Realizing the objectives set out in the Sustainable Development Goals and levelling the vast powerimbalances in the global economy can only be achieved if we marshal the necessary resources and rely on coordinated policies which ensure that these resources are deployed effectively. As a result, financing for development is not merely a quantitative/funding question but also a quality/structural issue. In other words, it is not enough to merely spend more on development but these sums must be used as effectively as possible to solve problems while taking into consideration the particularities of the situation on the ground.
Such a comprehensive approach includes classical methods of development funding (i.e. development aid); more and better resource mobilization through progressive tax systems and the curbing of illicit financial flows; the inclusion of private enterprises in development; increasing the capacities of developing countries; and making sure that the debt of developing countries does not exceed sustainable levels. It is further of vital importance to reform the international financial and economic systems, institutions and mechanisms that impede effectiveness, development and fairness: we need to close the loopholes that allow for global tax avoidance, we have to review outdated and unfair tax regimes and we need to hold international financial institutions accountable for all decisions, measures and practices that have a detrimental impact. At the same time we need to submit proposals for systemic solutions that will result in structural changes.
Tax justice
Tax policy is one of the most important instruments in combatting inequality. Our taxes are used to fund public services and to operate public institutions such as hospitals and schools. The tax systems also determine the share of each social group of the joint financial burden borne by everyone for the welfare of society. However, on account of the antiquated and loophole-ridden nature of the international tax system, many billions in potential state revenues disappear untaxed in tax havens, thereby causing massive damage to national budgets. As a consequence of these unpaid taxes, states are deprived of vital revenue which also shapes the developmental capacities of the given country or region; and it is the poorest countries that suffer the most from losing access to these funds.
The scandals that have erupted in recent years (LuxLeaks, the Panama Papers, the Paradise Papers)reinforce a nagging suspicion: the publicly visible aspects of tax fraud and tax evasion are very likely only the tip of the iceberg. According to the estimate of the Tax Justice Network, the total value of assets stored in offshore countries and jurisdictions could be as high as 16-25 thousand billion euros. What this means is that the amount of capital flowing out of Africa in the form of unpaid taxes is higher than the amount that is channeled to the continent in the form of official development funds (aid) provided by developed nations.
Furthermore, the lack of fairness in tax systems also contributes to the growth of inequality within individual countries, including Hungary. As one of the pioneers when it comes to raising awareness about this issue in Hungary, DemNet has actively focused on the issue of global tax justice since 2013.
Aid Effectiveness
Aid is an important form of support extended in the framework of international development cooperation. It is aimed at reducing poverty and promoting the welfare of developing countries. For several decades now, developed countries and international organizations have committed themselves to reducing global inequality and fostering development in the poorest regions on Earth. Over the past decades, the work to this end has become increasingly better coordinated, but at the same time the complexity of the challenges that need to be tackled at the global level has also increased massively. It is of the utmost importance that the aid provided to developing countries be effectively deployed, that it responds to actual needs on the ground. For this to happen, the donor countries and organizations must abide by their international commitments and the international recommendations aimed at promoting efficiency, and to correspondingly increase the level of genuine Official Development Assistance (ODA); to reduce inflated subsidies and to untie aid; to desist from exercising pressure through unwarranted economic policy-based conditionality; and to comply with the provisions of the Paris Declaration (2005), the Accra Agenda for Action (2008), the Busan Partnership For Effective Development Cooperation, and the Addis Ababa Action Agenda (2015).
Since Hungary’s EU accession, DemNet has been actively engaged on the issue of aid both as a public policy topic and as a partner, participant and collaborator in numerous domestic and international initiatives.
Debt
Debt is often at unsustainable levels in both developed and developing countries. This is an obvious sign of aflawed international financial system and one of the key causes of inequality and poverty. Moreover, governments often do not use the debts they incur for development, reducing poverty, asserting human rights or protecting the environment but instead spend the funds on military acquisitions or other projects that do not serve the public good. In such instances, the developmental impact is decidedly negative and lenders ought not acquiesce to such uses of the funds they provide.
However, it is exactly the lenders, the credit institutions that write the rules concerning lending.
The financial system, which is based on enduring power imbalances, favors indebtedness over development. In the majority of cases, the loans flow back into the pockets of the creditors without exerting any beneficial impact such as reducing poverty or inequality. Developed nations are no exception in this regard. That is why DemNet places an emphasis on awareness-raising activity that supports the elimination of power imbalances and contributes to the emergence of a fairer financial system.
Private Sector
The private sector plays an increasingly important role in realizing the Sustainable Development Goals and in mobilizing further financing for development. International development organizations channel substantial resources to private enterprises since private financing directed at developing countries and the emergence of a vibrant private sector in these countries can be a vital component of development because of its ability to create jobs, provide basic goods and services and generate tax revenues.
In many cases, however, what actually happens is exactly the opposite. Development organizations often fund the investment projects of major multinational corporations in developing countries rather than helping smaller local enterprises. In the meanwhile, the corporate beneficiaries of such development subsidies often fail to adhere to even the most basic norms of operation, that is they often do not pay taxes in the developing countries where they operate and generate profits, they don’t respect human rights and they do not care about the needs of environmental sustainability. Private actors who are involved in international development projects must pay heed to the aforementioned considerations and incorporate them as fundamental components of their business plans. The impact on development and effectiveness of the financial resources flowing from North to South must be improved, and we must ensure that corporations comply with the norms of financial responsibility.