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04/12/2016

Hollande does U-turn, increases French development aid

Development Policy

Hollande does U-turn, increases French development aid

François Hollande adderssed the Ambassadors' Week conference on 30 August.

[French government]

François Hollande has announced an increase to France’s official development assistance budget for 2017, putting an end to several consecutive years of funding cuts. EurActiv France reports.

“France must set the example on development assistance,” the president told an assembly of French ambassadors at a meeting in Paris on Tuesday (30 August).

With negotiations on France’s 2017 finance bill looming on the horizon, Hollande promised to increase France’s development spending, which has suffered year-on-year cuts since he began his mandate in 2012.

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In 2015 the French government presented a slimmed-down development aid budget before backtracking and deciding to allocate a greater proportion of the revenue from the Financial Transaction Tax (FTT) to its international solidarity efforts.

This year, Paris will once again dip into its FTT revenue to top up the aid pot. “Today, half of the revenue from the Financial Transaction Tax is allocated to tackling climate change. Next year an even greater share of the tax will be spent on these [development] objectives,” Hollande said.

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But he did not detail precisely how high the 2017 budget would be. “The official development assistance budget rose by €106 million in 2016, and in 2017 – the prime minister and I have done the calculations – it will rise again to allow us to meet our commitments,” Hollande said.

The FTT puzzle

The president’s announcement was cautiously welcomed by civil society organisations. “François Hollande’s mandate has been characterised by falling development aid spending. The fact that he is redressing this in the last year of his presidency is good news, as long as it does not become a smoke screen,” said Nicolas Vercken, the director of advocacy at Oxfam France.

One potential problem raised by the NGO was the increasing importance of the FTT to the development budget. This tax was established in 2012 to allow France to increase its aid spending, particularly to support climate action.

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But Paris’ recent belt-tightening has turned the FTT into a more general budgetary lifeline.  “Allocating more than half of the revenue from the French FTT to international solidarity is in itself a good thing, if, and only if, it does not mean we are robbing Peter to pay Paul,” an Oxfam representative said.

Another unresolved issue with the tax is the base it draws revenue from, which French MPs have been trying to broaden, in order to release more funds for development assistance. According to the finance ministry’s estimates, the FTT should bring in €932.7 million in 2016 by taxing the exchange of shares and bonds.

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But a large number of financial transactions fall outside the tax base, notably those known as “intra-day trading”, a highly speculative and high-speed part of the financial market.

Including these operations in the FTT tax base would raise a significant amount of extra funding. But the French government has regularly rebuffed the idea, attempting instead to push the subject forward at a European level.

Once again this year, the delicate question of the enlargement of the FTT tax base will feature in the debate on the French finance bill.

Background

France has reduced its aid budget by more than 20% since 2012, as part of a policy of budgetary consolidation.

With several important international agreements due to be finalised in 2015, the French president, François Hollande, promised to assign extra funding to the fight against climate change in poor countries. The United Nations General Assembly adopted the future Sustainable Development Goals (SDGs) in September 2015, to follow on from the Millennium Development Goals, which expire at the end of this year.

This international framework aims to mobilise and coordinate the efforts of all countries to make the world a fairer and more sustainable place by 2030.

On the climate front, the 195 United Nations member states will meet in Paris in December to try to reach an international agreement that will keep global warming below +2°C.