One of the big items on the agenda today at the G20 is the report from Bill Gates, Microsoft billionaire-turned-philanthropist, on development finance. Here’s my analysis of some of the key points.
It opens well, stating in the executive summary that “well-designed aid reduces poverty right now, and accelerates poor countries’ progress toward the moment when they will no longer need it.” This is the central argument of ActionAid's Real Aid 3 report. The report is spot on when it says that developing countries need to get better at raising tax revenue: there’s a massive demand from developing countries for development assistance targeted at helping to build their tax administrations. One oversight, perhaps, is the absence of a reference to the Paris principles on aid effectiveness, internationally agreed standards on how to design aid well.
The cornerstone of development
- “In many cases, domestic resources can pay for the cornerstones of development,” Gates says. He emphasises the role of natural resource taxation, and rightly pulls out the importance of multinational transparency, giving the example of Ghana, where disclosures through the Extractive Industry Transparency Initiative revealed that the country was getting a raw deal from mining companies and catalysed civil society action.
The exciting stuff
“All G20 countries should require the mining and oil companies listed on their stock exchanges to disclose payments to governments,” says the report, a clear and unequivocal recommendation. It’s just a shame that he doesn’t go further towards the kinds of disclosures that would really help shine a light on tax dodging: you need profit and revenue information, for example, to work out if the payments to governments are appropriate. And it’s not just the extractive industries that give developing countries a raw deal on tax payments, as ActionAid showed in our research into the brewing company SABMiller.
There’s also some great stuff about how African countries are working together to raise more tax revenue through initiatives like CABRI (although it would also be important to mention ATAF, the alliance of African tax authorities).
A Robin Hood tax
Much will be made of Gates’ endorsement of a financial transaction tax, as well as new taxes on transport fuels and tobacco. This is great news from one of the world’s most successful capitalists, demonstrating that the FTT is a practical and workable solution – as he says, an efficient tax because it’s a low rate imposed on a large base.
It’s great that Gates insists that the proceeds from a tiny tax on the banks be devoted to development, not just to domestic needs. Although here, the devil is in the detail. He says, “in the report, I include some tax proposals G20 countries should consider that could help them meet their aid commitments and eventually expand them.” Innovative sources of financing serve a different purpose to overseas aid, and the revenue they raise should always be additional to it, not a part of it.
Gates' call for change
Gates talks about how “simply collecting taxes more efficiently under existing systems would make a big difference”, because “building rural roads, schools, and health infrastructure is a job for governments.” He adds the caveat that “it’s important to design tax systems that don’t interfere with overall economic growth.
”Raising more tax revenue isn’t just a technical point about doing things more efficiently, it involves major political decisions about who should benefits most and how, and governments in developing countries need to be held accountable by their own citizens for the decisions they take. Done right, tax is a means for governments to redistribute wealth, to intervene and steer the economy in a fair and sustainable direction (it’s one of the tools governments have to address a problem Gates identifies, that “unfortunately, the market often fails to address the needs of the poorest”); done wrong, it can penalise the poor.
The report urges us to “cast aside our old categories of aid, as distinct from private investment, as distinct from domestic spending”. However, they are distinct categories, because unlike the private sector, governments are both democratically accountable to citizens for the way they spend their revenue, and the entities that bear the duty to ensure their citizens’ human rights are respected. This is why tax is such an important issue for development.