Financing 2030 Agenda: Bottom up reports show road “hazy and full of obstacles”
Published on Fri, 2016-10-28 18:12
When asked about how countries are implementing the 2030 Agenda and the obstacles encountered, civil society groups and coalitions affiliated with Social Watch around the world generally agree that their governments recognize the political weight of the new international consensus. Yet, many difficulties of different nature are identified in different countries, and a lot of them are related to finances.
“With reference to the 2030 Agenda, there are progress and setbacks,” writes Héctor Béjar on behalf of the Social Watch coalition in Peru. “GDP grew, but inequality grew as well. The mafias that exploit drug trafficking, illegal mining and smuggling continued to concentrate wealth, which then left the country through profits of foreign companies that enjoy lower taxes than national companies. Monetary poverty of less than USD 1.25 a day has declined, but multidimensional poverty has risen to critical levels. Maternal and infant mortality were reduced, but the anemia of women and children, unwanted and premature adolescent pregnancies and deaths from abortion and postpartum hemorrhage have remained.”
The growth versus planetary resources dilemma is true in Peru as in many other countries: since the start of this century, Peru has experienced sustained economic growth due to rising prices of gold, copper and other products exported by transnational companies operating in the country. GDP growth has been achieved at a high environmental cost and with a strong social polarization between, on the one hand, the mining, fishing and logging companies (virtually the entire territory is given in concession to extractive industries) and, on the other, local populations. As a result, Peru is on the list of the ten countries with the highest number of environmental conflicts in the world.
A very similar situation is reported by Pakorn Lertsatienchai, Ranee Hassarungsee, Tatikarn Dechapong and Pattraporn Chuenglertsiri from the Social Watch coalition in Thailand: “In the interests of development, local resources are extracted and exploited in many ways, including petroleum extraction facilities, deforestation, large-scale land purchasing, water management, and even tourism. Around the Thai Gulf development plans include construction of industrial estates, deep-water ports, several nuclear and coal power plants, steel manufacture and other factories. People in the study area angrily expressed that ‘fending for ourselves and families is hard enough, but we still have to fight capitalists, authorities and the state that supports the capitalists.’”
In Bangladesh, the report (prepared by EquityBD with the contribution of Synergy Bangladesh and Unnayan Shamannay) states that “since the 1990s, when democracy was reinstated and some major economic reforms were made, the economy has experienced impressive growth, and the country has made praiseworthy progress in education, health and gender equity.” The 1991-92 poverty rate of 56.7 per cent came down to 31.5 per cent in 2010. But this is still a very high number and with a national budget deficit of 5 per cent of GDP it cannot be eradicated in fifteen years without international support. In terms of climate change alone, in 2011 it was estimated that the direct annual cost to Bangladesh for natural disasters over the previous 10 years was between 0.5 and 1 per cent of GDP –plus another USD 5.7 billion in adaptation costs, owing to increased risks of cyclones and inland monsoon floods by 2050.
Bearing almost no, or very minimum responsibility for global warming or climate change, Bangladesh is one of the most affected countries from this phenomenon. It is obvious to Bangladeshis that “funds should come from the countries which are historically responsible for the impact of climate change, along with needed technology and capacity building support.” But this has not happened. Bangladesh needed foreign assistance of at least USD 3 billion per year, but from 1990-91 to 2013-14 it only received on average USD 1.74 billion per year in ODA.
In addition, Bangladesh also experiences high levels of Illicit Finance Flows (IFFs) to other, mainly developed, countries. It is estimated that in 2013, IFFs reached about 7 per cent of GDP, a sum 11 times greater than the foreign assistance received that year. The Central Bank of Switzerland observed that while overall, illicit financial flows to Switzerland are declining, at the same time they are skyrocketing out of Bangladesh.
Malta is one of the tax heavens channeling illicit flows out of poor or impoverished countries, ranking 27th in the list of countries listed as tax havens in 2015 by the Financial Secrecy Index. J. M. Sammut, from the Maltese NGO Kopin condemns tax evasion and money laundering as “two major causes of global poverty and injustice.” Recently, Malta was linked to corruption scandals “exposing the use of Malta as a tax haven for companies which are not paying any tax money in countries that have high poverty and inequality rates, such as Angola and Brazil. These companies are legally allowed to avoid paying any tax in their homeland, whilst paying a small percentage to a developed country, in this case, Malta.” Since the principle of redistributive taxation has an important role to play in sharing the common good and building equitable and just societies, the Maltese call on their Government, as part of the 2030 Agenda strategy, “to do their outmost to highly penalize tax evaders.”
Switzerland ranks first in the global Financial Secrecy Index computed by the Tax Justice Network and the Swiss Social Watch report, prepared by Eva Schmassmann and Jürg Staudenmann, on behalf of the NGO coalition Alliance Sud. The report argues that “there is no Swiss strategy to stop the outflow of tax money out of developing countries. (…) Swiss banks held 2,300 billion Swiss francs in foreign deposits and a tax haven Switzerland hosts the headquarters of hundreds of transnational corporations and is responsible for the outflow of private fortunes from developing countries as well as the transfer of corporate profits made in Southern countries. Swiss tax and financial policies facilitate a global race to the bottom, further reducing global corporate taxation and forcing many states to cut their budgets even more.” Alliance Sud concludes that Switzerland’s business model will continue to contradict the goals of the 2030 Agenda so long as “only the minimum OECD and G20 tax transparency requirements are applied”, arguing that the country should “proactively promote tax transparency in financial accounting as well as corporate reporting, both of which should also benefit developing countries.”
The issue of tax havens and IFFs appears often in this year’s country reports. For example, Social Watch Philippines writes that “corporations rule Philippine development, aided by government policies and public-private partnerships (PPPs).” Corporations control the commanding heights “surrendered by the government” in areas such as land, water, electricity, transportation and communication, banking and finance, media, schools, hospitals, sports and entertainment. They run an economy powered by fossil fuels. They take the lion’s share of wealth and income of the nation. They are beneficiaries of tax incentives and may also be responsible for illicit financial flows which run into billions of forgone revenues.
In Argentina, newly elected President Mauricio Macri started at the end of 2015 with drastic changes in economic policies, including a permanent cut in export taxes that economists Joseph Stiglitz and Martin Guzman called “a large transfer to the wealthy, at great cost to ordinary workers. Whatever the efficiency benefits, the distributive consequences and development implications cannot be ignored.”
These changes, according to the Argentinian Social Watch report, authored by Valeria Chorny, Bárbara García and Vilma Paura from FOCO and Luna Miguens, Leandro Vera Belli, Santiago Sánchez and Eduardo Reese from CELS, include “the devaluation of the peso of almost 60 per cent, the reduction or elimination of export taxes and the elimination of controls and the reduction of taxes on luxury goods. The result was a surge in inflation and a massive transfer of resources to the powerful. Further, the liberalization of imports, the reduction of credits to small and middle enterprises and the rise in interest rates (to slow down the increase in the value of the dollar) are a main obstacle to the medium and small scale production system that creates the most jobs.”
Scandals and more scandals
In Guatemala in 2015 hundreds of thousands of peaceful demonstrators forced the resignation of the president, general Otto Pérez Molina and the vice-president, Roxana Baldetti, accused of having organized a corruption network at the highest level. “It was a victory for mobilized civil society, made possible by the action of national prosecutors and the support of the international community through the “International Commission against Impunity,” This is an ad hoc body of the United Nations in Guatemala to “strengthen the justice system and fight the parallel bodies and underground machinery imbedded in the State” report Helmer Velasquez and Arlyn Jimenezs from Congcoop.
“The social task of reforming the State is only starting and it will be a long process to strengthen public institutions and at the same time find solutions to the centuries old deprivation of the majority indigenous populations,” comments the Guatemalan Social Watch coalition.
This process has been inspiring for the Central American region and in neighbouring Honduras a new social movement has emerged, brought together by the fight against corruption. The movement is formed by different social organizations at the margin of political parties and institutionalized civil society, and several demonstrations of the “indignados” (outraged) demanded the creation of an internationally supported investigation commission similar to the one in Guatemala.
Suyapa Martinez, from the Centro de Estudios de la Mujer details in the Social Watch report the need for improved social auditing in Honduras: Last year women’s advocacy succeeded in including in the budget articles aimed at earmarking for gender-specific budget items. But those articles have not been implemented. Similarly, although laws were passed to institute Credimujer, a loan programme for rural women, no budget has been approved to make it happen. The law requires that 5 per cent of the transfers to municipalities should be spent in programmes and projects aimed at women, but those resources have been channeled instead to the “better life” programme of the First Lady.
Globally, the “Panama Papers” brought the issue of corruption, tax avoidance and money laundering to the forefront of international attention, but outrage does not always lead to action. In the Czech Republic, for example, it has been reported that “the Government welcomes the reform of the global tax rules and standards that significantly affect the ability of governments to collect taxes and will prevent the utilitarian transfer of profits to countries with more favourable taxes.” But the national Social Watch report, edited by Tomáš Tožička, argues that although the Czech Government agrees with the involvement of developing countries in negotiations on tax issues, it “does not support the efforts to promote and extend the current mandate of the UN Committee of Tax Experts” to create an intergovernmental authority for tax issues. Although the Ministry of Finance supports the adoption of the automatic exchange of information “with as many jurisdictions as possible,” the inclusion of developing countries has not been explicitly mentioned. And while the fight against tax evasion is one of the priorities of the Government, little attention is paid to the avoidance of tax obligations on the part of large corporations.
“One of the first challenges for effective implementation of actions to meet the SDGs is to secure ongoing State funding, which requires a fair tax reform that makes it possible to implement needed social programmes,” argues the report from El Salvador. Over the last three years, civil society organizations in El Salvador have promoted the need for tax justice through proposals to curtail tax evasion, which in 2013 was estimated at 28 per cent of all taxes due.
While some countries suffer from massive tax evasion, others just do not bother to levy significant taxes. In Guatemala, for example, total government revenues, at 11 per cent of GDP, are one of the lowest in the region. The situation is aggravated by legal mechanisms that grant privileges and tax exemptions, as well as by a parallel financial system that makes tax fraud and tax evasion easy. The resulting budget deficit has to be covered through indebtedness. Social expenditures are a low priority and while small farmers receive a mere USD141.49 per capita per year in total assistance, over 9 per cent of the budget is directed towards the police and the military.
In Paraguay, Verónica Serafini Geoghegan from Decidamos, reports that poor revenue is the result of an implicit and at times explicit deal, where the rights of citizens (to health, education, housing, security, etc.) are never met and the struggle against inequalities, corruption and massive prevalence of poverty is made impossible. Again, debt is the mechanism to fund infrastructure. Roads are built that mainly benefit large agriculture exporters. When the World Bank and the IMF warn about the unsustainability of that debt, PPPs are introduced as a solution. The problem with PPPs, argues the report from Paraguay, is that they end up generating liabilities for the State that were not approved in any budget law. “PPPs lack transparency and the governmental guarantees for private projects are never properly registered or accounted for, all of which can only increase inequalities in the future.”
Inequalities, frequently associated with unfair tax systems and other structural asymmetries in power and access to resources is an obstacle identified by many country reports. Even in Finland, which is listed among the countries with the best income distribution in the world, the national NGOs, grouped in KEPA, report to Social Watch that SDG 10 will be “a challenge” since “inequality in income has doubled in the last 10 years.” As a result, “halving poverty in Finland by the year 2030 will also require strong efforts as 17 per cent of the population is considered at risk of poverty and social exclusion.”
In Kenya, a post-colonial African society still faces today inequalities rooted in colonialism. The Kenyan Social Watch report by Edward Oyugi (Sodnet) and Oduor Ongwen (SEATINI) explains:
“The logic went as follows: development policy must follow the regional distribution of so-called high potential economic activities. This concentrated all development resource inputs into the green parts of the country, since agriculture continued to be the main driver of both colonial and post-colonial economies. It follows, therefore, that good roads, good and well-equipped schools, better health facilities and the whole structural weight of state-bureaucratic hegemony provided the template and rationale for unequal distribution of basic public resources and services, leading to overall unequal development and deep-seated inequalities across the board. Together, these factors account for the extraordinary levels of inequality that escapes the attention of the Washington-based multilateral institutions that regularly assess the country’s economic performance.”
A similar pattern is identified in the Thai report: “Community self-reliance has decreased in rural areas, along with the loss of local resources that are the basic foundation of life and means of production. As agro-industry takes over, farmers are becoming paid labour or even contract labourers on their own land. Land resources are being excavated by mining and extractive industries by transnational corporations. People from rural areas form a large reserve body of labour, paid less than minimum wage, lacking job security, and easily replaced.”
The report continues: “Current Government development plans call for big projects to facilitate the provision of resources, fuel, energy and transportation to the industrial sector and urban areas. All of this will cause long-term degradation because of under-reproduction of labour and the environment. For labour, families do not have enough means and supports to nurture the next generation of skilled workers and knowledgeable citizens. Children are losing the ability to learn from their earliest years, therefore they have difficulties in improving their skills. With regard to the environment, extractive industry gains resources at the cost of environmental degradation and community conflict; agro-industry depletes the soil so rapidly that it cannot be restored fast enough. Small farmers reproduce a cycle of biophysical override (intensive use of chemical substances to maintain productivity) and new land clearance, leading to invasion of forest land.”
“Social relations on the path of development have become value relations,” concludes the report. “Civil-State (Pracha-Rath) policy ironically has built a shared agenda between Government and the industrial and corporate complex, enabling industrial and corporate interests to become the main drivers of development rather than the society and the citizen.”
In the Philippines, “the country’s economic geography illustrates highly uneven development and unequal distribution of wealth and income. Primate cities suck up most of the resources. Metro Manila, with neighbouring Central Luzon and Calabarzon, would claim from one-half to two-thirds of GDP. These regions are getting richer at the expense of regions like Bicol, Eastern Visayas, Cagayan Valley and, most especially, Mindanao. No wonder small savings deposited in faraway rural banks eventually end up in the vaults or ledgers of big banks in Metro Manila and are then lent to big borrowers who prefer to invest in already highly-developed areas.”
In Honduras, out of a total of 8 million inhabitants, 2.2 million are rural women. Two thirds of them suffer poverty and over one third live in extreme poverty due to lack access to land (only 12 per cent have access) or to credit (only 11 per cent receive it). Land is concentrated in the hands of agriculture exporters while small farmers have less than two hectares to plough on average. It is not surprising that in a context of extreme inequalities Honduras also has the highest number of homicides in countries not at war, with 90 deaths for every 100 thousand inhabitants in 2014. That number fell to 68 in 2015, but this “success” was mainly attributed to a new ruling that makes all records of deaths by the police confidential.
The United States is one of the most unequal countries among OECD member countries and while on the domestic front, economic growth seems to have recovered faster after the 2008 global crisis than it has in Europe, the Social Watch report warns that “95 per cent of income growth since the recovery started has gone to the wealthiest 1 per cent.”
Enduring disparities can be stronger when comparing across racial or gender lines. In 2013 the wealth gap between blacks and whites in the United States reached its highest point since 1989, while the wealth of white households was 13 times the median wealth of black households. Labour force participation has not increased among women in the core working age group since 2000, a situation in which the USA is alone among major advanced economies. The trend could be partially attributed to the lack of friendly policies for mothers.
Action on wage and employment policy should obviously be a key priority. There is some good news on this front: since apart from an executive order increasing the minimum wage for Federal contractors, there has been no increase in the national minimum wage states will be higher than the national minimum. A regulation mandated in the financial reform bill passed in 2011 and challenged by the corporate sector, just entered into effect, forcing companies to disclose pay ratios between employers and workers.
While US federal fiscal policy has some progressive leanings, every state in the United States imposes higher effective tax rates on poor families than on the richest taxpayers. Some call this a strategy of pushing low-income families further into poverty and increasing the likelihood that they will need to rely on social protection programmes – which are themselves chronically underfunded — the “soak the poor” strategy.
On the global stage, in order to live up to its responsibilities for reducing inequality among countries, the United States will definitely need to do a stronger redesign of its economic policies. The pattern of trade and investment treaties –of which the Trans Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP) are the latest expressions – have supported concentration of profits among a conglomerate of US-based companies that dominate branding, marketing and intellectual property design in several value chains. Weak financial regulation that allowed the socialization of losses in times of crises, while increasing the privatization of benefits in times of boom, is also a key contributor.
In Egypt, the Egyptian Center for Economic & Social Rights reports that “the defining feature of the framework for Egypt’s national sustainable developmental strategy is the lack of a detailed roadmap to achieve several key goals, especially reducing poverty and unemployment and tackling the informal sector, for which it also lacks indicators. This is in addition to the lack of clarity in implementation mechanisms and the lack of consistency among the goals, despite the overarching strategy. The indicators used to measure the goals reflect the Government’s continuation of the neoliberal approach, which is contingent on the development of the private sector and dependent on it to finance the development goals. Thus, for example, to reduce the deficit, the strategy does not include raising taxes on companies, instead opting to tax consumers, such as with the 10 per cent value added tax (VAT). The strategy also differs in important ways from previous development strategies, none of which were discussed in Parliament or through any sort of social dialogue.”
In wrapping up the Social Watch report for Perú, Héctor Béjar made a summary that describes the state of the SDGs in many countries: “A growing economy with ups and downs, a decrease in monetary poverty but worsening multidimensional poverty, serious environmental problems, prosperity of the higher sector of the middle classes, concentration of wealth, many emerging economies arising from export agriculture, drug trafficking, human trafficking and arms smuggling and a political system full of corruption. Progress has been made in circulation of money and electronic and telephone connectivity, but there is a decline in quality of life and public safety. Corruption has invaded democracy. Crime is taking over streets and cities. Citizen organizations have multiplied, but they must face diverse forms of discrimination and repression. The road to achieving the 2030 Agenda is hazy and full of obstacles.”
By Roberto Bissio.
Roberto Bissio is the Coordinator of Social Watch. Click here to download the whole Spotlight Report on Sustainable Development 2016.