYS) 740 760 1,030 1,047 1,050 1,070 1,180 1,240 - -

Total Part II 86,731 91,404 92,603 93,980 92,975 91,453 95,995 98,723 97,802 98,343

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ANNEX III: SUMMARY INFORMATION ON HORIZONTAL PROJECTS FOR PWB 2019-20

Horizontal Project No. 1: Going Digital Phase II – Seizing Opportunities and Addressing Challenges

Context 1. The digital transformation has reached a pivotal point where it is reshaping economies and societies, pushing digital policy issues to the top of the policy agenda not just in OECD countries but across the globe. It creates unprecedented opportunities for productivity growth, better services and improved well-being as much as it raises issues for jobs, skills, taxation, inclusion and social life more generally. Making the digital transformation work for all is of utmost importance for governments, with increased urgency as people and devices become connected to the Internet and artificial intelligence and blockchain, among other technologies, become more prevalent across economies and societies.

2. The first phase of “Going Digital” drew on the expertise of nearly every policy community of the OECD to raise awareness of the digital transformation, develop a framework for analysing national policies and strategies and develop new insights into key questions such as the impact on jobs and skills; productivity, business dynamics and markets; and well-being. It also aimed at improving our measures of digital activity.

Objectives and Expected Outcomes 3. The overarching objective of the proposal for Going Digital II is to build on the first phase of the OECD's Going Digital project to: 1) move into the implementation phase of this project; and 2) address new opportunities and challenges raised by new data governance models, the evolving nature of the firm and, from the technological perspective, by analysing two emerging technologies – blockchain and artificial intelligence – that will have important impacts on policy.

4. The proposal would strengthen the OECD's pioneering position as the preeminent international organisation that can address the full range of policy issues raised by the digital transformation and develop policy guidance on these issues. It responds to a strong demand from Members (and beyond) for support in navigating the digital transformation, addressing the challenges it raises and reaping and sharing its benefits. It would also help guide better policies to address the job quality, skills, inclusion and social aspects of the digital transformation. The proposal would further strengthen horizontal co-operation within the OECD on these issues.

5. It would also help consolidate the OECD's role on digital economy issues in the context of the G20 and G7. The project will also highlight the OECD’s capacity to convene relevant stakeholders to develop policy advice on emerging and cutting-edge policy issues, such as blockchain and artificial intelligence, to set policy standards and help level the global playing field.

6. The proposal builds on the first phase of the Going Digital project, reflects the outcomes of the 2017 MCM and GSG meetings, reflects the SG's priorities as expressed in his 2018 Strategic Orientations, and responds to the interest of members for further work on digital transformation as expressed in the Ambassadors’ Informal Convergence Paper.

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Main Activities 7. As regards 1) implementation, the proposal is intended to provide a foundation and coordinating framework that will enable the OECD to provide support to Members on their policies and strategies related to the digital transformation. Expected outputs include a (slightly lighter) co-ordination apparatus to ensure alignment of the work and consistency across the organisation’s work on digital transformation; and co-ordination of the development of a Going Digital Toolkit [DSTI/CDEP/GD(2018)9. This would both provide policy guidance for Going Digital Reviews and support countries in the development and deployment of their national digital strategies.

8. The Going Digital Toolkit will contain a range of elements, including quantitative indicators, policy notes, and innovative policy examples, among others. Its main purpose is to provide policymakers with practical help in assessing their country's state of digital transformation and formulating appropriate policy strategies and approaches. The toolkit may initially be delivered in the form of a report, but it would also be delivered as a website. The latter would provide more flexibility for enrichment and updates, enabling the toolkit to be a living resource.

9. As regards 2) further work, the horizontal project will explore new opportunities and challenges related to two emerging technologies that have direct policy relevance: blockchain and artificial intelligence. This may entail the development of new Council recommendations and guidance, and help ensure the digital transformation is inclusive. Expected outputs include the creation of a Blockchain Centre of Excellence, as well as an Observatory on Artificial Intelligence, which would explore the impacts of these technologies across the economy and society, including in specific sectors of the economy (e.g. agriculture, education and the workplace). Another objective includes the development of Council recommendations on artificial intelligence and enhanced access to data. Work will also be undertaken to gain a better understanding of the jobs, skills, inclusion and social aspects of these new and emerging digital technologies. This will help guide better policies to address the job quality, skills, inclusion and social aspects of the digital transformation.

10. Blockchain will be an important component of the Going Digital II horizontal project and it will be led by DAF. Blockchain is a general purpose technology with a wide range of applications across the economy. Its underlying features include distributed ledgers, use of cryptography and protocol-based transactions, which together give rise to networks capable of delivering transparency, traceability and trust. Blockchain provides a new technological foundation upon which new tools and applications can be built. It will impact – and potentially transform – a wide range of industries, including finance, healthcare, food and agriculture, legal services, computer science, energy and transport. It presents a new tool to help governments meet policy challenges in areas such as tax, responsible business conduct, aid and development, anti-corruption, illicit trade, privacy and digital security, entrepreneurship and financial inclusion. However, it also raises new risks to which policymakers must be attuned, related inter alia to tax evasion and money laundering, market manipulation, consumer protection and digital security.

11. Blockchain’s ultimate impact will depend on governments’ ability to develop policies that extract the benefits of the technology, while addressing the risks of misuse and unintended consequences. Governments’ policy responses to blockchain applications have been largely uneven and ad hoc to date, with fragmented treatment across sectors and jurisdictions. International co-operation is important to promote best practices, manage potential risks, promote interoperability, prevent regulatory arbitrage and establish legal

https://one.oecd.org/document/DSTI/CDEP/GD(2018)9/en/pdf

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certainty. The OECD can play a leading role in sharing good practices, identifying appropriate policies and helping governments to develop a coordinated and integrated regulatory framework that enables businesses to innovate and develop the technology while ensuring the realisation of social benefits and addressing potential challenges – these will be the core activities of the Blockchain Centre of Excellence.

12. Artificial intelligence will be another important component of the Going Digital II horizontal project and it will be led by STI. Artificial intelligence already provides tools that are used daily by people around the world. The rapid pace of AI technological development and of society-wide diffusion offer unprecedented opportunities to empower people and transform societies. At the same time, the growing impact creates challenges that require new policies that ensure that AI is used for beneficial purposes. The creation of the OECD Policy Observatory on AI would monitor and guide progress in the development and deployment of artificial intelligence systems on the frontiers of innovation.

13. Working with committees across the OECD and a wide spectrum of external interests, the Policy Observatory on AI would identify promising AI applications, assess their potential economic and social impact, and provide insights into crafting an OECD Council Recommendation and policies to ensure their beneficial use. The Observatory would operate an interactive online platform providing information, evidence and policy options to governments, civil society and global organizations, the private sector and anyone else interested in debating policies to promote innovative business models, economic growth and respect for fundamental human rights.

Governance Arrangements 14. Going Digital II will continue most of the Going Digital’s existing governance frameworks for institutional and budgetary efficiency, but in a relatively lighter way. The work on Getting Ready for the Blockchain Revolution will only have separate governance bodies where necessary and practical.

15. The lead Committee for Going Digital II will continue to be the Committee on Digital Economic Policy (CDEP). The Committee on Financial Markets (CMF) will lead the blockchain pillar of Going Digital II in co-operation with CDEP. The contributions of the following other core OECD Committees are considered essential to the success of the project:

• The Competition Committee (CC)

• The Committee on Consumer Policy (CCP)

• The Committee on Fiscal Affairs (CFA)

• The Corporate Governance Committee (CGC)*

• The Committee on Industry, Innovation and Entrepreneurship (CIIE), including through the Working Party on SMEs and Entrepreneurship

• The Committee for Agriculture (COAG)*

• The Committee on Statistics and Statistical Policy (CSSP)

• The Committee on Scientific and Technological Policy (CSTP)

• The Development Assistance Committee (DCD)*

• The Economic and Development Review Committee (EDRC)

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• Education Policy Committee (EDU)

• Employment, Labour and Social Affairs Committee (ELSAC)

• The Economic Policy Committee (EPC), represented by Working Party 1

• The Environment Policy Committee (EPOC)*

• The Investment Committee (IC)*

• The Public Governance Committee (PGC)

• The Trade Committee (TC)

* Committees not considered “core” in the context of phase one of the Going Digital project.

16. Many of these Committees already plan to pursue work on digital transformation issues as part of their 2019-20 PWBs. Other Committees and OECD bodies (for example the Health Committee, the International Transport Forum, and the International Energy Agency) may further enrich the project with their work and would be very welcome to participate, if practical and in line with their respective work programmes.

17. Within the Secretariat, the Going Digital project will continue to be co-ordinated by STI, working particularly closely with DAF, who will co-ordinate the work on blockchain. STI and DAF will work with CFE, CTP, DCD, ECO, EDU, ELS, ENV, GOV, SDD and TAD which support the core Committees. Other important OECD activities will be the Observatory for Public Sector Innovation and the New Approaches to Economic Challenges Initiative. Other Directorates would be kept informed about developments to determine if and to what extent they can contribute.

18. A number of groups will help guide the project and contribute to its governance. Most of them will be the ones established for phase one of the Going Digital project, extended to cover all core Committees.

• The Going Digital Steering Committee: this is composed of representatives of the core Committees involved to ensure coordination and true horizontality of the work. To reflect the lighter level of coordination envisaged for Phase II of the Going Digital project, this group will meet once a year in both 2019 and 2020, and will use digital means (i.e. the Going Digital One Communities Steering Group sub-site) to enable interactions among Steering Group members and the Secretariat in-between physical meetings.

• The Going Digital Directors Group: comprised of Directors of the various OECD Directorates that support the core Committees. This group would provide guidance on the overall strategic direction of the project in co-operation with the Steering Committee.

• The Friends of Going Digital group: this will continue to be an informal group, with participation of Council members, to help ensure a close link to delegations.

• The Going Digital Co-ordinators Group will continue to act as a mechanism within the OECD Secretariat to co-ordinate the Going Digital project at the working level, in particular related to the development of the toolkit.

• OECD Blockchain Champions Network: this will be a new working group within the OECD Secretariat composed of representatives of the various Directorates involved in the specific work on blockchain. This group will help co-ordinate the

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work on blockchain within the OECD Secretariat and help develop a joint narrative and key cross-cutting components of the work.

• Blockchain Expert Advisory Group: a new group made up of a small, independent group of leading academics, practitioners, and business and civil society leaders, to provide analytical input into the project across its activities. This group would sit within the OECD Blockchain Centre of Excellence.

• Regular events such as conferences, workshops and presentations organised around one or more of the specific activities of the project, designed to both inform and consult with members and stakeholders.

• Regular communication on project implementation through the Going Digital ONE Communities site, which is updated in real time with relevant information and links.

• Regular reporting to Council on the project’s progress, through the established procedures for such reporting.

The Project Leader is Mr. Masamichi Kono, Deputy Secretary-General. The Project Manager is Mr. Andrew Wyckoff (Director, STI), in co-operation with Ms. Mathilde Mesnard (Deputy Director, DAF).

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Horizontal Project No. 2: Strategic Policies for Sustainable Infrastructure

Context 1. Sustainable infrastructure plays a crucial role in economies and societies. It is indispensable for better and more inclusive economic, social and environmental outcomes. The availability of transport, technology, communication, electricity, safe water and sanitation, and other basic facilities, developed in a low-carbon and climate resilient environment, has a tremendous impact on improving well-being and spurring economic growth, which in turn helps in reducing poverty. There are, however, major policy challenges and obstacles due to a significant gap of inclusive/sustainable/bankable projects despite the availability of funds, which stems, inter alia, from inadequate national strategies and frameworks on infrastructure, a lack of connectivity, poor standardisation, inefficient and opaque processes and methodologies, and major related environmental/financing/governance issues. Urgent action is required to address these challenges.

2. There are numerous examples of underperforming infrastructure investment across the world. In Africa, inadequate infrastructure, mainly in energy, transportation, telecommunications as well as in water, sanitation and irrigation, is a key driver of weak economic performance, low intra-African trade and the limited integration of African countries into global value chains. Further, more than 700 million people in Africa rely on biomass and fuelwood for cooking, which kills thousands every year, especially women and children (AfDB, 2017:16): the economic cost of household air pollution resulting from this practice is estimated at USD 232 billion in 2013 (AfDB/OECD/UNDP, 2016:169; Roy, 2016). In Latin America, the effects of low-quality transport infrastructure are evident. In Asia, one of the world’s most disaster-prone regions, there is a demonstrable lack of resilient infrastructure. Infrastructure quality is also declining in many advanced economies: for example, one quarter of bridges in the United States are structurally deficient or in need of maintenance. Current levels and types of infrastructure investment across the world are insufficient to support the low-carbon transition.

3. Investments in quality infrastructure are needed to strengthen the structural foundations of global growth and make it more inclusive, sustainable, and green. This imperative is fully aligned with the G7 Ise-Shima Principles for Promoting Quality Infrastructure Investment that were launched under Japan’s 2017 G7 Presidency and in the 2016 G20 Leaders’ declaration, which “stress[ed] the importance of quality infrastructure investment, which aims to ensure economic efficiency in view of life-cycle cost, safety, resilience against natural disaster, job creation, capacity building, and transfer of expertise and know-how on mutually agreed terms and conditions, while addressing social and environmental impacts and aligning with economic and development strategies”. These issues were again stressed in the Roadmap for Infrastructure as an Asset Class, which was endorsed by G20 Finance Ministers and Central Bank Governors in Buenos Aires in March 2018. They are also expected to be central to the priorities of the 2019 Japanese G20 Presidency. At the 2017 OECD Ministerial Council Meeting (MCM), OECD Ministers “confirmed the importance of promoting quality infrastructure with open and fair access and encouraged the OECD to elaborate guidelines and good practices in this area, giving appropriate consideration to the principles for quality infrastructure and related issues agreed by international fora”.

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Objectives and Expected Outcomes 4. As highlighted in the recent G20-OECD-World Bank report on tools and instruments related to infrastructure as an asset class provided to G20 Finance Ministers and Central Banks Governors in Buenos Aires in February 2018, there is substantial evidence and international instruments to support the development of quality infrastructure.

5. However, much remains to be done, beginning with more integrated approaches. Boosting quality infrastructure (both brownfield and greenfield) requires holistic investment strategies and a whole-of-government policy approach that balances economic, environmental, social and development objectives. These strategies can be developed on national, regional or local levels given sub-national entities, particularly cities, are major drivers for infrastructure development.

6. The OECD is recognised as an international leader (including by the G20 and APEC) on infrastructure strategies, financing, green investment, governance, development, preconditions and sectoral work (e.g. transport, energy, digital economy, connectivity). However, most OECD Directorates are currently developing infrastructure-related work through different angles. Addressing this fragmentation is critical to maximise the relevance and impact of the OECD’s work on infrastructure.

7. Beyond the overarching goal of developing a strategic action plan, the quality infrastructure agenda calls for action in complementary areas, including:

8. Improving macroeconomic conditions, advancing structural reform implementation and ensuring an adequate policy framework for promoting a stable regulatory environment (including on procurement, tax, competition, anticorruption, etc.).

• Investment strategies should be based more strongly on efficiency and cost/benefit analysis, building on sound public and private governance principles and adequate data.

• There is a need to work on future policy orientations on quality infrastructure from a development perspective, because without quality infrastructure, developing and emerging economies cannot realise their full potential.

• The lack of connectivity and relevant infrastructure and services that fosters regional disparities and increases the segregation of low income groups should be addressed at all geographical levels. This is essential to support more inclusive growth and better economic and social development.

• Infrastructure investments should be part of a decisive transition towards low-carbon emission, climate-resilient economies in line with the Paris Agreement. Given the long lifespan of infrastructure, failure to invest in the right type of infrastructure in the next 10 to 15 years risks locking the world into a greenhouse-gas-intensive development pathway or stranding many assets. It will also encompass serious and irreversible risks, not only of environmental damage. This call for resilient infrastructure.

• Improving the financing of investment remains a key priority. This includes advancing innovative techniques and diversifying the financing and risk allocation of infrastructure projects between the relevant stakeholders and within the spectrum of available financial instruments and mechanisms.

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• The role of the private sector, which is essential, calls for further standardisation of contracts, processes and documentation which, together with enhanced data availability and a more conducive policy environment, will contribute to making projects bankable.

• Quality infrastructure will benefit significantly from the development of new technologies such as drones and blockchain, which will facilitate its contribution to better and safer connectivity and support inclusive growth.

9. Through the development of related instruments and analysis, the project will provide OECD, G20, APEC and other economies with credible, evidence-based international guidance and support for sustainable subnational, national and international infrastructure investment, as well as a global platform for exchange between policymakers, the private sector and academic community, culminating in a new OECD Strategic Centre on Infrastructure Policies. This project is fully aligned with the 2018 Strategic Orientations of the Secretary General, the 2017 MCM mandate on quality infrastructure and current G20 and APEC policy priorities, to which the OECD actively contributes. It will be coordinated with all relevant OECD Directorates, agencies and associated bodies, in close cooperation with SGE/SHPA and developed in consultation with other International Organisations. It will also be aligned, to the extent possible, with other major international work and priorities.

Main Activities 10. Through better internal coordination of the OECD’s infrastructure work, the development of an OECD corporate strategy on sustainable infrastructure policies (involving all substantive Directorates/agencies) and the identification of areas with strong current and potential OECD added value, this project would, inter alia, deliver:

• An integrated, multidisciplinary and strategic roadmap for sustainable infrastructure, which will encompass relevant principles, guidance and benchmarks with supporting evidence-based analysis. This roadmap will build on numerous conditions from structural reforms to a stable policy environment (including regulation, financing, procurement, ESG , tax, development context, SDG, new technologies, environment, competition, employment, anticorruption, governance, and data).

• Dedicated policy instruments, standards and analysis to improve the sustainability and bankability of projects, through:

‒ the standardisation of processes, documentation and methodologies (including modelling, etc.), asset class benchmarking and new technologies (e.g., Internet of Things, blockchain);

‒ new global policy standards and best practices and the implementation of existing ones (including financing, governance, blended finance); and

‒ innovative financing techniques, mitigation and allocation mechanisms, connectivity, proper specific governance and integrity guidance.

• Specialised outputs related to sectoral (e.g., transport, energy, digital (wireless and wired communications), housing, infrastructure services), thematic (employment, education), geopolitical (developing and emerging economies, regions),

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institutional (institutional investors, utilities, local governments, SOE, SME, public-private arrangements), and social and environmental issues.

Directorates involved in the project are planning specific outputs in their own Programmes of Work, including: “interactions between shifts in the energy mix, tax policy and infrastructure funding” (CTP); “data on infrastructure investments” (SDD); “design and building of the physical learning environment” (EDU); “physical infrastructure services” (TAD); “performance,-driven energy policy design”, “digitalisation in a demanding safety and security context” (NEA); “public-private finance for sustainable infrastructure”, and “blended finance” (DCD); infrastructure, resilience and policies, institutions and instruments for low-carbon transition”, “connectivity and green infrastructure in Central Asia”, and “investing in water at scale” (ENV); “effective infrastructure governance as a prerequisite for quality, sustainable infrastructure”, and “critical infrastructure risk management” (GOV); infrastructure investment as a source of jobs” (ELS); “infrastructure in developing economies” (DEV); “infrastructure and the subnational dimension” (CFE); “economic evaluation of actual returns on transport investment”, and “strategic infrastructure planning” (ITF); “anticorruption and infrastructure”, “blockchain and infrastructure”, “institutional investors investment data”, “quality investment indicators”, and “risk allocation and mitigation” (DAF).

• Data collection to construct indicators and benchmarks and perform related analysis.

• Assessment and implementation through infrastructure review of volunteer economies and related technical assistance, and assessment tools including a checklist, cost/benefits models and toolkits.

• A new OECD Strategic Centre on Infrastructure Policies to support exchanges between policy, business and research communities.

11. Through this project, and in line with the 2017 MCM mandate and recent expressions of interest by the Japanese government in its capacity as the 2019 G20 Presidency, the OECD will endeavour to deliver by 2019 a first set of integrated, multidisciplinary and international G20/OECD guidelines promoting quality infrastructure, building on cross-cutting OECD work, and developed within the overarching guidance provided by the G7 (Ise-Shima Principles), G20, APEC and OECD instruments. These guidelines, which would build on existing material (further evidence based surveys will be conducted later on to develop more detailed guidance), will provide further directions for governments that intend to develop quality infrastructure policies. The guidelines would be voluntary and reflect national circumstances and the specific development path of countries under the study. They will, in principle, cover the following interconnected issues (to an extent varying across the issues and with strategies, standardisation, definition, data, assessment, institutions (private, public) as cross-cutting elements):

• macroeconomic and tax issues (including competition)

• governance and integrity issues (public and corporate governance, responsible business conduct, anticorruption, public procurement, PPP)

• development (developing and emerging economies, SDGs)

• environment (including ESG, transition to low-emission, climate-resilient economies)

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• financing and risks (including risk mitigation and allocation, diversification, blended finance, MDB)

• employment and social issues (including housing)

• regional and local issues (including cities)

• resilience (including cybersecurity, disasters, terrorism risks)

• energy, transport, trade, communication, connectivity

• new technologies (including AI, blockchain)

• consumer protection

Governance Arrangements 12. The Committee on Financial Markets (CFM) will lead the project, with the operational support of the G20/OECD Task Force on Long-term Investment. The project will also involve contributions from the following Committees:

• The Competition Committee (CC)

• The Insurance and Private Pensions Committee (IPPC)

• The Investment Committee (IC)

• The Corporate Governance Committee (CGC)

• The Working Group on Bribery in International Business Transactions

• The Public Governance Committee (PGC)

• The Development Assistance Committee (DAC)

• The Regional Development Policy Committee (RDPC)

• The Economic Policy Committee (EPC)

• The Committee on Statistics and Statistical Policy (CSSP)

• The Governing Board of the OECD Development Centre (DEV GB)

• The External Relations Committee (ERC)

• The Environment Committee

13. Related Directorates have expressed a strong interest in participating in the project. Several Committees have committed relevant resources on infrastructure-related issues in their 2019-20 PWB proposals. Other Committees, OECD bodies and stakeholders (e.g., International Organisations) may further enrich the project with their work and would be very welcome to participate, in line with their respective work programmes.

14. The project will be coordinated by the Directorate for Financial and Enterprise Affairs (DAF), working closely with ECO, ENV, GOV, CFE, DCD, DEV, GRS, SDD, SGE, NEA, and ITF. Other Directorates will be kept informed about developments to determine the extent to which they can contribute.

15. The activities and deliverables of the project are expected to be funded by: Part I, II and VC financing and a CPF contribution.

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16. Several groups will be established to support and guide the project:

• A Steering Committee, comprising representatives of the core Committees and other bodies involved, to ensure substantive coherence and horizontality. The Steering Committee will be supported by the G20/OECD Task Force on Long-term Investment (open to OECD and G20 Members and including participants from most relevant International Organisations) and the OECD Inter-Directorate Group on Long-term Investment, an active working group of representatives from the various OECD Directorates/agencies involved. The Inter-Directorate Group will help coordinate the work within the OECD Secretariat, and also help develop a joint narrative and key cross-cutting components of the work.

• A Directors’ Group of the various OECD Directorates/agencies that support the core Committees. This group will provide guidance on the overall strategic direction of the project in co-operation with the Steering Committee.

• A small, independent Expert Advisory Group made up of leading academics, practitioners, and business and civil society leaders, to provide key analytical input into the project.

17. There will be regular communication on project implementation through the OECD Horizontal Project webpage. Regular events – such as conferences, workshops and presentations organised around one or more of the specific activities of the project – will be convened to both inform and consult with members and stakeholders. The Council will also be updated regularly on the project’s progress.

18. The Project Leader is Mr. Masamichi Kono, Deputy Secretary-General. Mr. André Laboul (DAF) is the Project Manager.

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Horizontal Project No. 3: Building an OECD Housing Strategy

Context 1. Housing markets influence overall economic performance and resilience: housing market bubbles are the root of many financial crises, and housing policies influence productivity through their impact on worker mobility. Further, housing developments affect environmental outcomes, including through interactions with urban land-use patterns and transport systems. Access to affordable housing is crucial for achieving diverse policy objectives, including poverty reduction, equality of opportunities and sustainable growth. Housing is a significant spending item in household budgets and one of the largest assets in household portfolios. It is thus a fundamental driver of the accumulation and distribution of wealth and debt within and across generations.

2. Governments intervene in housing markets to address market failures, pursue broader economic efficiency goals and promote affordable, quality housing for citizens. Housing markets are also a source of revenue for governments. Successful housing strategies cut across many policy areas, including social housing, land-use, urban planning, financial regulation, local public finance, welfare support, transport policies, housing standards, rental regulation and competition enforcement in related activities (e.g. construction, real estate). It is critical to assess housing policy frameworks in terms of their coherence across multiple policy dimensions and objectives — taking multi-stakeholder perspectives into account —rather than evaluating policy measures within separate silos.

Objectives and Expected Outcomes 3. This project seeks to develop a framework, indicators and a policy toolkit to help governments design and implement coherent housing strategies. These strategies will support greater resilience at the macro and micro levels (i.e. preventing excess leverage at the household level), the removal of policy-related obstacles to labour mobility, reductions in housing-related inequalities and enhancements in environmental quality.

4. The project will leverage household wealth surveys to measure the contribution of housing to gross and net wealth inequality between different socioeconomic groups – in this respect, it will feed into the OECD’s flagship work on Inclusive Growth. New indicators foreseen under the project include more granular, internationally comparable data on house prices, rents and land-use regulations, building on earlier OECD work. These indicators will enrich the housing dimension of the OECD Better Life Index.

5. A key expected output of the project is to bring together insights from OECD bodies and Directorates to enhance policy coherence across the many dimensions of housing challenges. The OECD has been building expert knowledge in key areas of housing, including the project on Housing and the Economy, the Affordable Housing Database, the project on Spatial Planning Instruments and the Environment (SPINE) and the work on the Governance of Land Use. This project will pull together, expand and cross-fertilise these contributions to deliver holistic, whole-of-government, actionable policy advice.

http://www.oecd.org/eco/growth/housing-and-the-economy.htm

http://www.oecd.org/social/affordable-housing-database.htm

http://www.oecd.org/social/affordable-housing-database.htm

http://www.oecd.org/env/tools-evaluation/spine-spatial-planning-instruments-and-the-environment.htm

http://www.oecd.org/gov/governance-of-land-use.htm

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Main Activities 6. The project will take a holistic approach to how policy can enhance housing outcomes. Avenues for policy action will be explored along the following lines:

• Housing, economic resilience and performance. A crash in a segment of the US housing market triggered the Global Financial Crisis, which in many countries was amplified by a housing bust. The combination of inelastic housing supply with the very elastic lending capacity of financial institutions and other frictions makes the housing sector particularly prone to boom and bust cycles. These characteristics of the housing market are often exacerbated by policy distortions. In a majority of countries, the tax treatment of housing, which is biased in favour of both home ownership and debt financing, is conducive to excessive mortgage borrowing and leverage. At the same time, regulations, including of land use, and other distortions (e.g. lack of competition in construction) that restrict the supply of housing, further contribute to fuelling house prices beyond levels that would be consistent with fundamentals and limiting access to housing. The project will scrutinise the evidence to identify multidimensional policy actions to achieve greater economic resilience and more affordable housing.

• Housing and inequality. Housing policies have distributional effects. In particular, they can influence inequalities of opportunity through access to jobs, schools and public services. They are therefore an important driver of social mobility within and across generations. There are multiple policy drivers of housing outcomes (e.g. housing-related taxation, as well as public cash and in-kind transfer systems through housing allowances and the availability of social housing; monetary policy and institutional features of credit markets; and the regulation of rental markets and of land-use). All of these drivers have implications for access to adequate housing and the distribution of wealth across households. The project will deliver an in-depth assessment of the extent to which housing shapes the distribution of wealth, not only from the perspective of asset accumulation but also, importantly, from that that of indebtedness across the distribution. The project will shed new light on the influence of housing on the joint distribution of income and wealth, with debt being one potential underlying bridge. It will investigate the role of home ownership, housing wealth, housing inheritance and housing debt in shaping the accumulation of wealth and its distribution. Policy implications will be drawn on finding an appropriate balance between the objectives of promoting affordable housing and access to homeownership and that of preventing the build-up of excess leverage, not least among low-income households.

• Housing, labour mobility and the modern job market. Policies magnifying the cost of moving, which range from high transaction taxes to non-transferable, or simply uneven access to preferentially priced housing, can trap workers in unemployment or low-productivity jobs. This poses an obstacle to the mobility of workers towards dynamic markets and, as a result, affects economic efficiency. The already high economic and human cost of such obstacles to mobility may rise in coming decades, as the transformation of labour markets increases the premium on mobility and adaptability.

• Housing is at the core of Sustainable Development Goals (SDGs) 11 and 13, and is also relevant for the Paris Agreement. Efficient, climate-compatible, and green housing policies are at the core of meaningful progress towards SDG 11 on

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sustainable cities and communities and SDG 13 on climate action. Policies such as quantitative restrictions, including on building height, urban growth boundaries and other types of zoning, can render housing less affordable and influence urban sprawl, with consequences for energy use and pollutant emissions. The OECD's integrated land use and transport model can be extended and tailored to shed light on these effects, contributing to the design of integrated housing strategies that fully incorporate the environmental dimension.

• Going local. Housing is intrinsically local. While some housing-relevant policies are set across the economy (such as mortgage regulation, a large part of housing-related taxation, some of housing regulation), many policy decisions that drive housing outcomes are set at the local level. A key example is land-use policy, which is overwhelmingly local, but varying extents of rental-market and housing-related taxation are also often under the control of local authorities. Existing evidence indicates that land-use regulations play an important role in driving house prices, especially in the most expensive cities. The project will increase knowledge on local drivers of housing outcomes so that OECD housing advice can mobilise local policy levers as part of integrated strategies across government levels. To support such analysis, sub-national housing-related indicators, in particular house price indices, need to be developed.

Governance Arrangements 7. The Economic Policy Committee (EPC) will lead the project, with key contributions from the following committees:

• The Committee on Statistics and Statistical Policy

• The Employment, Labour and Social Affairs Committee

• The Environment Policy Committee

• The Regional Development Policy Committee

The project will also involve coordination with:

• The Committee on Fiscal Affairs

• The Committee on Financial Markets

• The Network on Fiscal Relations across Levels of Government

8. The core Committees will commit significant financial resources to activities to the project in their 2019-20 PWB. Contributions by additional bodies (e.g. the International Transport Forum and the International Energy Agency) have the potential to enrich the work and would be welcome. The framework, indicators and toolkits emerging from the project will be developed and mainstreamed into core OECD economic advice, including Economic Surveys under the aegis of the Economic and Development Review Committee.

9. VC funding could fund valuable additional contributions. The local and inclusiveness dimensions of housing are particularly well suited to VC-funded activities.

10. The Economics Department (ECO) will coordinate the work within the Secretariat under the supervision of OSG, working closely with ELS, CFE, ENV, SDD and the Inclusive Growth Unit of SGE. Other directorates (particularly CTP, DAF and GOV) will be kept closely informed to determine the extent to which they can contribute.

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11. Groups will be established to guide and support the project:

• A Steering Committee comprising representatives of the core Committees to ensure horizontal leadership of the project.

• A Directors’ Group comprising Directors of the directorates serving the core Committees to supervise Secretariat work in fulfilment of the project.

• A Coordinators’ Group gathering Secretariat representatives of the Directorates serving the core Committees to implement the guidance of the Directors’ Group.

12. The Project Leader is the Chief Economist, Ms. Laurence Boone and the Project Manager is ECO’s Policy Studies Director, Mr. Luiz de Mello/Ms. Asa Johansson (ECO).

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ANNEX IV: 2008-2018 CONTRIBUTIONS BY MEMBER

Yearly impact of the MEUR 3.3

budget reduction

MEUR % MEUR % MEUR

Total 158.30 199.13 (3.32)

UNITED STATES 39.54 25.0% 40.74 20.5%JAPAN 25.34 16.0% 18.66 9.4% (0.44) GERMANY 14.46 9.1% 14.63 7.3% (0.33) UNITED KINGDOM 11.58 7.3% 10.80 5.4% (0.25) FRANCE 10.62 6.7% 10.05 5.0% (0.24) ITALY 8.72 5.5% 8.00 4.0% (0.18) CANADA 5.63 3.6% 6.96 3.5% (0.16) SPAIN 5.61 3.5% 5.80 2.9% (0.13) KOREA 3.82 2.4% 6.25 3.1% (0.14) AUSTRALIA 3.39 2.1% 5.94 3.0% (0.14) MEXICO 3.37 2.1% 5.37 2.7% (0.12) NETHERLANDS 3.29 2.1% 4.33 2.2% (0.10) SWITZERLAND 2.37 1.5% 4.20 2.1% (0.09) BELGIUM 2.22 1.4% 3.31 1.7% (0.07) SWEDEN 2.10 1.3% 3.28 1.6% (0.07) NORWAY 1.83 1.2% 3.16 1.6% (0.07) AUSTRIA 1.81 1.1% 2.99 1.5% (0.06) DENMARK 1.54 1.0% 2.75 1.4% (0.06) POLAND 1.51 1.0% 3.13 1.6% (0.06) TURKEY 1.46 0.9% 4.25 2.1% (0.10) GREECE 1.44 0.9% 2.33 1.2% (0.04) FINLAND 1.25 0.8% 2.50 1.3% (0.05) PORTUGAL 1.11 0.7% 2.33 1.2% (0.04) IRELAND 1.08 0.7% 2.44 1.2% (0.05) CZECH REPUBLIC 0.80 0.5% 2.28 1.1% (0.04) NEW ZEALAND 0.70 0.4% 2.28 1.1% (0.04) HUNGARY 0.68 0.4% 2.06 1.0% (0.04) SLOVAK REPUBLIC 0.42 0.3% 1.70 0.9% - LUXEMBOURG 0.34 0.2% 1.38 0.7% - ICELAND 0.27 0.2% 1.11 0.6% - CHILE 2.82 1.4% (0.05) ESTONIA 2.82 1.4% (0.03) ISRAEL 2.82 1.4% (0.05) LATVIA 2.82 1.4% (0.03) SLOVENIA 2.82 1.4% (0.03)

OECD MEMBERS CONTRIBUTIONS 2008

Contributions 2018

Contributions

PWB 2019-20: DRAFT BUDGET PARAMETERS - OECD

Documents

Transcript of PWB 2019-20: DRAFT BUDGET PARAMETERS - OECD