Why introduce international solidarity levies?
Official Development Assistance (ODA) is essential to provide the poorest countries with the resources they need to exploit their economic potential and to join the global economy. The additional resources needed to achieve the Millennium Development Goals (MDGs) have been estimated at $50 billion per year. International solidarity levies would generate additional revenue to supplement traditional ODA.
Growth is essential to alleviate poverty. Many countries, particularly the most heavily populated, have made considerable progress towards eliminating poverty through strong economic growth over the past 15 years. International trade is thus seen to be a powerful engine of development. All the big economic success stories of the past 50 years have been underpinned by exports. There are no examples of countries that have managed to pull themselves out of underdevelopment without entering and tapping into the world market, without attracting investment, without creating a favourable environment for the private sector and without improving governance.
However, many obstacles prevent countries locked in poverty traps from taking advantage of such opportunities. Such countries are hobbled by geographical isolation, recurring natural disasters and weak infrastructures. Extreme poverty is also in itself an obstacle to growth. We now know that poverty cannot be defined by income alone. It is a state of extreme vulnerability due to a lack of physical, financial and human capital. As a result, even when opportunities arise - as through market liberalisation - poor households and producers are unable to take advantage. There are critical thresholds for geographical isolation, health and education standards and vulnerability to natural disasters below which economic progress is impossible.
The role of aid is to end the mutually self-reinforcing cause-and-effect relationship between poverty and growth by enabling poor countries to break through those critical thresholds, even when their domestic resources are insufficient. The quality of infrastructures and the level of human development (health and education) are essential. They determine a country’s capacity to attract and spur investment, including private investment, without which sustained growth is impossible. It is therefore crucial to increase aid volumes, particularly by developing innovative additional sources of funding.
To generate more stable and more predictable revenue in order to meet the needs of the developing countries
For human development purposes, the quality of aid is just as important as its quantity. ODA is currently approved as part of annual budgets or less commonly multi-annual budgets (but never more than three years), and thus fails to cover all needs of the developing countries. There is no stable, predictable instrument for funding the MDGs. International solidarity levies could play this role.
For many observers, the answer to the challenges of poverty is simple: developed countries must honour their commitments to increase ODA. Ambitious efforts have already been made on this score (France’s ODA effort, expected to amount to 0.47% of GNI in 2005, will be raised to 0.5% in 2007 and 0.7% in 2012, while the European Union has made a similar collective commitment out to 2015) and must be continued and extended. However, to supplement the increase in traditional aid, developing countries need a predictable, stable source of funding, which the annual framework that generally governs the budgets of developed countries cannot guarantee.
ODA fluctuates considerably over time. On average, ODA volatility is four times higher than the GNP of the developing countries. This volatility stems mainly from budget procedures in donor countries, changes in priorities and policy-making or implementation delays. In most cases, it cannot be linked to objective and identifiable causes. It cannot therefore be anticipated. This aid is not only volatile, it is also and above all, unpredictable.
The consequences are extremely harmful for poor countries. Volatility aggravates internal and external imbalances if spending reflects expected aid payments that do not materialise. The unpredictability of aid also blunts its effectiveness. It hampers investment and the programmes most needed for development. Some programmes may be discontinued while others become more expensive due to frequent disruptions. These uncertainties particularly affect the programmes which have the biggest need for long-term stability and continuity and which make the biggest and most direct contribution to alleviating poverty and achieving the MDGs (health and education).
These observations shed a new light on the capacity of poor countries to absorb and effectively manage a growing volume of aid. Some of this capacity is endogenous: if aid were more stable, larger amounts could be absorbed and managed more effectively. Making aid more predictable is therefore a sine qua non for an overall increase in aid volumes.
International solidarity levies offer a way of safeguarding the poverty-reduction system from shifts in policy and international cooperation. These solidarity levies would finance the recurring costs of poor countries’ human development programmes, which must be continued over the long term (e.g. training of doctors, wages of teachers, purchase of medical drugs, etc.).
In the current context, no international authority has the power to levy taxes. Therefore, an international tax is necessarily an act of cooperation between governments. An international tax could be defined as a series of identical or similar national taxes, implemented by governments within a jointly agreed framework that would also cover the use of the revenue raised by each country. This cooperative arrangement would need to be negotiated and legally formalised.
Allocating the revenue from an international solidarity levy to specific purposes is both necessary and useful. This would establish a direct link between the contributors and beneficiaries of the aid, making the tax more legitimate and more acceptable. The mechanism would also permit the allocation of stable, predictable resources to programmes with a particular need for continuous funding. International solidarity levies would be used to finance policies that traditional ODA cannot cover because it is too irregular.
An international solidarity levy will be more likely to increase total development funding if allocated to specific unmet needs, thus revealing previously implicit preferences, and if allocated and managed with sufficient transparency and integrity to rule out any suspicion and criticism. The use of the revenue from international solidarity levies must not duplicate existing institutions. However, within the framework of the current institutional architecture, it seems appropriate to give countries applying the international levy a say in the use of its revenue.
Eradicating extreme poverty is an ethical, political and economic imperative for rich and poor countries alike. To achieve this goal, we must move beyond the North/South divide and take a partnership approach. International solidarity levies would therefore be applied by developed, emerging and developing countries, at rates reflecting the contributory capacity (i.e. the wealth) of each participating country.
International solidarity levies will help make globalisation more equitable. In the 20th century, the industrialised nations established rules to govern nascent capitalism. Today’s globalisation requires new regulation and redistribution mechanisms. International solidarity levies are one such mechanism. They would make it possible to redistribute some of the wealth generated by globalisation that escapes from traditional economic and financial channels.