Written evidence submitted by Christian
Aid
EXECUTIVE SUMMARY
Christian Aid works in nearly 50 countries
worldwide, supporting local organisations to deliver urgently
needed services directly to poor communities, and to scrutinise
and hold their own governments and the international community
to account.
We have followed the Financing for Development
Process from its inception in Monterrey in 2002 focussing
on issues of Debt, Aid, Trade and most recently Taxation.
We reaffirm the Financing for Development process
as a representative forum for agreeing international commitments
to development and therefore welcome the opportunity provided
by this submission to share our views on the outcomes of the review
conference.
Our submission will focus on the outcomes of
the Doha review conference and the role which the UK government
can play in ensuring developing countries are supported through
the challenges of the financial crisis, ensuring that reform of
financial architecture reduces the vulnerability of developing
countries to future macro-economic shocks, and supporting the
capacity of developing countries to mobilise domestic and international
resources for development.
Our recommendations for the UK government are
as follows:
We welcome DFID's existing support for the financing
for development process and in particular, DFID's recent emphasis
on the role of effective taxation in mobilising domestic resources
for development.
The impact of the financial crisis compounds
the problems faced by many developing countries as a result of
poverty, the food crisis and the climate crisis. DFID should ensure
that Official Development Assistance (ODA) commitments are maintained
at this time of financial uncertainty.
DFID should support providing affordable liquidity
for Small and Medium Sized Enterprises (SMEs) in countries where
finance is difficult or expensive to obtain would limit rises
in unemployment, and prevent a deepening of the impact of the
financial crisis.
The capacity to mobilise domestic resources
for development and end aid dependency should be prioritised.
In addition to funding for policy think tanks in developing countries,
DFID should support the capacity of revenue authorities in developing
countries to raise domestic revenue, negotiate pro-poor tax agreements
with private sector actors, and investigate cases of corporate
tax evasion.
DFID should use its leverage as a reputable
bilateral aid agency to encourage developing country governments
to ratify the United Nations Convention Against Corruption and
call for the introduction of a strong monitoring mechanism to
ensure the principles enshrined in the convention are implemented.
The UK government should urgently address the
issue of financial opacity which has contributed to the financial
crisis and facilitates illicit capital flight as a result of corporate
tax evasion.
Christian Aid proposes an International Accounting
Standard for Country by Country reporting, which would require
companies to report where they are located, where they make profit
and where they pay taxes.
Finally, the UK should urgently address the
financial opacity in tax havens which are British Overseas Territories
and ensure that the European Union addresses this issue appropriately
and urgently by expanding the European Union Savings Tax Directive
to include trusts and other financial vehicles.
1. Introduction
1.1 The Doha review conference was an opportunity
to galvanise existing commitments towards sustainable development.
It also represented an opportunity to increase commitments and
address systemic issues in light of the Climate Crisis, the Food
Crisis and the Financial Crisis.
1.2 Weakening of language on key issues
and the failure to reach agreement on timetables and lines of
responsibility within the Doha Outcome Document (DOD) represents
a missed opportunity for developing countries. The DOD is largely
a restatement of the Monterrey Consensus. At this moment of deep
crisis this is inadequate.
1.3 Christian Aid calls the UK government
to honour commitments made ahead of the Doha conference in the
European Council Statement of 11 November 2008.
2. Progress towards the UN target for developed
countries to spend 0.7% of their Gross National Product on Official
Development Assistance (ODA), which was reaffirmed in the Doha
Declaration;
2.1 While Christian Aid does not consider
ODA to be the primary long-term solution to sustainable development,
it can support the creation of infrastructure required for long
term pro-poor development including enabling environments for
pro-poor private sector development, good governance and effective
taxation.
2.2 Least developed countries, dependent
on ODA, must receive predictable funding to ensure the sustainability
of essential public services to the poorest and most vulnerable.
2.3 The Doha Outcome Document (DOD) restated
the long-standing commitment of Northern countries to reach the
0.7% of GNP for ODA, which had been highlighted in the Monterrey
Consensus. Six years later the implementation gap is growing as
Northern countries fail to meet aid commitments.
2.4 In October 2008, Jacques Diouf, Director
General of the UN Food and Agriculture Organisation (FAO) highlighted
that only 10% of the US$22 billion pledged earlier in 2008 to
help ease food shortages has so far been delivered.[23]
2.5 The DOD's Reference to multi annual
aid timetables to ensure donors step up their aid levels and reach
the promised targets—was agreed at the end of the conference
but language was weakened to "rolling indicative timetables".
2.6 It is imperative that the UK does not
use this weakened language within the DOD to renege on its ODA
commitments.
3. The extent to which the current financial
situation will impact on donors' ability to meet their ODA commitments
and the implications of this for DFID's aid policies;
3.1 At times of crisis, developing countries
that are most vulnerable to macro-economic shocks become more
reliant on predictable ODA. However, it is likely that donors
will reduce commitments as domestic budgets within donor countries
are reduced. The development committee of the World Bank and International
Monetary Fund (IMF) has highlighted that developing countries
will be especially dependent on predictable flows of ODA and has
emphasised the enhanced importance of donors meeting ODA commitments.[24]
3.2 At this time, a strong reaffirmation
of aid commitments from UK and European donors is paramount and
would send a clear message that the UK is committed to development
even when facing economic uncertainty itself.
4. Whether international aid commitments should
be increased to address the impact of the global economic downturn;
4.1 Christian Aid's partner organisations
are already witnessing increased hardship in developing countries
as a result of the financial crisis, the food crisis and the climate
crisis. At this time of economic downturn, the poor in developing
countries face multiple challenges.
4.2 Remittances, which in some developing
countries account for 20% of Gross Domestic Product (GDP), are
already falling as economic migrants working overseas loose their
jobs. Remittances are used for daily necessities. In countries
such as Mexico more than 57% of remittances are used to purchase
essential goods such as food, clothing and shelter.
4.3 Developing countries which are dependent
on exports will face increasing pressure as demand from the US
and Europe falls. In particular, commodity dependent economies
are particularly vulnerable to booms and busts in international
commodity markets.[25]
4.4 Short-term loans which finance as much
as 90% of the world's trade have become more difficult and more
expensive to obtain as a result of the financial crisis.
4.5 Tax revenues in developing countries
are likely to fall with declines in export demand, commodity values,
and employment. This will have a direct knock-on effect on states'
ability to provide education, health services and pro-poor spending.
4.6 Emerging markets have suffered significantly
from the financial crisis as investors become more conservative.
Asia, which experienced average inflows of more than US$15bn a
year from 2004-07, in 2008 experienced outflows of more than
US$15bn.[26]
4.7 ODA should contribute to poverty reduction
through pro-poor growth via inclusive private sector development.
4.8 Christian Aid welcomes commitments within
the DOD for macroeconomic policies which avoid abrupt economic
fluctuations and seek to minimise domestic and external imbalances
to ensure that the benefits of growth reach all people. In the
long-term, ODA should be targeted towards measures which shield
developing countries against future macro-economic shocks. This
includes the development of revenue authorities and the effective
regulation of financial services.
5. Progress on the mobilisation of domestic
resources for development including strengthening national taxation
systems, combating capital flight and DFID's role in enabling
countries to harness their own resources.
5.1 Christian Aid believes that in the medium
and long term, developing countries must be enabled to raise domestic
resources for development and end aid dependency. This can be
achieved through trade, responsible private sector development
and effective taxation. In this regard we welcome the reaffirmation
that national ownership and leadership of development strategies
and good governance are important for effective mobilisation of
domestic resources for development.
5.2 Christian Aid welcomes the commitment
to promote an enabling environment to promote entrepreneurship.
Responsible private sector development must include decent work
and environmentally sustainable practices, as well as responsibility
in financial practices, including taxation. The regulatory environment
should ensure that these responsibilities are kept.
5.3 Taxation plays a key role in regulating
the private sector organisations, in providing domestic resources
for development, and in improving accountability between state
and citizen as governments are most likely to act in the interests
of their greatest source of revenue.[27]
Christian Aid welcomes the commitments made within the DOD to
step up efforts to enhance tax revenues, and in particular, ensuring
the tax systems is more pro-poor. In light of these commitments
and the long-term benefits of taxation, DFID should increase support
for effective domestic revenue collection and socially progressive
taxation.
5.4 The ability of sovereign states to effectively
collect tax revenue is undermined by illicit capital flight as
a result of criminal activity, in particular, corporate tax evasion.
The DOD refers to capital flight and illicit financial flows as
strongly linked to money-laundering, stolen assets, and capital
flows that have criminal intent and corruption. Christian Aid
welcomes support for the implementation of the United Nations
Convention Against Corruption and urges to UK government to consider
a strong monitoring mechanism which would evaluate measures taken
by governments to implement the convention.
5.5 Christian Aid has calculated that developing
countries lose US$160 billion per year as a result of two
forms of commercial tax evasion, this is equivalent to one and
a half times the global aid budget. One third of all illicit flows
are related to corruption and proceeds from criminal activities
and the remaining two thirds are related to tax avoidance and
evasion by multinational corporations operating in developing
countries. Consideration of illicit capital flows should be widened
to address commercial activities.
5.6 International cooperation in tax matters
is essential to close loopholes in international accounting and
address tax evasion. The upgrading of the UN Committee of Experts
on International Cooperation in Tax Matters to an intergovernmental
body, adequately resourced and properly mandated, could provide
a truly representative forum for international tax cooperation.
However, language in the DOD was weakened to requesting that the
Economic and Social Council (ECOSOC) "examine the strengthening
of institutional arrangements, including the UN tax committee."
Christian Aid is concerned that this issue will not be addressed
appropriately or as urgently as required.
5.7 The financial crisis has highlighted
the need for financial transparency to ensure stability in financial
markets. However, financial transparency would also assist developing
and developed nations to identify corporations likely to be evading
tax. The DOD commits to "further refine, as appropriate,
the supervisory and regulatory mechanisms to enhance the transparency
and accountability of the financial sector". In this regard,
Christian Aid proposes an International Accounting Standard for
Country by Country reporting, which would require companies to
report where they are located, where they make profit and where
they pay taxes.
5.8 The DOD addresses tax issues in foreign
direct investment (FDI) acknowledging that it is important to
promote good tax practices and avoid inappropriate ones. It is
unfortunate that stronger language, "avoid detrimental tax
practices," was removed. Christian Aid recommends that the
UK government consider this language and support developing countries
in negotiating favourable tax treaties which will be of maximum
benefit to the poor.
5.9 The need to address secrecy in tax havens
(secrecy jurisdictions) is absent in the DOD. The European Council
Statement of 11 November 2008 included the need to "combat
tax havens". In the context of the financial crisis, and
lost tax revenue from both developed and developing countries
to tax havens, the UK should urgently address the financial opacity
in tax havens which are British Overseas Territories and ensure
that the European Union addresses this issue appropriately and
urgently.
6 Additional Issues: Systemic issues: enhancing
the coherence of the international monetary, financial and trading
systems in support of development
6.1 The DOD emphasised a central role for
the Bretton Woods Institutions (BWI) in the international financial
architecture and the global economic governance. Despite acknowledgement
in the DOD on the need to provide "greater transparency and
strengthening the voice and participation of developing countries
in international decision-making and norm-setting" and that
"the Bretton Woods institutions need to be further reformed",
the document reaffirms that the BWI "must continue … to
help developing countries to deal with the adverse effects of
exogenous shocks". This approach shows complacency with the
current status quo and fails to acknowledge the BWI's failure
to provide adequate advice to developing countries on their economic
policies.
6.2 Christian Aid affirms the need for adequate
representation of developing countries in the reform of the financial
architecture and welcomes the convening "a conference at
the highest level on the world financial and economic crisis and
its impact on development." The G20 meeting of April
2009 and the UN conference are unique opportunities to address
systemic flaws in the financial system and reaffirm support to
developing countries in a time of crisis. Christian Aid urges
the UK to consider long-term development goals at this these meetings,
proposing reforms, which are far reaching and positive for pro-poor
development and globalisation.
7. Our recommendations to DFID:
7.1 The impact of the financial crisis compounds
the problems faced by many developing countries as a result of
poverty, the food crisis and the climate crisis. DFID should ensure
that Official Development Assistance (ODA) commitments are maintained
at this time of financial uncertainty.
7.2 The capacity to mobilise domestic resources
for development and end aid dependency should be prioritised.
In addition to funding for policy think tanks in developing countries,
DFID should support the capacity of revenue authorities in developing
countries to raise domestic revenue, negotiate pro-poor tax agreements
with private sector actors, and investigate cases of corporate
tax evasion.
7.3 DFID should use its leverage as a reputable
bilateral aid agency to encourage developing country governments
to ratify the United Nations Convention Against Corruption and
call for the introduction of a strong monitoring mechanism to
ensure the principles enshrined in the convention are implemented.
7.4 The UK government should urgently address
the issue of financial transparency which has contributed to the
financial crisis and facilitates illicit capital flight as a result
of corporate tax evasion.
7.5 Christian Aid proposes an International
Accounting Standard for Country by Country reporting, which would
require companies to report where they are located, where they
make profit and where they pay taxes.
7.6 Finally, the UK should urgently address
the financial opacity in tax havens which are British Overseas
Territories and ensure that the European Union addresses this
issue appropriately and urgently.
23 Political, financial push urged to end hunger: Rome
ceremony celebrates World Food Day', United Nations Food and Agriculture
Organisation (FAO), 16 October 2008, www.fao.org/Newsroom/en/news/2008/1000940/index.html Back
24
Development Committee Communiqué by the World Bank and
International Monetary Fund's Joint Ministerial Committee of the
Boards of Governors of the Bank and the Fund on the Transfer of
Real Resources to Developing Countries, 12 October 2008,
http://siteresources. worldbank.org/DEVCOMMINT/NewsAndEvents/21937474/
FinalCommunique101208.pdf Back
25
In 2008 Copper fell from US$8,454 per tonne to US$6,198 per
tonne, while Nickel fell from US$37,136 in 2007 to US$15,494 in
mid October 2008. Back
26
IMF Global Financial Stability Report, October 2008, p
45, www.imf.org/external/pubs/ft/gfsr/2008/02/index.htm Back
27
"Can tax challenge bad governance?" Christian Aid Occasional
Paper, September 2008. http://christianaid.org.uk/images/OPS_one.pdf Back
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