Trillions of dollars would be required to achieve the 17 Sustainable Development Goals (SDGs) that the United Nations is expected to adopt in September, global experts said. The goals address a wide range of issues from healthcare for all, to education, water, energy and protecting the environment.
But in an era of budget austerity, Western governments have made it clear, ahead of a development finance summit in Addis Ababa in July, that foreign aid will be insufficient to do the job. Total official development aid (ODA) currently runs at about $131 billion a year.
Heads of state must embrace a new financing framework, one that mobilises ODA, private investment and higher levels of government revenues, United Nations Secretary-General Ban Ki-moon said on Friday.
“Much more is needed. We need to shift the conversation from billions (of dollars) to trillions,” Ban told a World Bank panel on development finance.
Improving tax collection in developing countries was high on the agenda at several meetings held this week during the World Bank/International Monetary Fund(IMF)spring meetings to discuss new models for increasing development finance.
Better tax systems would bolster budgets and give governments more funds to invest in social programmes. In many low-income countries, tax as a percent of GDP is under 15 percent against at least 24 percent in advanced economies, IMF data show. Finance ministers asked for more technical help.
But equally pressing is the need to crack down on illicit finance, tax evasion by multinational corporations and unjust mining and energy contracts that rob countries of their natural resource wealth, said Nigerian Finance Minister Ngozi Okonjo-Iweala.
Multinational corporations have immense expertise on how to exploit tax loopholes, financial knowledge that developing countries lack rendering them unable to capture corporate taxes on profits earned in their countries, she said.
“We are losing a lot of money,” Okonjo-Iweala said. “ODA matters but generating our own resources matters even more.”
A UN panel led by former South African President Thabo Mbeki has estimated that Africa loses $50 billion a year to illict finance, double the amount of official development aid that flows into the region, and that multinationals account for 60 percent of the lost revenues.
World Bank Managing Director Sri Mulyani Indrawati singled out fighting tax evasion and illicit finance, including the offshore hubs and shell companies used to transfer money, as important elements for addressing the shortfall in development finance.
One UN study estimated that $250-300 billion a year in development finance is lost through the outflow of potential revenues that can be taxed.
Indrawati said sophisticated financial centers act as “quasi-enablers,” assisting corrupt individuals and legitimate companies in diverting money from the poor.
“For the schoolchild in Haiti, the new mother in Malawi or the farmer in Bangladesh, these losses have real impact. They result in classrooms that are overcrowded, health clinics that are never built and water that is never delivered,” she said.
The G20 leaders of advanced and major developing countries have drawn up proposals for sharing tax information and improving corporate tax fairness, and they have vowed to set up registries on who owns assets stashed in opaque corporate structures.
But Indrawati said more action is needed, calling it an urgent issue for achieving the new development goals.