SDG Knowledge Weekly: Tax, Official Development Assistance and Urban Finance

Last week’s SDG Knowledge Weekly brief looked at blended finance and the private sector actions as means for achieving the SDGs. This week, we explore the role of public finance for the SDGs, review events convened by the international community on tax collaboration and urban financing issues, and look ahead to this week’s meeting on the follow-up to the Addis Ababa Action Agenda on FFD.SDG-goals_Goal-01 No Poverty

Blended finance and the private sector hold promise for contributing to progress on the SDGs. But there cannot be blended finance without the existence and leveraging of public funding sources. Public financial flows can be international (i.e. Official Development Assistance (ODA)) or domestic, with the vast majority of in-country revenues coming from taxes. However, a post on the World Bank’s Governance for Development blog notes that “almost 30 of the 75 poorest countries collect less than 15% of GDP in taxes,” revealing a high reliance on international public finance and a need to develop more effective, efficient taxation systems.

On domestic resource mobilization (DRM), the Platform for Collaboration on Tax (PCT) convened its First Global Conference from 14-16 February 2018, at UN Headquarters in New York. The Conference was held under the theme, ‘Taxation and the Sustainable Development Goals,’ and covered the social dimensions of tax, taxes’ role in supporting sustainable economic growth, tax capacity development and tax cooperation. The PCT, an effort of the World Bank Group, International Monetary Fund (IMF), Organisation for Economic Co-operation and Development (OECD) and the UN, aims to strengthen cooperation on DRM issues. A joint press release from 14 February calls on countries to recognize the cross-border impacts (spillover effects) of their tax policies, and to work towards a system that combats tax evasion and avoidance. To follow the conversation on social media, search for the hashtag #Tax4Dev, and stay tuned for IISD’s summary of the SDG-goals_Goal-08 Decent Work & Economic Growthmeeting.

Also on tax and the SDGs, the International Chamber of Commerce (ICC) released a position paper of the same title. The paper “addresses how effective tax policy can facilitate economic growth,” thereby stimulating progress towards the SDGs. It notes that tax policy needs to work in tandem with investment policy, and that international tax rules can guide cross-border trade and foreign direct investment (FDI) in a manner that allows countries to retain sovereignty, a key sticking point in today’s volatile political climate. A news release highlights ways in which effective policies can accelerate progress on SDG 1 (no poverty), SDG 8 (decent work and economic growth), SDG 10 (reduced inequality), SDG 16 (peace, justice and strong institutions) and SDG 17 (partnership for the Goals).

We cannot think about tax as simply a target for incremental revenues towards the SDGs.

The Center for Global Development’s Maya Forstater authored a policy paper and SDG-goals_Goal-09 Idustry, Innovation & Infrastructureaccompanying brief on ‘Tax and Development: New frontiers of research and action.’ The policy paper examines potential gains to be made from taxing across borders and compares these to the benefits of domestic actions. The paper finds that, although there remains a need to close international tax loopholes, focusing on overlapping tax bases may detract from efforts where greater in-country gains can be realized. In the brief, Forstater states similarly that both international and domestic measures are needed to mobilize resources, though domestic measures have a greater potential to increase tax yields. She notes that we cannot think about tax as simply a target for incremental revenues towards the SDGs. Rather, voters in poor and/or low-tax countries must shift mindsets such that more is expected of revenue authorities and that decent services are demanded of governments. Successful provision of services requires both sustained economic growth and accountable institutions responsible for securing public goods and managing spending.

SDG_Goals 10 Reduced Inequalities

On ODA, The Brookings Institution’s Anthony Pipa defends traditional aid. He acknowledges that, although ODA reached a record level of US$142.6 billion in 2016, the amount represents an ever-decreasing proportion of total international finance flows to developing countries. Pipa argues that the OECD’s Development Assistance Committee (DAC) is in a position to guide a transition “from development aid to development finance,” where a wider range of actors and institutions come together to solve development challenges. He highlights the DAC’s focus on outcomes and effectiveness, and promotion of democratic institutions. These values, Pipa states, underpin DAC members’ commitments to transparency and a rights-based approach to sustainable development, which position them to lead the international community by demonstrating how to operationalize the fundamental principles of the SDG_Icons-112030 Agenda.

Public finance was also discussed at the UN Human Settlements Programme’s (UN-Habitat’s) ninth World Urban Forum (WUF 9), which convened from 7-13 February 2018, in Kuala Lumpur, Malaysia. A World Bank blog released prior to the Forum warns that, of the US$4.5 to US$5.4 trillion global urban infrastructure gap, only 3% can be funded through ODA. WUF 9’s agenda dedicated a “thematic itinerary” to discussions on municipal finance, with many of the events explicitly linking to localization and implementation of the SDGs. Devex’s Gregory Scruggs reports that WUF 9’s resultant Kuala Lumpur Declaration considers investment in urban development to be “an accelerator for delivering on the SDGs.” IISD’s Earth Negotiations Bulletin has full coverage of the Forum.

Continuing the discussion on urban finance, UNDP’s Gail Hurley highlights that many of the investments needed to meet the SDGs’ targets are made at the subnational level. Her discussion of municipal finance outlines barriers currently facing public decision-makers, including consistent access to finance. While subnational and local actors need to be able to utilize finance from a range of sources, city-level officials are often constrained in doing so, due in part to low “capacity to support debt.” Hurley notes that this issue can be addressed through equity finance, pooled finance arrangements, municipal bonds, public-private partnerships and other innovative or smaller-scale efforts including crowdfunding and social impact bonds. UNDP is bridging the finance gap by strengthening municipal administrations’ capacities such that they have a greater role in decision-making and resource allocation, and the UN Capital Development Fund (UNCDF) launched a program on Municipal Investment Finance.

On public-private partnership (PPP) more broadly, Lorenzo Cotula and Celine SDG-goals_Goal-16 Peace, Justice & Strong InstitutionsTan posted on the International Institute for Environment and Development’s (IIED’s) blog. Against the backdrop of a need for additional finance to achieve the SDGs, the authors consider how public donors’ perceived shift towards catalyzing private finance can yield new instruments that accelerate efforts to achieve the SDGs. Unpacking PPPs and investment treaties, the post calls for “more joined-up policymaking” such that private investments are aligned with public policy goals. For those seeking to learn more on public finance, the Overseas Development Institute’s (ODI’s) Mark Miller compiled a list of six things to read in February on public SDG-goals_Goal-17 Partnerships For The Goalsfinance for development, including a review of PPPs.

Those following the international finance discussions will also be interested in the following upcoming events taking place at UN Headquarters in New York:

  • The World Bank Group will be discussing its new approach to development finance, called ‘Maximizing Finance for Development’ (MFD), on 22 February 2018.
  • The Inter-agency Task Force (IATF) on Financing for Development (FFD) will host an informal dialogue on 23 February 2018 to discuss the IATF’s progress on its 2018 report.
  • DESA’s FFD Office is organizing a series of technical briefings from 5-9 March 2018, on topics covered by the IATF’s forthcoming 2018 report.

Additional issues of the SDG Knowledge Weekly can be found here.

References: International Institute for Sustainable Development. 2018. Retrieved from http://sdg.iisd.org/commentary/policy-briefs/sdg-knowledge-weekly-tax-official-development-assistance-and-urban-finance/?utm_medium=email&utm_campaign=2018-02-20%20-%20SDG%20Update%20DN&utm_content=2018-02-20%20-%20SDG%20Update%20DN%20CID_117ef0a9b9dc131308f0d7abf2c597a7&utm_source=cm&utm_term=SDG%20Knowledge%20Weekly%20Tax%20Official%20Development%20Assistance%20and%20Urban%20Finance

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