Why universality is a taxing agenda…

IIED's director Andrew Norton reflects on the Financing for Development conference in Addis and the challenge of 'universality'.

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20 July 2015

Andrew Norton is director of IIED

The Mercato in Addis Ababa is Africa's largest market. This month there was another major gathering in Addis Ababa as thousands of politicians, policymakers and civil society leaders came together for the third Financing for Development summit (Photo: alvise forcellini, Creative Commons via Flickr)

Being in Addis last week felt like engaging in three worlds: the third Financing for Development Conference (FFD) main event, the myriad side events, and a welcome chance to see at first hand IIED's work to support Ethiopia's climate-resilient green economy partnership work with the Africa Climate Policy Centre.

The FFD conference has provoked a good deal of public anxiety – before, during and after.

The two big policy events of 2015 – the launch of the Sustainable Development Goals (SDGs) at the UN General Assembly in September, and the Paris climate conference (COP21) – are supposed to cement a new global development project to replace the Millennium Development Goals (MDGs).  

This is intended to unite development and climate action and finish the job of poverty elimination set out in the Millennium Declaration of 2000.  

The worry was that without a real commitment to mobilise resources on an unprecedented scale at Addis, momentum would be lost. Perhaps predictably at a time when many high income countries are obsessed with fiscal austerity and domestic challenges, this did not happen.

Mixed reactions

It is not surprising then that reactions to the final FFD outcome document, the Addis Ababa Action Agenda (AAAA) have been mixed. Enthusiasm from official participants including the United Nations and the United Kingdom, muted disappointment from many, and outright anger from some civil society voices (e.g. Oxfam and Eurodad).

The AAAA does a good job of framing two of the big changes identified in the SDGs: that development is now understood as a universal agenda, relevant to rich, poor and middle-income countries alike, and that the three dimensions of sustainable development (environmental, social and economic) now stand integrated and equal in priority.

Re-reading the final outcome document I was struck by just how seismic the universality shift is for all of those used to engaging in international development. Large sections of the document commit (albeit somewhat weakly) to action from all countries. This is a very different from the last FFD conference at Monterrey which was much more about transferring resources from rich to poor countries.  

This shift puts a natural emphasis on how countries can raise revenue through their own domestic tax base. Much of the energy at Addis was around how poor countries can find ways to raise more public money to invest in their own development.

Taxing outcomes

There is a national dimension to strengthening tax authorities, but there is a global dimension too – which triggered the one big stand-off in the negotiations.  

Two side events stood out for me because of their practical focus on how developing countries can strengthen their public revenue base.  

The Africa Capacity Building Foundation convened a well-attended discussion on building capacity for domestic resource mobilisation (DRM). One key point was the potential for poor countries to challenge practices such as transfer pricing, which allows multinational corporations to avoid paying taxes in countries where profits are generated.  

The UK Secretary of State for International Development, Justine Greening, launched the Addis Tax Initiative (PDF) at another side event. The UK, Netherlands, Germany, United States and a range of potential recipient countries, including Ethiopia and Kenya, have signed up to work together on increasing DRM and supporting capacity building on tax – potentially a good illustration of the 'smart aid' agenda. Donors have committed to doubling their technical cooperation in DRM and tax by 2020.  

The final text on DRM in the action agenda contains much good stuff (on country-by-country reporting by multinationals for example which can enable countries to capture revenue, and on phasing out fossil fuel subsidies). But it falls short of the necessary ambition.  

As the AAAA supports the notion of new health taxes (e.g. on tobacco) to both raise public funds and counter harmful behaviours – it seems strange that it does not cover carbon taxes. Taxing carbon is the most compelling win-win that could have been put on the table – enabling both vital reductions in emissions and public investment for development progress and climate action. We know the reason for this omission: it was blocked by oil producing countries.  

Without this, we have to hope that a combination of other measures (R&D, and efforts to mobilise transformative financing) can make renewable energy competitive with fossil fuels.

We should be looking for creative win-wins in other areas for environmental taxation as well – such as tax incentives to curb the loss of global biodiversity.

The global part of the tax agenda was contentious. Developing countries were largely in favour of creating a new intergovernmental institution for global tax oversight within the UN (taking over from the OECD). Rich countries were not. 

The final outcome looks weak – the current UN expert committee will meet twice a year instead of once. I do not expect this to be the last word. It will not be viable for oversight of the global taxation agenda to remain located in an institution with a membership restricted to rich countries in the long run.

Lack of concrete commitments

There is also a lack of concrete commitments on international development – particularly on climate finance. The damage which climate change will cause to poor people's livelihoods, particularly in the Least Developed Countries, suggests a need to both reverse the decline in development assistance to those countries, and to find extra resources to help them achieve climate resilient economic and social development.

The good news is we get another bite at the issue in Paris. The bad news is that if we fail on climate finance there, it will threaten our chances to get the ambitious global climate deal we need.

Andrew Norton (andrew.norton@iied.org) is director of IIED.

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