Tuesday, March 02, 2010

From Monterrey to Doha: Taxation and Financing for Development

Our colleagues Dries Lesage (Ghent University), David McNair (Christian Aid), and Mattias Vermeiren (Ghent University), have had a scholarly paper published in Development Policy Review in which they trace recent progress in the global debate on tax and finance for development.

The paper explores the background to the Financing for Development (FfD) process of the United Nations, explaining the institutional and political reasons why the original Monterrey Consensus of 2002, described by the authors as "a mix of . . . compromise and lowest common denominators between the different blocs," rarely mentioned tax. This was not for want of trying on the part of those who had been pushing the FfD agenda prior to Monterrey, including and especially Ernest Zedillo (ex-President of Mexico), whose high-level panel of experts had identified how ill-conceived tax policies, illicit financial flows, and tax evasion, were eviscerating the tax regimes of poorer countries.

The problem with Monterrey was that policy makers from both North and South were locked in the ideological strait jacket of a tax consensus which elevated the virtues of tax cuts targeted at investors and tax hikes on consumers, and down-played the role of the state in providing core services such as health, education and public infrastructure. Global governance issues were scarcely considered, other than as they relate to tackling bribe-taking and combating narco-trafficking and terrorist funding: strengthening international initiatives against tax havens was definitely not on the menu at that time.

The conservative position adopted at Monterrey shifted only slightly at the Doha review summit in 2008. By that stage TJN was actively involved, pushing for stronger measures to combat tax evasion and strengthen international cooperation. But the successes at Doha were modest, and progressive measures being proposed at that time, including country-by-country reporting by multinational companies and automatic information exchange as the appropriate international standard for combating tax evasion, faced strong resistance from vested interests. This blogger, for example, had a friendly but unrewarding discussion in Doha with a very senior US official - this was the absolute fag-end period of the Bush Administration - who vehemently opposed measures to strengthen tax information exchange agreements.

The paper also explores the institutional weaknesses that hamper the development of a broader, non-technocratic, debate on tax development. As the authors note:

"Most politicians, journalists, activists or social scientists do not have the expertise to politicise FfD-relevant tax issues, and are simply not aware of what is going on. Those who have the expertise (ministries of finance and international organisations, banks and other private financial institutions, big corporations, consultancy firms, the financial press) are most of the time not mandated or have other interests. This barrier poses a fundamental democratic deficit with regard to the whole financial sector. Developing countries are at an even larger disadvantage. Because of its complex and abstract character, until recently NGOs found tax not suitable for campaigns either. Tax was simply not a popular topic to talk about."

Which, of course, is where TJN stepped in to popularise tax and rally civil society around a set of progressive policies which, from the outset, were carefully targeted at weak spots in the globalised financial markets - corporate tax evasion and avoidance, trade mispricing, tax havens and the whole apparatus of financial secrecy which make a mockery of the intellectual arguments made in favour of cross-border financial flows.

You can obtain copies of the paper from here.


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