Mastercard: 2021 global economic outlook
“This year put us all to the test. We’ve become more distanced, more digital and more domestically focused. We made a dramatic digital leap forward, and saw incredible resilience from small business owners, consumers and policymakers looking to keep us on track. 2021 will not bring a light-switch return to life before COVID. With a vaccine in sight, we expect a gradual yet uneven recovery that highlights the benefits of embracing digital and low-touch experiences,” commented Bricklin Dwyer, Mastercard’s chief economist.
- ‘E-conomy’ is here to stay
With consumers and businesses turning to online methods to maintain their operations, Mastercard estimates in its report that globally, 20 to 30% of the peak in COVID related shifts to ecommerce will become permanent.
- Digital retail
With many local restaurants and shops closed, Mastercard reports that of new retail businesses created in the US since April weren’t brick and mortar retailers. “We believe this trend will continue, with more and more businesses opting for virtual storefronts to reach more customers while minimizing costs.”
- More time and money spent at home
In 2021 Mastercard expects to see people continue to invest in their homes, with the to benefit around the world. “In many Western countries consumers have shifted living and working away from central business districts, which will have a lasting effect on cities. In the UK, for example, we have seen house prices hit a four-year high outside of London,” noted Mastercard.
- Limited travel drives domestic resurgence
For those that are dependent on travel, the pandemic has been particularly disruptive. However with these disruptions persisting, Mastercard has experienced an emerging benefit for markets that tend to have tourism deficits such as China, the UK and Singapore. “For China, 1.7% of GDP is typically spent on tourism in other countries; bringing that travel spending back home stands to lift economic growth substantially,” commented .
- Uneven recovery
“The pandemic has created a multi-speed global recovery that favors high-income consumers over low and has created a significant job divide for minorities, women and younger workers,” states , who reported that 38 countries in the Organisation for Economic Cooperation and Development, employment is down 6.3% for women and 5.2% for men. Overall, 24 countries have a bigger decline in employment for women.
“Meanwhile, rising prices for housing and stocks have exacerbated income disparities. Government and central-bank stimulus policies that steered economies away from worst-case scenarios are ending, but targeted intervention will likely be necessary to aid those hardest hit,” added Mastercard.
- Government debt increase and consumer savings
“The 2020 fiscal stimulus programs dwarfed those from the 2008 financial crisis, with the U.S. Federal Reserve’s balance sheet growing as much in six months as over the prior 12 years,” explained Mastercard in the report, who added that even emerging markets have injected money into their struggling economies. Currently consumers are shifting to saving mode and carrying less debt compared to previous years.
“This year has put us all to the test. We made a dramatic digital leap forward. We have seen incredible resilience from small business owners, consumers and policymakers looking to keep us on course. We have also seen an increase in social unrest around the world, often tied to local unemployment. Risks —from COVID lockdowns to climate change — put social inequities in stark focus. With a vaccine in sight, we will be able to rebuild the connections lost this past year and forge a more resilient future — one that allows for inclusive, sustainable growth that benefits all individuals and businesses alike,” concluded .
Six issues at the top of tax and finance leaders’ agenda
New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.
According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.
And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.
Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.
Trend 1: Businesses seek more strategic counsel from tax
Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.
According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”
Trend 2: Tipping point for resourcing models
Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.
Trend 3: Digital tax administration is moving faster than expected
in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.
"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."
Trend 4: Data simplification and lower-cost resourcing are top priorities
Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.
At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”
Trend 5: Skillsets are shifting
Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.
Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact
Trend 6: 2020 brought productivity improvements
Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.