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DEVELOPMENT: A Fat Cat Tax for Lean Times

Aprille Muscara

UNITED NATIONS, Sep 20 2010 (IPS) - As world leaders convened Monday for the first day of a summit dedicated to resuscitate efforts to achieve the Millennium Development Goals (MDGs), the question of how to finance countries’ acceleration efforts looms large.

“We all know too well that the recent financial and economic crisis has been a major setback, putting the MDGs beyond the reach of some countries by 2015,” said Supachai Panitchpakdi, head of the U.N. Conference on Trade and Development, in his summit address.

Member states have but five years left before the MDG deadline to slash poverty and improve education, health and environmental sustainability.

Robert Zoellick, president of the World Bank, announced a 750-million-dollar boost for basic education Monday, while French President Nicolas Sarkozy pledged 1.4 billion dollars to the Global Fund to Fight AIDS, Tuberculosis and Malaria. And in his State of the Union speech earlier this month, European Commission president Jose Barosso said he would seek some 1.3 billion dollars of aid for the MDGs.

“This is a welcome step, but a drop in the ocean in terms of what is needed,” said Emma Seery, a spokesperson for Oxfam International.

A U.N. report released last week by the MDG Gap Task Force revealed immense deficits between Official Development Assistance (ODA) promised by donor countries and money actually delivered. This year alone, 20 billion dollars is missing, and to reach the targets set for 2015, an additional 175 billion dollars is needed over the next five years.

“We all can understand that the crisis makes it more difficult, but it’s absolutely unacceptable that when countries have to streamline their expenditures for fiscal reasons, they start with cutting development aid,” said International Monetary Fund head Dominique Strauss-Kahn after his summit speech.

For its efforts, the Global Fund to Fight AIDS, Tuberculosis and Malaria has said it needs anywhere between 13 to 20 billion dollars for the coming three years. A high-level meeting to replenish the fund is scheduled for Oct. 5 and will be chaired by U.N. Secretary-General Ban Ki-moon.

Given this period of budgetary constraints, “Obviously, this is a very challenging replenishment,” executive director of the Global Fund Michel Kazatchkine told IPS. “We’re ready to do more but we’re not ready to do more without resources.”

With assistance largely lagging – only five countries have achieved or exceeded their promise to allocate 0.7 percent of their Gross National Income (GNI) to development aid – governments are pursuing alternative strategies for financing MDG efforts.

An area deemed promising is taxes. One approach calls for countries to capitalise on their own resources by bolstering their tax systems – improving tax collection and combating tax evasion. Another entails implementing a 0.005 percent tax on financial transactions, which experts say has the potential to raise thirty billion dollars annually.

In their summit speeches today, Sarkozy and Spanish President Jose Luis Zapatero endorsed the use of a transaction tax to fund development efforts. And on Tuesday, Japan, France and Belgium will lead a high-level meeting to promote the subject. But while endorsed by much of the G20, the United States and Canada oppose such a tax, questioning its feasibility.

Summit leaders also stressed the importance of a “pro- development” trading environment to ease the path to 2015.

“For developing countries, it’s absolutely important for the [global financial] system to improve because they still depend much more on their poverty reduction… on trade,” Pascal Lamy, head of the World Trade Organisation, said at a press conference.

The good news, Lamy said, is that the increase in the volume of global trade is expected to reach 13.5 percent this year, compared to a nine percent drop in volume last year.

Whatever the approach, it remains apparent that for the MDGs to be achieved in five years, both international donors and recipient countries themselves need to step up their development financing efforts.

“If the funding is there, there is a clear opportunity for major victories by 2015,” Kazatchkine told IPS.