Status on the Addis Tax Initiative
Af Hannah Brejnholt Tranberg og Tobias Nissen
Domestic resource mobilisation (DRM) – a big part of which is about raising taxes. This is essentially what donors, partner countries, civil society organisations and other stakeholders are discussing this week in Berlin, Germany.
In 2015 during the Third International Conference on Financing for Development in Addis Ababa in Ethiopia four major developing partners (donors) initiated the Addis Tax Initiative (ATI). Denmark is a signatory of this alongside 19 other development partners (donors) as well as 23 development partners.
The purpose of the ATI and importance of DRM
The purpose of the ATI, part of the Addis Ababa Action Agenda, was to enhance developing countries DRM. By improving the DRM, developing countries can help finance their own development, thus becoming more independent of aid from developed countries. Better DRM could also enable developing countries to fight inequality within the countries and finally strengthen political accountability – paying taxes raises the awareness with people that they have the right to public services, and they can demand from their governments to provide them. The ATI comprises three commitments:
1) Development partners commit to collectively doubling technical development cooperation to DRM by 2020.
2) Partner countries commit to stepping up DRM as a key requirement for attaining the SDGs and spurring inclusive development. They commit to working together to tackle complex cross-border tax issues and to improving taxation and management of revenue from natural resources.
3) All ATI member countries commit to ensuring that domestic policies in partner countries reflect the objective of fostering the mobilisation of own revenues.
As we are coming close to 2020 the date by which the commitments are to be fulfilled the questions is how is Denmark – and others – doing? As a means to help answer this question ActionAid Denmark and four other Nordic CSOs (Tax Justice Norway, Norwegian Church Aid, Diakonia, Sweden and FINGO) undertook research on commitments 1 and 3.
Findings of the Nordic Countries and their work in support of DRM
With regards to the first of the commitments Norway is ahead of the curve and has already met its commitments here, Sweden is also well on the way, whereas Finland and Denmark appear to be lagging behind (though it should be noted that the OECD data the report bases it assessment on is not quite up to date). However, when it comes to assessing the third commitment it is much more difficult to assess the progress.
The third commitment centres around the concept of policy coherence for development (PCD), which stresses the fact that policies in one area e.g. tax policies must not undermine policies in another area e.g. development. It is thus not only a question of raining more revenue, but also a question of how this is done and the implications DRM may. This essential means that tax policies and initiatives should not only aim to raise more DRM but also seek to do so in a way that minimises inequality. This would be in line with goal #10 of the global Sustainable Development Goals. On the other hand, donor countries must not impose policies on development countries, which is probably part of the reason all four developing countries have decided to focus on technical support straying away from the political discussions.
Nevertheless, there is a tendency among the Nordics – expressed clearly by Denmark, to increasingly channel development assistance for DRM through the multilateral organisations such as the World Bank and the IMF. And although The IMF has modified its policies on taxation a recent review found that:
At country level, the Fund has continued to recommend VAT / GST increases as the quickest fix to fill budget holes in countries faced by austerity, rather than turning to more progressive income taxes. There is also no evidence that the Fund is looking systematically and proactively at how to make country tax systems more progressive, by either i) changing the design of existing taxes; or ii) introducing or broadening property and wealth taxes.
By increasingly channelling support for tax and development work through the IMF the Nordics may indirectly end up supporting policies that end up promoting flat and thus regressive tax regimes such as relying very heavily on VAT instead of looking more broadly at other possibly more progressive ways of raising revenue - contrary to the intentions of supporting initiatives that promote equity and will help reach the SDGs
- Carry out spillover analyses of tax agreements and policies to ensure they do in fact contribute to development and reaching the SDGs.
- Ensure enhanced donor collaboration