Thursday, March 27, 2008

Doha, and a perfect storm of tipping points

The UN General Assembly has mandated that a conference on Financing for Development (FFD) is to take place on November 29-December 2 this year in Doha, Qatar. TJN is one of the groups involved in some of the preparations for this, notably around a theme of helping developing nations mobilise domestic resources for development. As TJN noted in a recent FT comment piece: "Tax, not aid, is the most sustainable source of finance for development." (We are not against aid, but we believe that an obsessive focus with it can distract from these potentially even more important, issues of international taxation.) In the coming days, TJN will be publishing its latest edition of our quarterly newsletter Tax Justice Focus (TJF), which will focus on the road to Doha.

The U.S. government submission to the FFD process makes some interesting points, but pretty much ignores the issue of international taxation. The NGOs' talking points, by contrast, contain recommendations such as "Reform tax policy to close tax havens, revise tax treaties and use revenue-raising tariffs more productively" - a very, very different approach. The U.S. will be fielding a formidable team at Doha which we believe may (though we would be delighted to be wrong on this) push hard against the tax justice agenda. Some NGO partners have indicated they are pessimistic about the possibility of pushing for change on international taxation - simply because to some it seems impossible to counter the truly staggering size and power of the vested interests that oppose TJN.

There is no need at all to be daunted. First, the power of ideas should never be underestimated - and the vested interests that oppose us have never been able to mount a solid, coherent intellectual defence against TJN's agenda. Second, we see the process of preparing for the Doha conference as being at least as important as the outcomes - it is a fantastic opportunity to raise awareness in a number of new constituencies, whether or not vested interests succeed in derailing beneficial outcomes on tax. Third, and perhaps more importantly, dramatic changes are now well underway in the world which will put an almighty wind in the sails of the tax justice agenda. Several crucial "tipping points" have recently been, or are being, reached - and the world will never be the same.

We recently wrote about the appearance of one tipping point, referring to the Liechtenstein scandal and how it appears to have led to a change of mood and what TJN's Richard Murphy describes in a blog

I think that we have passed a tipping point; the occasion when the momentum for change becomes unstoppable.

A new story in the New York Times illustrates how worried Switzerland is, or should be, containing this quote from a Swiss banker:

“It is obvious,” said Mr. Borer, now a lobbyist, “the government and the banks, really, are heavily underestimating the impact of this scandal.” “There may be an avalanche coming, and we are not ready,” he added

One seasoned observer went as far as to suggest, only partly in jest, that we should no longer define time using "B.C." and "A.D" but as "B.L." (before Liechtenstein) and "A.L." Well, we will have to see a lot more deep reform before we can go that far.

But other tipping points are now crowding in. The FT's chief economics commentator Martin Wolf identifies what is likely to be an even bigger and more important one:

Remember Friday March 14 2008: it was the day the dream of global free- market capitalism died. For three decades we have moved towards market-driven financial systems. By its decision to rescue Bear Stearns, the Federal Reserve, the institution responsible for monetary policy in the US, chief protagonist of free-market capitalism, declared this era over. It showed in deeds its agreement with the remark by Josef Ackermann, chief executive of Deutsche Bank, that “I no longer believe in the market’s self-healing power”. Deregulation has reached its limits.

He is not alone: the lead article in the latest edition of The Economist had a similar tone:

Something important happened on Wall Street this week. It was not just the demise of a firm that traded through the Depression. Financiers discovered that they had created a series of risks that the market could not cope with.

As we have argued recently, regulation is intrinsically tied up with the tax justice agenda. What is more, the current credit crisis marks the end of a long-term transformation in the global political climate which was first driven forwards by powerful ideologues such as former U.S. President Ronald Reagan and former British Prime Minister Margaret Thatcher. This long historical tide is now receding fast, and the tax justice agenda will undoubtedly benefit.

Yet other powerful transformations are underway. At long last, development institutions are beginning to wake up to what has curiously been ignored for far too long in the debates about aid and development: the role that taxation plays in fostering political accountability and more effective government. We have already explored this in detail on the TJN website, and we recently recommended a new book about these crucial issues. Last month, the OECD published a short briefing paper very much along the same lines. To quote a few excerpts:

Taxation systems can contribute significantly to shaping accountability relationships and strengthening state capacities. This remains true and becomes more of a concern when countries receive large volumes of external assistance.

The negative proposition—that governments which do not need to tax their citizens have little incentive to be accountable, responsive or efficient—is equally well supported.

(Aid) has some of the same effects on the incentives of governments, freeing them from the imperative of raising taxes from a wide range of economic agents and from the scrutiny of tax-paying ordinary citizens and thus from an important kind of pressure to improve general economic and social conditions. Donors’ preoccupations with pro-poor expenditure may also take attention away from the longer term challenge of domestic resource mobilisation.

A recent speech by South Africa's finance minister Trevor Manuel clearly illustrates how developing countries are now waking up to the all-important role for taxation in the development process. Meanwhile, behind the scenes for now, NGOs have been contacting TJN in increasing numbers to get involved with these campaigns. In a fascinating article in the forthcoming edition of TJF, we will be looking at some of the reasons why so many NGOs have taken so long to engage in the tax justice agenda, and why they are starting to engage now. About ten years ago NGOs "woke up" to debt campaigning, and we hope and believe that a similar tipping point is now being reached on taxation.


Anonymous Anonymous said...

Hey thats gr8 that there is a conference in Doha.
Nice blog on the topic of "Tax"
Now a days Tax Preparation Services are being outsourced so that inhouse capability of the company can be increased and not wasted in doing such works which are not the core part of the Company.

Wat do you think??
Is it the solution??

2:23 am  
Anonymous Anonymous said...

Thanks for the information about FFD and is very useful for us.....

10:37 pm  

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