By Amitabh Mukhopadhyay
NEW DELHI, Sep 9 2015 (IPS)

After forming governments, authorising them to tax us and to spend on our collective needs, do we remain watchful about our money? No, we don’t. Not even when we know governments borrow from money markets on the strength of the tax fund created, often beyond our means to repay. Why?

Because we get little information on budget formulation, approval and implementation, governments keep them under a veil of secrecy. A government budget is a major macroeconomic intervention in the ever-widening circulation of goods, services, technologies and money in the economy.Public finances can become more buoyant if the confidence of taxpayers and donors in the efficiency and effectiveness of government spending is raised.

Sensitiveness of various sections of public opinion to what and who is taxed along with for whom benefits accrue from the spending matters to governments. While the rich and powerful are consulted by government and even get privileged ‘leaks’ on the coming budget facilitating their jostling and huckstering to get maximum tax concessions from it, commoners are left to chew on its bare bones.

The Open Budget Partnership (OBP) of NGOs across 102 countries has started making a difference to this Kafkaesque scenario. Advocacy efforts of OBP to enable participation of people in the budget process accented a demand for transparency. The partnership helped to survey budgetary practices of these countries biennially since 2006.

The Open Budget Survey 2015 released this week tells us that though the situation has improved, there are still large gaps in the amount of budget information that governments are sharing. The average OB Index score of the 102 countries surveyed in 2015 is 45 out of 100.

A large majority of the countries assessed — 78 countries, in which 68 percent of the world’s population live — provide insufficient budget information. These have OBI scores ranging from 40 to 60. Interestingly, the Survey says the hydrocarbon revenue-dependent countries (those with scores of 40 or below) performed the worst, though they have higher average incomes than the countries with scores between 40 and 60.

The good news is that increases in budget transparency have been especially robust among some of the countries that provided the least budget information in the past. A significant number of countries have seen dramatic improvements, occasioned by pressure from both inside and outside the country.

The Survey, 2015 also captures the strength of the two formal oversight institutions, the legislature and the supreme audit institution. The results indicate that legislatures of only 36 countries have adequate strength to execute their responsibilities. In the remaining 66 countries, they do not.

This is because these legislatures are either not provided with enough time to review the budget proposal before it has to be passed or, like in 55 countries in the Survey, the legislatures lack the expertise to help them analyse budgets in quick-time. Worse still, in a majority of the 102 countries, after the budget is passed, legislative oversight can be easily skirted by various stratagems of the executive branch.

Apparently, as many as 43 countries, supreme audit institutions tasked to audit government revenues and expenditure are unable to perform their functions adequately due to lack of resources. What is deplorable, however, is that in most countries, the quality assurance systems for supreme audit institution reports fail to exist or are deficient.

In short, we simply can’t rest assured that robust oversight procedures are in place and we needn’t bother personally. The degree to which opportunities for public participation in the budget process are present in different countries varies widely.

Among the countries surveyed in 2015, the average score for participation is an abysmal 25 out of 100. Only 19 out of 102 countries allow the public to testify in both of the two key hearings — one, on the macroeconomic framework of the budget and the second on the individual budgets of administrative units, such as health and education.

Financing the ambitious sustainable development goals which the United Nations will shortly adopt will not be easy. Most observers are sceptical about generating much required additional money from the private sector, through tax reforms, and through a crackdown on illicit financial flows and corruption. Woefully inadequate national budgets and aid would most likely remain the mainstay for implementing the SDGs.

Public finances can become more buoyant if the confidence of taxpayers and donors in the efficiency and effectiveness of government spending is raised. There’s overwhelming evidence from many countries that public participation in the national budget processes makes a difference.

We require governments to create spaces for public participation. Mutually reinforcing engagement of a wide range of actors can build the political will for them to do so. That’s why you and I must step in.

Edited by Kitty Stapp

Excerpt:

Jomo Kwame Sundaram. Credit: FAO

By Jomo Kwame Sundaram
ROME, Sep 8 2015 (IPS)

Recent years have seen a remarkable resurgence of interest in economic inequality, thanks primarily to growing recognition of some of its economic, social, cultural and political consequences in the wake of Western economic stagnation.

The unexpectedly enthusiastic reception for last year’s publication of Thomas Piketty’s “Capital in the Twenty-First Century” underscores this sea change.New thinking on social protection recognises that most of the poor and vulnerable in developing countries are outside the formal economy, with almost four-fifths of the poor living in the countryside.

Piketty has correctly renewed attention to the connections between the functional and household/individual distributions of income as well as to wealth inequality. Clearly, the distribution of wealth (capital, real property) is the major determinant of the functional distribution of income.

And by textbook economics’ definition, profit maximisation involves capturing economic rents of some kind – from finance, monopolistic intellectual property rights (IPRs), ‘competitive advantage’, producer surplus, etc., presumably thanks to successful rent-seeking, by influencing legislation, regulation, public policy, public opinion and consumer preferences.

As is understandable and the norm, Piketty’s focus is on inequality at the national level, rather than at the global level. But Branko Milanovic and others have shown that about two-thirds of overall world interpersonal or inter-household inequality is accounted for by inter-country inequality, with the remaining third due to what may be termed class and other intra-national inequalities.

International inequality

There are many competing explanations for international inequalities. Historical differences in capital accumulation, including public investments, and productivity are commonly invoked to explain different economic capacities, capabilities and incomes.

But frequently unsustainable foreign investments also lead to significant net outflows, greatly diminishing the net benefits from additional economic capacities. Financial flows to the settler colonies from the late 19th century were exceptional in this regard. Generally, a small share of foreign direct investment actually enhances economic capacities, instead mainly contributing to acquisitions and mergers.

Financial globalisation in recent decades, especially capital market flows, have not ensured sustained net flows from capital-rich to capital-poor economies, but has instead worsened financial volatility and instability, increasing the frequency of crises with traumatic effects for the real economy, and growth sustainability.

Contrary to the conventional wisdom that international trade lifts all boats, it has generally favoured the richer countries at the expense of their poorer counterparts. For well over a century, except during some notable periods and some rare minerals more recently, the prices of primary commodities have declined against manufactures.

This has been especially true of tropical agriculture compared to temperate products, as productivity gains have accrued to consumers more than to producers. In recent decades, cut-throat competition has meant a similar fate for developing country manufactured exports compared to the large marketing margins of manufactures from developed economies.

Social protection

As the deadline for the Millennium Development Goals approaches, the call to address inequality as a crucial challenge for development has emerged as an issue to be addressed in the post-2015 development framework.

Inequality gradually came back into development debates after the United Nations, the World Bank and the IMF focused flagship publications on this issue a decade ago, with the publication of the UN 2005 Report on the World Social Situation entitled The Inequality Predicament, the World Development Report 2006, and the 2007 World Economic Outlook on Globalization and Inequality.

The ongoing effects of the global financial and economic crisis since 2008 have reinforced recognition that inequality has been slowing not only human development, but also economic recovery. But this has not led to any fundamental change in economic policy thinking or a major commitment to redress inequality at the global or even national level, except perhaps by improving taxation.

Instead, it has led to a consensus to establish a global social protection floor, recognising not only that poverty and hunger in the world will not be eliminated by more of the same economic policies, especially with the currently dim prospects for sustained economic and employment recovery and growth.

Historically, the welfare state emerged in developed countries to address deprivations in the formal economy – retirees, retrenched workers, military veterans and mothers among others. Social protection and other fiscal interventions do not fundamentally challenge wealth or income distribution, and current thinking is mindful of the potentially unsustainable burden of a welfare state.

New thinking on social protection recognises that most of the poor and vulnerable in developing countries are outside the formal economy, with almost four-fifths of the poor living in the countryside. The new interventions thus seek to accelerate the transition from protection to production, for greater resilience and self-reliance.

Edited by Kitty Stapp

Excerpt:

Jomo Kwame Sundaram. Credit: FAO

By Jomo Kwame Sundaram
ROME, Aug 5 2015 (IPS)

The Addis Ababa Action Agenda is widely seen as a major disappointment for developing countries as well as others hoping for adequate means of implementation to realise national development ambitions and the Sustainable Development Goals (SDGs).

It has become clear that the South, including the least developed countries, should not expect any serious progress to the almost half century old commitment to transfer 0.7 percent of developed countries’ economic output to developing countries. But to add insult to injury, developing countries cannot expect to participate meaningfully in inter-governmental discussions to enhance overall as well as national tax capacities.In the vast majority of countries in sub-Saharan Africa and Latin America, the tax to GDP ratio has actually stagnated or declined as tariffs and export duties, which accounted for the largest share of tax revenue, declined with trade liberalisation.

While OECD countries agree that taxation is the only viable strategy for developing countries to exit foreign aid dependency in the long run, they have refused to accede to the latter’s desire for a full-fledged inter-governmental body for international tax cooperation under United Nations auspices.

The ability to pursue development policies depends crucially on available fiscal space, which relies mostly on domestic revenues, especially taxes. However, tax revenues in most low- and lower middle-income developing countries are low.

The average tax-GDP ratios in low-income and lower-middle income countries are around 15 and 19 per cent respectively, compared to over 30 percent in high income countries.

Low- and lower-middle-income countries should take steps to increase their revenues; but the main approach in recent decades has been to increase tax rates only if unavoidable. It was presumed that lower rates would ensure better compliance with tax laws, and thus raise revenue.

The prevailing tax wisdom also favoured broadening the tax base, even when taxation capacities are modest. Thus, indirect taxation has tended to increase while direct taxation of corporations and individuals has tended to decline. The latter was supposed to be good for investment and growth although the empirical support for this presumption is dubious.

In the vast majority of countries in sub-Saharan Africa and Latin America, the tax to GDP ratio has actually stagnated or declined as tariffs and export duties, which accounted for the largest share of tax revenue, declined with trade liberalization. Unfortunately, other taxes have not grown to compensate for the lower trade taxes.

There is an urgent need to reverse this trend, with greater commitment to revenue generation in order to improve social protection, create employment and otherwise contribute to sustained economic recovery.

With their different economic circumstances, it does not make sense for developing countries to simply try to emulate developed economies in trying to generate revenue. Even among developing countries, no one size fits all.

And certainly not for all time, as tax systems must evolve with changing economic circumstances. A key question is: which taxes are most likely to meet the requirements of implementability, buoyancy and stability?

Domestic Taxes: Direct or Indirect?

The revenue to GDP ratio can rise in the following ways: the domestic tax base is widened; tax avoidance and evasion are reduced; and new sources of international taxation are found.

There is no reason to be overly pessimistic about direct taxation as tax reform has significantly improved the contribution of direct taxes to overall revenue in many countries. It is certainly possible to enhance tax revenues by increasing the share of direct taxation of the wealthy through more progressive income taxes in developing countries.

However, there should also be a greater effort to ensure better compliance with, and higher collection of existing taxes.

Limiting the discretionary authority of tax officials could also help improve compliance and reduce evasion. Computerisation of tax administration can help limit corruption, as it makes it harder to tamper with records. But government computerisation alone cannot ensure effective introduction of the much-touted value-added tax (VAT), an indirect tax largely responsible for facilitating the shift from direct to indirect taxation.

Improved tax administration can increase the share of personal income taxes in total tax revenue. Expansion of the scope for tax deduction at source has been very effective in taxing those otherwise hard to reach.

Every individual who is a house owner, vehicle owner, club member, credit card holder, passport, driving licence or identity card holder and telephone subscriber can be required to file a tax return.

Excise taxes are another important source of revenue in developing countries as they have a buoyant base and can be administered at low cost. They are typically levied on products such as alcohol, tobacco, petroleum, vehicles and spare parts.

From a revenue perspective, they are convenient, involving few producers, large sales volumes, relatively inelastic demand and easy observability.

Excises may be levied on quantities leaving the factory or arriving at ports, thus simplifying measurement and collection, ensuring coverage, limiting evasion and improving monitoring. Excise taxes currently amount to less than 2 per cent of GDP in low-income countries, compared to about 3 per cent in high-income countries.

Globalisation and Tax Evasion

Revenue losses due to globalisation need to be addressed. There are three main reasons for revenue losses: first, capital movements increase opportunities for tax evasion because of the limited capacity that any tax authority has to check the overseas incomes of its residents; evasion is easier as some governments and financial institutions systematically conceal relevant information.

Where dividends, interest, royalties, and management fees are not taxed in the country in which they are paid, they more easily escape notice in the countries where the beneficiaries live. There have been large non-resident aliens’ bank deposits in some countries like the U.S. that imposes no taxes on interest from such deposits.

Second, avoidance (not evasion) may increase, given international differences in tax rules and rates, because of the choice of tax regime that international-tax-treatment of enterprise income commonly offers. This is more likely for taxation of profits from corporations’ international operations.

Transfer pricing for goods, services and resources – moving among branches or subsidiaries of a company – provides opportunities for shifting income to minimise tax liability.

Third, international competition for inward foreign direct investment has lead governments to reduce tax rates and increase concessions to foreign investors. The tax rates that governments can impose are thus constrained by international competition.

Hence, they are reluctant to raise rates or to tax dividend and interest income for fear of capital flight although it is well known that direct tax concessions have little effect in diverting international investment, let alone in attracting such flows. Hence, such tax concessions constitute an unnecessary loss of revenue.

Not surprisingly, income tax rates, both on corporations and on individuals, have fallen sharply since the 1980s. Beggar-thy-neighbour policies have led to losses of revenue for many developing countries in a larger race-to-the-bottom also involving labour and environmental standards and conditions, which also undermines the possibility of balanced, inclusive and sustainable development.

Finance ministries and tax authorities in developing countries need to cooperate among themselves and with their counterparts in the OECD economies to learn from one another and to close existing loopholes in their mutual interest. With the huge and growing size of public debts as well as the real and imagined fiscal constraints to sustained global economic recovery, such cooperation is more urgent than ever.

Edited by Kitty Stapp

Excerpt:

By Soren Ambrose
NEW YORK, Jul 27 2015 (IPS)

The final round of negotiations on the Sustainable Development Goals – the successor to the Millennium Development Goals, due to be inaugurated in September at the U.N. General Assembly – is now underway in New York.

Courtesy of Soren Ambrose/ActionAid

The United Nations and many member governments want to conclude the debates by the end of July, so that there will not be open debate during the SDG Summit. But reports indicate that the atmosphere in the room is one of seething distrust.

That’s because of what happened during the Financing for Development (FfD) conference in Addis Ababa, Ethiopia last month.

The developing countries – those grouped together in the “G77,” which 50 years after its founding actually has 134 members – were pushing a proposal for a universal intergovernmental organisation, within the U.N., which would have as its mandate reform and maintenance of the international tax system.

While this proposal would not have immediately remedied any of the myriad ways that corporations dodge taxes in developing countries, it would be a decisive change to the system that has allowed such activities to flourish.

To the extent that there are international rules, or standards and guidelines, on taxation now, they are proposed and elaborated by the Organization for Economic Cooperation & Development (OECD), a club of 34 of the world’s richest countries. Every once in a while they make a show of consulting those other 134 countries, but those others never actually get a vote.Ultimately it’s the pressure of the people which will force their governments to be responsible. The movement to stand up to those who have hijacked our power is building.

In the new proposed way of making decisions on international tax rules, every country would have an equal voice and equal vote. This fight matters is because developing countries are confronting the need to change how the rules are made, and who makes the rules.

Until they manage that, they will always, at best, be running to stay in place. Changing who makes the rules is a necessary, although not sufficient condition, for creating permanent change.

Taxation is vital because wealthy companies and individuals get and stay rich by using a portion of their considerable resources to hire lawyers and accountants to guide them in dodging the taxes they should be paying in the countries where they excavate, grow, or purchase their raw materials, assemble their products, and make an increasing proportion of their sales.

If they don’t have such staff in-house, they can hire the services of big accounting firms for whom this is the most lucrative activity.

Most big companies manipulate “tax treaties” between countries and tax havens like Switzerland, Mauritius, and the Cayman Islands to create legal fictions that exempt them from paying most of the taxes they owe.

What they do is usually not technically illegal, because of the impossibility of keeping up with the tactics of the armies of experts dedicated to avoiding taxes. But neither is it quite ethical.

This deprives countries of the revenue – to the tune of at least 100 billion dollars every year – that they need to fund development, and ensures the perpetuation of the concentration of wealth in the hands of a very few. That wealth translates to power – a veritable global plutocracy.

The OECD, to be fair, has made some moves to clamp down on the most egregious forms of tax avoidance, including their “base erosion and profit shifting” (BEPS) process begun in 2013.

The corporate lawyers and accountants were a little nervous about BEPS, but with the process winding up, it appears that any reforms it demands will not be manageable. The promises at the outset of the process to include developing countries never amounted to much.

The FfD process in the U.N. was, of course, universal. The U.N. and national governments usually like to have the “outcome document” finalised before a summit meeting. The prospect of a messy negotiation with thousands of advocates just outside the door makes them nervous.

But after months of negotiations in New York and a series of missed deadlines, the big debate over the tax body was not resolved. The ministers would go to Addis facing open negotiations.

Bolstered by the support of hundreds of civil society groups, the G77 governments – a group that has to accommodate the interests of very disparate countries – held together. Three BRICS countries – South Africa as the chair of the G77, along with India and Brazil – were vocal actors on the side of the developing countries, something they can’t always be relied on to do as they ascend the global power ladder.

With negotiators starting to meet before the formal start of the meetings on July 13, there were several days filled with ever-shifting rumours. But on the evening of July 15, the eve of the scheduled end of the conference, the announcement came: there would be an outcome document little changed from the unsatisfactory draft they brought from New York.

Promises were made to expand the resources and prestige of the existing U.N. Committee of Tax Experts, but nothing more. No universal membership, and no mandate for reform.

The G77 held out to the end. But the rich countries, led by the United States with the steady support of the European Union, Canada, Japan, and Australia, refused to give up the regime of loopholes and havens and double-dealing that adds up to billions in lost revenue every year.

Make no mistake, ordinary people in rich countries also lose out as corporations dodge taxes. But with their territories serving as the leading facilitators of tax avoidance in the world, their governments showed they want the present system to endure.

The current global hyper-capitalism now puts no constraints on capital. Unlimited profits, unlimited wealth, and unlimited power have been accruing to the finance industry and the wealthy corporations and individuals it serves for over 40 years.

The rich countries’ politicians not only put up with it, they tout the “private sector” as the panacea for development in poor countries, with nearly no evidence to support them.

And at home, they cut public services and impose austerity, explaining that government just can’t afford to serve the people. Their priority has been corporations’ and investors’ bottomless appetite for profit and power.

As my colleague Ben Phillips has written about the FfD, it’s actually good news that the rich countries had to put an ugly stop to the negotiations, with barely a face-saving compromise to point to. Usually they manage to find a way to assign the blame to someone else.

Forcing them to show their hand is valuable; it’s clear that those making the rules are far more identified with a powerful few than with the public they claim to serve.

The next step is at the SDG Summit at the end of September, at the time of the annual U.N. General Assembly meetings. There we will learn whether and to what extent the developing countries will stand up to those who have monopolised power for so long. If they do, we may be on the road to reversing parts of the system that perpetuates the status quo.

Whatever happens, we aren’t going anywhere. Civil Society won’t change this global dynamic by attending these conferences, or through polite lobbying. We will have to endure many more meetings, and more setbacks.

But ultimately it’s the pressure of the people which will force their governments to be responsible. The movement to stand up to those who have hijacked our power is building.

Edited by Kitty Stapp

Excerpt:

Bhumika Muchhala of Third World Network. Credit: UN Photo/Paulo Filgueiras

By Bhumika Muchhala
ADDIS ABABA, Jul 22 2015 (IPS)

The third Financing for Development (FfD) conference in Addis Ababa concluded last Thursday, July 16, in bad faith as developed countries rejected a proposal for a global tax body and dismissed developing countries’ compromise proposal to strengthen the existing U.N. committee of tax experts.

Usually, when large conferences end after conflicts and climax in intergovernmental negotiations, there is a sense of exhilaration. This did not happen in Addis Ababa.The hallmark failure of the 3rd FfD conference is the missed opportunity to create an intergovernmental tax body, despite the persistent push into the 11th hour by a critical mass of developed countries led by India and Brazil.

Instead, there was deep disappointment amidst developing countries and many U.N. staff and outrage amidst civil society who had been following the FfD process over the last year. But among developed countries, there was relief, at best, or complacency, at worst. As the representative of Japan said in the final plenary, many developed countries, including Japan felt a sense of relief.

As the civil society coalition on FfD stated in its reaction to the outcome document, a fundamental opportunity was lost to tackle structural injustices in the current global economic system and ensure that development finance is people-centred and protects the environment.

Not only does the Addis Ababa outcome not rise to the world’s multiple crises, including finance, climate and distribution, it lacks the necessary ambition, leadership and actions to be associated with the post-2015 development agenda.

Indeed, the outcome is wholly inadequate to support the operational Means of Implementation (MOI) for the Sustainable Development Goals (SDGs), and exposes an unbridged gap between the rhetoric of aspirations in the post-2015 development agenda and the reality of the void of actions in the Addis Ababa outcome, which does not commit to new financial resources let alone scaling up existing resources.

In light of the agreements in the Monterrey Consensus and the Doha Declaration (in the first and second FfD conferences), the Addis Ababa Action Agenda displays a retrogression from the past, which undermines the FfD mandate to address international systemic issues in macroeconomic, financial, trade, tax and monetary policies.

The hallmark failure of the 3rd FfD conference is the missed opportunity to create an intergovernmental tax body, despite the persistent push into the 11th hour by a critical mass of developed countries led by India and Brazil.

Such a global tax body, that would enable the U.N. to have a norm-setting role in tax cooperation at an equal capacity to that of the current monopoly of the OECD, would have been a meaningful advancement in global economic governance and domestic resource mobilisation.

The intransigence of developed countries against such a key step demonstrated their unwillingness to democratise global economic governance and their disregard for FfD and U.N. standards of “good governance at all levels” and “rule of law.”

The core argument of developing countries is that given the reality that they are most affected by illicit financial flows, tax evasion and avoidance and transfer mis-pricing by large corporations, they should have an equal say at an international negotiation table on tax rules.

Given the glaring absence of new financial commitments, let alone the assurance of new and additional financial resources for climate and biodiversity finance, the majority of funds needed to finance the SDGs will come out of domestic budgets.

However, ample research shows how hundreds of billions of dollars are extracted out of the corporate tax purse of developing countries, particularly in the resource-rich African continent.

This is due to the very loopholes and tricks in the international tax architecture that is defined and dominated by the OECD. A global tax body could have shifted this power imbalance and delivered some fairness to global political economic structures.

The Addis Ababa outcome legitimises the predominance of private finance through blended finance and public-private partnerships (PPPs). This is problematic precisely because it is unattached to accountability measures or binding commitments based on international human and labour rights, and environmental standards.

A fast-growing body of evidence substantiates global concern over an unconditional support for PPPs and blended financing instruments. Without a parallel recognition of the developmental role of the state and robust safeguards to enable the state to regulate in the public interest, there is a great risk that the private sector undermines rather than supports sustainable development.

The Addis outcome’s blind trust in PPPs and blended finance is premised on the notion that such arrangements will lower the risk for private investment. The outcome makes no mention of the critical importance of inclusive and sustainable industrial development for developing countries, for the objectives of supporting economic diversification, adding value to raw materials and ascending the value chain, improving economic productivity and developing modern and appropriate technologies.

Civil society had hoped that being in Addis Ababa governments would remind themselves of the African Union’s Agenda 2063 based on shared prosperity through social and economic transformation.

Similarly, there is no critical assessment of trade regimes. Instead of safeguarding policy space, the Addis outcome fails to critically assess international trade policy in order to provide alternative paths to commodity-dependence, eliminate or at least review investor-state dispute settlement clauses, and undertake human rights impact and sustainability assessments of all trade agreements to ensure their alignment with the national and extraterritorial obligations of governments.

Furthermore, the additional steps to address gender equality and women’s empowerment seem to speak more to “Gender Equality as Smart Economics” than to women and girls’ entitlement to human rights and show a strong tendency towards the instrumentalisation of women by stating that women’s empowerment is vital to enhance economic growth and productivity.

The core competencies of FfD are comprised of international systemic issues such as capital flows, external debt, trade, financialisation and the monetary system.

The ability of the U.N. to address systemic issues is routinely challenged by developed countries who argue that these issues are outside the domain of the U.N.

Power and control over systemic issues and reforms are thus kept exclusively in the rich countries’ domain of the Bretton Woods Institutions (the IMF and World Bank), the G7 and the G20.

However, not only does the U.N. have a longstanding history in substantively analysing and proposing reforms on systemic issues, it is also the only universal forum where all countries, from the smallest island nation to the poorest landlocked country, have a voice and a vote in the General Assembly.

Part Two can be read here.

Edited by Kitty Stapp

Excerpt:

Secretary-General Ban Ki-moon (left) addresses a press conference before departing from Addis Ababa, after attending the Third International Conference on Financing for Development. At his side is Wu Hongbo, UN Under-Secretary-General for Economic and Social Affairs. Credit: UN Photo/Eskinder Debebe

By Thalif Deen
UNITED NATIONS/ADDIS ABABA, Jul 15 2015 (IPS)

Despite high expectations, the third International Conference on Financing for Development (FfD) ended on a predictable note: the United Nations proclaimed it a roaring success while most civil society organisations (CSOs) expressed scepticism over the final outcome.

Hours after the conclusion of the conference in the Ethiopian capital, the United Nations trumpeted the Addis Ababa Action Agenda (AAAA) as a “ground-breaking agreement that provides a foundation for implementing the global sustainable development agenda that world leaders are expected to adopt this September.”“The outcome will not deliver the reforms we need in areas like tax, that most in civil society had hoped for and, that are needed to increase the resources available for development." -- Dr. Danny Sriskandarajah

U.N. Secretary-General Ban Ki-moon sounded optimistic when he said the agreement was a critical step forward in building a sustainable future for all since it provides a global framework for financing sustainable development.

He added, “The results here in Addis Ababa give us the foundation of a revitalized global partnership for sustainable development that will leave no one behind.”

But Dr. Danny Sriskandarajah, Secretary-General of the Johannesburg-based CIVICUS, was blunt: “This week we saw a further sign that we are at the beginning of the end of the post-World War II (WWII) development world order.”

Rich countries seem unable or unwilling to increase official aid flows, which stand at a fraction of what they themselves promised years ago, he said.

“We are disappointed that the FfD process has not yielded new resources to fund the investments needed to end poverty or taken meaningful steps to address problems in the international financial system,” he said at the conclusion of the conference Wednesday.

He added: “The outcome will not deliver the reforms we need in areas like tax, that most in civil society had hoped for and, that are needed to increase the resources available for development.”

Asked about the failed proposal for the creation of a global tax body, ActionAid’s international tax power campaign manager, Martin Hojsik, told IPS: “The decision is an appalling failure and a great blow to the fight against poverty and injustice.”

He said it means that developing countries, which are losing billions of dollars a year to tax dodging, are not being given an equal say in fixing unjust global tax rules.

“This lost money could have gone to the provision of education, healthcare and other poverty-reducing public services. While the multinationals prosper, the poor and marginalised will suffer,” he said. “The fight for a fair global tax system should not and cannot falter.”

In a statement released here, Oxfam International said unresolved rigged tax rules and privatised development are the major drawbacks of the FfD outcome.

However, after such tense negotiations there can be no doubt that developing countries’ determination to call for true global tax reform and tax cooperation has been noted, and cannot go unheeded for long.

Oxfam International Executive Director Winnie Byanyima said: “Today, one in seven people live in poverty and Addis was a once in a decade chance to find the resources needed to end this scandal. But the Addis Action Agenda has allowed aid commitments to dry up, and has merely handed over development to the private sector without adequate safeguards.”

She said developing countries held firm in Addis on the need to set up an intergovernmental tax body that would give them an equal say in how the global rules on taxation are designed.

“Instead they are returning home with a weak compromise meaning rigged rules and tax avoidance will continue to rob the world’s poorest people.”

Byanyima said fair taxation is vital in the fight against poverty and inequality.

“Citizens must be able to depend on their own governments to deliver the services they need. But it is just not logical to ask developing countries to raise more of their own resources without also reforming the global tax system that prevents them doing this,” she added.

Eric LeCompte, executive director of the Jubilee USA Network, told IPS “while compromised language on a tax committee was reached, we have the first global agreement that notes the harm of illicit financial flows and calls to stop them by 2030.”

Right now the developing world is losing a trillion dollars a year to corruption and tax evasion, he said, pointing out, “those are resources we need to end poverty.”

In a joint statement released late Wednesday, Global Financial Integrity (GFI), the Africa Progress Panel (APP) and Jubilee USA applauded the global commitment to reduce the massive flow of illicit funds from developing country economies.

For the first time international consensus was reached on the importance of an issue that has been at the forefront of efforts by hundreds of research and development organisations for the last 10 years.

Specifically, the FfD3 Outcome Document requires member states to “redouble efforts to substantially reduce illicit financial flows (IFFs) by 2030, with a view to eventually eliminate them, including by combatting tax evasion and corruption through strengthened national regulation and increased international cooperation.”

Additionally, the final text calls on “appropriate international institutions and regional organizations to publish estimates of IFF volume and composition”

The statement said the ability to measure illicit flows was at the heart of significant disagreement during the FfD3 preparatory negotiations in New York earlier this year with the 132-member Group of 77 developing countries calling for country-level estimates of illicit flow volumes.

In its statement, the United Nations said the Addis Ababa Action Agenda contains more than 100 concrete measures.

It also addresses all sources of finance, and covers cooperation on a range of issues including technology, science, innovation, trade and capacity building.

The Action Agenda builds on the outcomes of two previous Financing for Development conferences, in Monterrey, Mexico, and in Doha, Qatar.

Wu Hongbo, the Secretary-General of the Conference, said, “This historic agreement marks a turning point in international cooperation that will result in the necessary investments for the new and transformative sustainable development agenda that will improve the lives of people everywhere.”

Edited by Kitty Stapp

The writer can be contacted at thalifdeen@aol.com

School children in a classroom in Gao, Mali. Advocates of a global tax body say revenues lost in tax havens could go to the building of much-needed schools, clinics, and roads and provide clean water and electricity to help combat poverty and boost development. Credit: UN Photo/Marco Dormino

By Thalif Deen
UNITED NATIONS/ADDIS ABABA, Jul 10 2015 (IPS)

When the four-day-long international conference on Financing for Development (FfD) concludes in the Ethiopian capital later this week, one of the lingering questions in the minds of departing delegates may well be: did we really achieve anything concrete after years of negotiations?

As Oxfam International rightly points out, 2015 is a big year for major global conferences – on combating poverty, inequality, environmental degradation and climate change.“Setting up a tax body is a crucial first step towards a better global financial system which works to uplift the majority and not further enrich the wealthy." -- Lidy Nacpil of APMDD

But in the first of these big conferences – in Addis Ababa, July 13-16 – decisions will be made about how money is delivered and spent by governments to tackle poverty and inequality.

One of the major sticking points during the negotiations in New York was the creation of a global tax body, including international tax reforms.

The final decision, however, will be made by ministers and high-level officials from 193 governments in Addis Ababa, the third in a series, the first FfD conference being held in Monterrey, Mexico in 2002 and the second in Doha, Qatar in 2008.

If you look at the big finance-related issues that are in the media these days, says Oxfam, “we read about economic crisis, government budget cuts, major tax dodging scandals, and countries in debt crisis. All of these are issues that fall under the financing for development agenda. “

Therefore, if the FfD conference is to be a success it could mean a rebalancing of power and a new cooperation with developing countries, which would get to have a voice in the international financial system.

The FfD conference could be a once in a decade opportunity to ensure that efforts to fight climate change, poverty and inequality are funded fairly.

“Unfortunately, current signs indicate that it will far from deliver on that promise. Negotiations (in New York) have seen more and more eroded from these ambitions,” said Oxfam in a statement released here.

McKinley Charles, media coordinator for ActionAid in Addis Ababa, told IPS its primary focus will be on tax reforms, more specifically the international tax body that is still currently being negotiated.

“We are working to improve and democratise the international tax body so that regulations can be put in place to stop tax dodging which robs developing countries of billions of dollars of revenue every year.”

These are revenues, she pointed out, that could have gone to the building of much-needed schools, clinics, and roads and provide clean water and electricity to help combat poverty and boost development.

“Addis is a big opportunity since it looks as if a decision on the international tax body will be made there,” she added.

Charles also said ActionAid, as part of its efforts, will be involved in a number of side events on tax justice, including panel debates.

ActionAid is also fielding some 12 tax policy analysts and campaigners from Europe, South Africa, Kenya, Zambia and Mozambique “to get our messages out to the policy makers and the public influencers.”

Asked whether the success or failure of the FfD will largely depend on tax reform, Alison Holder, Oxfam’s policy advisor on tax reform, told IPS the tax body issue will be a litmus test of whether this FfD conference is really about building a new common agenda and whether it is about real reform to address the international barriers that prevent developing countries from raising sufficient tax revenue.

The tax body raises the question of whether rich countries recognise that if the world is able to finance ambitious development goals, “then we need to see some shift in the balance of power”, she said.

“Without the commitment to create a truly global tax body, any outcome from these negotiations will continue to place all of the burden of financing for development on developing countries’ own doorsteps. They would be told to improve their own tax systems and live with current broken tax system.”

Holder also said rich countries are refusing to recommit to their decades-old promise to deliver 0.7 percent of their national income in aid – which would release an estimated 250 billion dollars a year.

Official development assistance (ODA) is declining and countries need taxes to fill the gap.

“There is still a real chance that all of the months of negotiations on this FfD conference will come to nothing, and that no agreement will be forged. But this doesn’t have to be the way it turns out,” she declared.

Some of the world’s major multinational corporations are accused of shifting their profits out of countries where they make their money and hide it in tax havens, increasing their profits and leaving the poorest countries with an estimated loss of 100 billion dollars a year.

But the rich countries want to retain their status quo, where global tax rules are set within the Organisation for Economic Cooperation and Development or OECD, long described as a rich man’s club based in Paris.

The Asian People’s Movement on Debt and Development (APMDD), one of more than a thousand organisations which are part of the Global Alliance for Tax Justice (GATJ), said it is joining the call for the establishment of a global tax body.

“Civil society groups in Asia are criticising the United States and European Union for opposing a global tax body that would be more democratic than the OECD and G20, where rich countries dominate,” said Lidy Nacpil, coordinator of APMDD.

“Setting up a tax body is a crucial first step towards a better global financial system which works to uplift the majority and not further enrich the wealthy. It can level the playing field against tax evaders and provide more funds for developing countries,” she added.

Meanwhile, the European Union, the United States, UK, Germany, Netherlands, Finland and Sweden are expected to announce a new tax initiative, which aims to strengthen the capacity of developing countries’ tax authorities.

The initiative aims to double the collective overseas development aid available to help developing countries build more progressive tax systems and improve the collection of national taxes; support them in their efforts to clamp down on tax dodging practices by multinational companies; and increase their capacity to engage in global fora which deal with international tax reform.

Called the Tax Inspectors without Borders (TIWB) initiative, it will be jointly launched by the OECD and the U.N. Development Programme (UNDP) at a side event during the FFD3.

The initiative aims to help build tax audit capacity in developing countries by providing tax audit experts to work alongside local officials of developing country tax administrations – this should help developing countries identify cases of tax evasion and avoidance and claim back the revenue they are owed.

The TIWB programme aims to support 200 expert tax deployments between 2016 and 2019.

Holder told IPS Oxfam welcomes both initiatives to help build the capacity of developing countries’ tax administrations.

Less than 1 per cent of total aid budget is dedicated to support domestic resource mobilisation yet fairer and progressive tax systems are vital to reduce poverty and inequality. However, developing countries need more from Addis, she noted.

“Developing countries are not claiming the tax revenues they are entitled to because of a broken international tax system. This system allows multinational companies to cheat poor nations out of billions of dollars in taxes. Despite this, rich countries, led by the OECD, have denied them an equal say at the international negotiation table on new global tax rules.

“The Addis tax initiative includes the objective to increase the capacity of developing countries to negotiate global rules and to facilitate their presence at e.g. OECD-lead international tax meetings. This cannot replace the need for a truly inclusive global tax body where all countries can participate on equal footing to negotiate global tax rules. The same countries that initiated the Addis tax initiative have spent months blocking the creation of such a new intergovernmental tax body in Addis.”

Oxfam called on all countries to walk the extra mile in Addis and ensure that developing countries will be able to increase their tax revenues and build fairer tax systems at the national and global levels.

They should agree on the establishment of a U.N. tax body that will enable developing countries to claim their fair share of global corporate tax revenues, Holder declared.

Edited by Kitty Stapp

The writer can be contacted at thalifdeen@aol.com