Poverty conference 2010 highlights relation between tax and development

The Norwegian Agency for International Development (Norad) highlighted the relation between tax and development in this years poverty conference.

Developing countries loose revenues In most OECD-countries, tax revenues make up 35-45 percent of GNP. In large parts of Africa South of Sahara, the number is under 15 percent. With low taxation, countries miss out on large revenues. At the same time, large revenues - larger than the total aid - is led out of developing countries each year and avoided taxation.

This capital flight is estimated to ten times the aid given to poor countries. h4. How does an effective state occur This was the question asked by the conference's main speaker, professor of economics, "Paul Collier", from Oxford University.

If you invest in a tax system, you give the state an incentive to put in place other institutions,_ he said.

One key institution is the rule of law and tax goes hand in hand with the rule of law._ Collier held that if a state builds a tax system, it promotes citizens' scrutiny (no taxation without representation). The problem occurs when states think that natural resources make tax redundant. Collier believes that we will see a raise in natural resource tax revenues in the coming years and said that Norway was an unusual example in combining effective systems with high taxes.

The more corrupt the state is, the less taxes_ Collier stated that it is those other taxes, not derived from natural resources, that will create scrutiny. He further stated that developing countries receive a lot of aid and that aid has the same potential for creating harmful effects as natural resource rent, serving as a disincentive for governments to raise taxes. - _In fragile states the formal economy is small,_ said Collier.

Building an economy is to reformalise the economy_. He further warned that too much tax too soon risks slowing the economy down.

How to improve taxation? Professor Collier suggested that decent public information is necessary before starting a taxation project and said that too often too little is being spent on information. Collier also warned to not always seek the "best solution" in a country, setting too ambitious expectations. The "second best option" would perhaps be the best for one particular country. And, you must always tax what you can observe in order to have full observability. h4. Discipline companies with stock exchange regulation!

Discipline multinational companies to observe high standards and enforcement of law,_ said Collier. He pointed to US senators Lugar and Cardin's "amendment to the financial reform bill":http://www.publishwhatyoupay.no/landmark-us-legislation-sheds-light-billions-payments-oil-and-mineral-companies of July 2010, that went through Congress, requiring all companies registered on the US stock exchange to report financial details on a contry by country basis.

It would be good to extend the Lugar-Cardin initiative,_ suggested Collier.

The Hong Kong stock exchange has done it. It's about generalising a rule that already exists. Canada should follow and so should Norway. The companies are struggling to come to terms with this new amendment. This law should happen for all companies everywhere._ He went on to discuss the international law that cleans up extractive companies' tax havens. h4. Return for aid?

Using aid for policy conditionality is unacceptable,_ said Collier.

Governments should be held accountable by citizens, not by donors. But make a distinction between policy conditionality and economic conditionality. Flow of money must be transparent and honest._ He went on to ask why it is legitimate to insist on that, and not on policies, and said: - _It's possible to insist on financial budgeting integrity. No country on earth would say that looting the public is legal. We are not imposing our will. We are helping others to enforce own rules._ - _How to do this in practice?_ Collier went on to ask. - _Through budget support,_ he continued, - _and it should be required that the budget systems are certified and fit for budget purposes. There are core competence on certification processes in IMF/WB_ , he held. Collier stated that - _when money goes in, it should come out where it is supposed to come out. Budget systems should be sound. If it is not, our money is not simply wasted, it is captured by public officials. It's a political patronage system, not consumption.

. Questions addressed at the conference Is aid a pretext for governments? Does aid lead to increased aid dependency and weak governance because politicians do not have to develop good tax systems? Is is possible to argue in favour of Norwegian aid, financed by Norwegian tax payers, if the leaders in the developing countries are unwilling to increase national tax collection? How did some countries South of Sahara succeed in creating better tax systems? What can Norway do to contribute to better tax systems in developing countries? These questions were addressed at this years poverty conference on tax and development.

People in ministries in Africa are positive towards this,_ said Collier, _it's only donors who are worried about this_. Collier said that if donors don't act on this, they are knowingly putting money into a system where it will not work for the proper purposes. h4. Support to civil society is key

t's important to build a critical mass of formed opinion in these societies. Informed citizens is what produces accountability and scrutiny. Information technology is on our side. Ten years ago it was not possible to get a lot of information to ordinary people quite fast. One example is the earth quake in China; the school buildings collapsed due to corruption. People asked why the schools collapsed. And who was responsible.

They organised and carried out street protests,_ examplified Collier. h4. The natural resource charter As a part of informing people, Collier initiated "The natural resource Charter":, with people getting together, thinking that this is doable. - _It's about informed societies_, explained Collier.

See the conference online If you want to see what was said, you can "see the poverty conference online":http://media01.smartcom.no/Microsite/dss_01.aspx?eventid=5522 The different presentations given: