Proposals for financing for development

The idea of taxes as additional sources for financing development was included in the Monterrey Consensus in 2002, although it was not new: In 1996, staffers from the UN Development Program published a book in which they proposed an international tax on currency transactions, the so-called Tobin tax. For many, the publication opened the discussion on global taxation. The following article is written by Jose Henriquez, an intern with the Maryknoll Office for Global Concerns.

The original objectives of the now-called Currency Transaction Tax (CTT) were to reduce shortterm speculation and to increase national policy autonomy. Later, the idea of being a means to finance development was added. Although the CTT has been politically challenged and even attacked by the finance community, its approval by the French and Belgian parliaments has demonstrated that it is feasible to introduce it.

It would provide significant revenues as well. The German foundation Friedrich-Ebert-Stiftung (FES) estimates the tax could raise up to US$60 billion a year. The French-Belgian move is nevertheless more suggestive than substantial because a CTT cannot become really effective unless it is accepted by the European Union as a whole.

This year, a Ministerial Conference on Innovative Financing for Development convened in Paris. Instead of getting caught up in the controversy on traditional instruments of external finance such as Official Development Assistance (ODA) or international trade, the initiative chose a very flexible approach, focusing exclusively on generating additional sources and aiming to implement financing mechanisms that would not require consensus of all multilateral actors. This marked a roadmap for future international taxation schemes. In fact, “international” in these initiatives does not mean that it is necessary for a world institution to manage the funds but rather indicates that the initiatives are implemented simultaneously by many countries (which remain sovereign to decide the use of revenues) and that incomes are to serve global concerns.

The conference set an agreement for a tax on air tickets to be implemented by 13 countries from the North and the South in the near future. Funds raised by the new solidarity tax will support the ongoing fight against pandemics such as HIV/AIDS, tuberculosis and malaria in the poorest countries and will be paid into a global health fund. FES estimates that if all rich countries endorsed this tax, revenues would add up to US$40 billion a year.

Furthermore, other proposals are being considered by concerned academics and civil society organizations. One of them is an international tax cooperation to fight tax evasion. Revenues lost by evasion in developing countries may be equivalent to the sums needed to achieve the Millennium Development Goals (MDGs). If this loss could be tackled, the revenues could approach US$50 billion. Moreover, proposals such as taxes on arms exports, carbon dioxide emissions, pollution and profits of multinational corporations are in ongoing discussion or are in a path to be implemented.

Additional resources are not only taxes. A proposed International Finance Facility (IFF) is a temporary mechanism to frontload the commitments made in Monterrey by issuing bonds in international capital markets, backed by binding commitments of donors to provide regular payments to the facility. Revenues could come from initiatives as the global lottery for development and the use of Special Drawing Rights (an international reserve asset created by the IMF) as well.

Despite the actual emphasis on revenues, governance of the new funds, ownership, and aid effectiveness might become more important in the future. International NGOs, while supporting actual initiatives, have underlined some principles they consider fundamental to link global taxes and the achievement of MDGs, including: 1) resources should be raised by compulsory taxes and not voluntary contributions, 2) the incremental nature of taxes must be compulsory, and 3) taxation rates must be high enough to supply new and significant resources. Others have also stated that these resources should empower local consensus on development instead of responding to donor’s plans.

“We have the opportunity in the coming decade to cut world poverty by half …,” the UN Millennium Project Report stated. “The practical solutions exist. The political framework is established. And for the first time, the cost is utterly affordable… All that is needed is action.”

For information visit: www.fesglobalization. org, and