Mobilising domestic revenue through stronger taxation regimes and proper reallocation of funds are critical if some of the world’s poorest countries are to meet the United Nations Millennium Development Goals, according to a report released today (29 May).
The report, “Financing the fight for Africa’s transformation”, by campaign group One, ranks the progress of countries against the eight UN targets, with particular emphasis on sub-Saharan Africa.
While many of the region’s 47 nations receive development assistance, they have seen economic growth rates of some 5% over the past seven years. That is largely due to the proportion of government budgets spent on basic services, such health, education and agriculture, the report says.
“Development assistance from donors remains critical, but developing countries’ own resources dwarf aid resources in many cases, and the domestic political decisions that governments make about how to channel these resources have the biggest effect on development outcomes,” the report says.
Champions and laggards
The authors cite Rwanda, Uganda, Malawi, Ghana and Ethiopia as countries making particular progress while flagging Nigeria and the Democratic Republic of Congo for failing in many areas and hampering regional development.
The report finds strong links between better government spending and reducing infant and maternal mortality, and cutting extreme poverty, defined as under $1.25 a day per capita income. Between 2000 and 2011, Ethiopia lifted an estimated 10 million people out of extreme poverty, while the government spent nearly 45% of its total budget on health, agriculture and education over the same period, the report says.
Burkina Faso also made progress, spending 51.6% of its budget on health, education and agriculture, more than any other country analysed. European Commission officials recently told EURACTIV that they considered Burkina Faso an “aid champion”, along with Ghana.
While development aid is increasing in many parts of the world, with new emerging donors such as South Korea, the 4.3% drop of European overseas aid during the crisis outlines the necessity of mobilising domestic resources, say officials in Brussels. But many sub-Saharan African countries have notoriously weak tax and customs regimes.
Speaking at a Brussels conference, Algirdas Šemeta, the European commissioner for tax and anti-fraud, said better global tax governance would be a key driver of development, especially in African countries. He said it was critical to ensure that multinational companies operating in developing countries paid their fair share of tax, boosting national budgets, rather than shifting profits to tax havens.
“During the economic crisis, donor attention for providing support is limited so the need to mobilise domestic resources is even more important,” he said at the conference organised by the Friends of Europe think tank. “We are pushing for global [tax] standards. Everyone needs to take responsibly and everyone will win.”
The NGO Christian Aid estimates that countries lose out on $160 billion (€124bn) from multinational companies shifting profits between subsidiaries in different countries, called “transfer pricing”. In 2011 the entire amount of official development aid donated by the group of Organisation for Economic Co-operation and Development member states stood at $134 billion (€104bn).
Campaign group Oxfam last week released figures estimating that two-thirds of the global offshore wealth of individuals is hidden in European Union-related tax havens, amounting to some €9.5 trillion.
The EU recently adopted new laws aimed at increasing the transparency of tax payments from the extractives industry in a bid to root out corruption in resource-rich developing countries.
But fiscal experts warn of the complexity of improving weak tax regimes. They say that sub-Saharan Africa is unlikely to feel the changes in the short term.
“It will be a long and slow grind of bureaucratic and legal changes,” said Mick Moore, chief executive officer of the International Centre for Tax and Development.“I don’t see the poorest countries benefitting in the short run. The wave of information could be overwhelming. International actors should keep an eye out that it is implemented correctly.”
Analysts also refer to the difficulty of taxing Africa’s extremely large informal sector, with huge numbers of workers – from lawyers and doctors to hair-dressers – receiving unregistered income cash-in-hand.
“We are not talking about the poor person in the street. The issue is people with a lot of money not graduating to the formal sector,” said Thulani Shongwe, a fiscal specialist at the African Tax Administration Forum.
“As the EU decides how to spend its next 7-year aid budget, it must prioritise the poorest countries and support targeted and accountable programmes in health, agriculture and education. The results could be truly transformational. Specifically, funding for the Global Fund to Fight AIDS, Tuberculosis and Malaria, the GAVI vaccines alliance, and agriculture and nutrition programmes should be ramped up significantly. If the EU is to rise to the challenge in this final sprint towards the MDGs, these smart investments will be crucial,” Eloise Todd, the Brussels director of One.
“Tax is the best way to raise revenues and end aid dependency,” said Paul Groenewegen, a fair taxation campaigner at Oxfam. “Tax is at the heart of the social contract and it has a distributive function,” he said, adding that weak tax policies, the low capacities of tax authorities, the consistent under-taxation of multinational companies, transfer pricing and tax regimes based on “regressive” payments such as Value-Added Tax (VAT) were crippling African development.
Giles Merrit, the secretary general of the Friends of Europe think tank, warned of the difficulty of installing global fiscal standards as companies and rich individuals flock to countries willing to offer low tax regimes. “It seems to me that working with tax havens is like trying to get turkeys to vote for Christmas.”
Shirley Skerritt-Andrew, the Brussels ambassador for the Eastern Caribbean states, said: “The biggest tax havens are in the USA and the EU. Will this be raised in international discussions?” She said many countries need to make clear to their citizens the link between their taxes and public services. “The man in the street [in poor countries] - what does he receive in the way of public services? The link between public services and taxation is very important. If we get that right we will become like the Scandinavian states, where people are happy to pay tax.”
The United Nations set the eight Millennium Development Goals (MDGs)to be met by 2015. The goals are:
- Eradicate extreme poverty and hunger
- Achieve universal primary education
- Promote gender equality and empower women
- Reduce child mortality
- Improve maternal health
- Combat HIV/AIDS, Malaria and other diseases
- Ensure environmental sustainability
- Global partnership for development
In 2008, governments, businesses and other organisations reinforced their commitments to meet the MDGs, raising some €12.3 million in new funds for development. Two years later, the MDG summit adopted a global action plan, again reinforcing the drive towards meeting the MDGs
- Taxation and Customs Union: EU Tax Policy Strategy
- Taxation and Customs Union: Combating tax fraud
- Tax and development communication (pdf)
- The future approach to EU budget support to third countries communication (pdf)
International organisations and NGOs
- One: 2013 data report: financing the fight for Africa's transformation
- African Tax Administration Forum: website
- OECD: Aid statistics