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Progressive tax norms must underlie financing of the Sustainable Development Goals
Pooja Parvati / Pooja Parvati
“Let me tell you how it will be
There's one for you, nineteen for me
'Cause I'm the taxman, yeah, I'm the taxman
Should five per cent appear too small
Be thankful I don't take it all
'Cause I'm the taxman, yeah I'm the taxman…”
These are lyrics from the Beatles’ 1966 hit song ‘Taxman’ in the album ‘Revolver’. Urban legend has it that George Harrison was so miffed with the high rate of progressive taxes levied by the British Labour government that he penned this song. Within just two years of forming their band, their earnings placed them in the top tax bracket in the U.K. and made them liable to pay a 95% supertax introduced by the government. This was later abolished in 1973.
Let me confess that while I love their songs, the Beatles are not particularly topping the charts when it comes to promoting tax justice.
Why so? Progressive taxation is a means to promote tax justice. It implies a system where tax rates increase as taxable amount increases. While these mostly apply to personal incomes, it can also apply to other kinds of tax adjustments by using tax exemptions, tax credits, or selective taxation.
For instance, levying a wealth or property tax, sales tax on luxury goods, or exemption of sales taxes on basic necessities, also create progressive effects by increasing the tax burden of higher income families and reducing it on lower income families. The much-feted French economist Thomas Piketty has also written how decreased progressivity in taxes increased income inequality in countries like the U.S.A.
A simple measure of progressivity in taxation is the proportion of tax revenue to a country’s GDP (also known as tax-GDP ratio). Let’s look at how some of the emerging economies fare: over a ten-year period (2002 to 2012), Brazil registers an increase in its tax-GDP ratio from 30.1 to 33.7. South Africa (from 27.4 to 28.2) and China (from 16.8 to 24.4) also record increases for the same period.
While India also shows an increase from 13.4 to 17.9, this is much lower than the others. It is worth noting that, as per the latest Union Budget 2015-16, tax revenue foregone on account of tax exemptions in India was to the tune of 5% of GDP.
The all-time hit song is also striking as it reveals how, in less than 50 years, the role of the government world over has changed dramatically. From governments that took the onus to provide for quality, basic essential services to all (that included quality healthcare and education, and in some cases, social security), we now see a shift wherein governments act more as a ‘facilitator’.
Financing for developmental priorities is no longer only for the government to care for; there are newer actors who now determine how much is to be spent and what are the priorities.
This began eighteen years ago (in 1997), when the UN General Assembly adopted the Agenda for Development and considered holding an international conference on financing for development (henceforth FFD). Two international conferences (Monterrey, Mexico in 2002 and Doha, Qatar in 2008) and several parallel sessions later, we are edging closer to the third international conference on FFD to be held in Addis Ababa, Ethiopia this July (13-16). This conference is also important as it would determine the contours of financing the new set of global goals, also known as the Sustainable Development Goals (SDGs).
The second FFD draft Outcome Document of the Addis conference (also known as Addis Accord) has been read and re-read by countries at the third drafting session at the UN that concluded on June 25, 2015. Beginning with the Monterrey Consensus of 2002 and reaffirmed in the Doha Declaration in 2008 held in the midst of the global economic crisis, there has been a continued push to promote private sector and other private flows.
The text of the draft FFD Outcome Document (the 3rd conference) brings this ‘push to shove’, as it clearly roots for private finance and, to quote the Robin Hood Tax Campaign, “strips out all reference to specific innovative taxes such as aviation, maritime and finance. If that were not bad enough, proposals to explore innovative mechanisms based on PPP models through market mechanisms and trading systems are encouraged. If ever an example of corporatization of the development agenda were needed, it is here as we see public financing having been completely replaced.” The final draft of the FFD Document freshly-released on June 26, 2015 retains all these proposals.
Social Watch also notes a move towards endorsing the UN Intergovernmental Committee on Sustainable Development Financing (ICESDF) report, which is viewed by several countries as leaning too heavily on private sector financing, blended finance and partnerships without adequate accountability mechanisms and governance measures.
A concern shared by many developing countries is that the aid commitments made by the developed North have not been realized. Instead of pushing developed countries to commit 0.7% of official development assistance (ODA) as a proportion of their Gross National Product (GNP), the shift is to bring in newer players with bigger purses who also want a say in determining policy priority.
The 0.75% target that was first proposed by the Nobel-winning Dutch economist Jan Tinbergen in 1972 and later endorsed by the 2005 G8 Gleneagles Summit now finds mention in just one para (para 51) of the 135 paras of the final draft of the Addis Accord.
If governments globally begin ‘facilitating’ private money lenders, who will regulate these lenders and safeguard the interests of citizens, the majority of who survive on less than a dollar a day? Over 100 networks and civil society organisations (CSOs) have endorsed the Lima Declaration on Tax Justice and Human Rights in the run-up to the Addis Summit. These and many such initiatives demand that tax justice underlie financing of the SDGs. Oxfam, along with our allies, also joins this call and demands for tax justice to fight inequality.
Written by: Pooja Parvati, Research Manager, Oxfam India
Photo credit: Srikanth Kolari
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