Foreign Aid

Taxation with representation: the better way to development say experts

(Oct. 04) An increasing number of experts say efficient and accountable tax regimes, not foreign aid, are vital in promoting development, writes Brady Yauch.

Leaders from across the world recently pledged to step up foreign aid efforts in order to meet the much-talked-about Millennium Development goals. But more and more economists, politicians and academics are arguing that an efficient and accountable tax regime will do a much better job promoting development than foreign aid.

The latest expert to voice his support for taxation as an effective tool for development is Mario Pezzini, director of the OECD development centre in Paris. Writing in the Guardian [PDF] , Pezzini says that while a number of African countries are now celebrating nearly 50 years of independence, far too many of them continue to rely on foreign aid, rather than, “mobilizing their own resources.”

According to Pezzini, while some countries may have to continue to rely on foreign aid, many others can—and should—be relying on tax revenue.

“Unlike aid money, which will likely remain painfully limited, tax revenue can make an enormous difference to achieving development goals,” he says. As evidence of his claim, he says that in 2008, the combined fiscal revenue in Africa topped $400-billion, accounting for 10 times the total amount of aid funds flowing into the continent.

Pezzini adds that using this tax money efficiently and effectively must be a priority, saying, “monitoring and evaluation of public expenditure should become the norm, and coherence between national and local actions has to be improved.”

“Long-term, sustainable development will always be contingent on local ownership and domestic resources,” he says. “These in turn require informed public policies with long-term perspectives.”

He also believes governments in the developed world could help in the establishment of a fair system of taxation on the African continent by addressing issues such as tax evasion, fiscal havens and abuses by multinationals.

Pezzini’s remarks add to the growing chorus of experts and developing world leaders in favour of taxation over aid to promote development. Speaking at a conference at the World Economic Forum on Africa earlier this year, for example, African leaders called for reform of the tax system, pointing out that Africa currently has one of the lowest tax-to-GDP ratios in the world.

South African Finance Minister Pravin Gordhan, Mozambican President Armando Guebuza and African Development Bank President Donald Kaberuka, admitted that the African continent lagged behind most other parts of the world when it comes to tax collection.

Meanwhile in Pakistan, the country’s Federal Minister for Finance and Revenues, Shaukat Tareen, has gone on record saying that if the government were able to increase revenues from tax collection, contentious foreign aid packages, such as the US Kerry-Lugar bill that sparked weeks of protests last year, would be unnecessary.

Brady Yauch, Probe International, October 4, 2010.

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