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Addis’ Biggest Missed Opportunities: Tax Body and Illicit Financial Flows

Last month, Ministers of Finance and Heads of State convened in Ethiopia to finalize the Addis Ababa Action Agenda.  Instead of bringing about a transformative financing framework, the outcome lacks the ambition and leadership needed to achieve the Sustainable Development Goals. We will need to keep searching for inspiration on how to fund international development and improve sexual and reproductive health rights elsewhere. But we can learn from failure.

In Addis, member states let two huge opportunities go by the wayside. Here they are:

Establish a Global Tax Body housed at the United Nations

Global tax policy is now set by a handful of rich countries at the OECD. There is a growing body of evidence that current tax rules keep profits in the hands of multinational corporations, to the detriment of government tax base in low-income countries. For example, in Malawi, one Australian-based mining company Paladin cost the government $43 million in lost revenue over the last six years. Action Aid calculates this money could have paid 17,000 nurses’ salaries or 8,500 doctors’ salaries annually. This money could have more than financed the public sector’s contraceptive requirements of about $4.8 million USD per year (According to JSI’s Contraceptive Security Indicators). But if Malawi tries to change the rule of the game to boost government revenue, big companies like Paladin may simply go to another country.

The recent High-Level Panel Report on Illicit Financial Flows from Africa found the continent loses approximately $50 billion per year in illicit flows, or illegal movements of money from one country to another.

A democratic tax body based at the UN could help less powerful countries like Malawi negotiate fair global tax policies that grow domestic resources for health, including reproductive health. In Addis, the US and some European countries blocked language establishing a new global tax body. Instead, the Addis Agenda reshuffles the relatively powerless UN Committee of Experts in Tax Matters, where experts act in their own capacity, not as representatives of their countries. The EU also launched the Addis Tax Initiative, which commits donors and developing country governments to support tax reforms to mobilize domestic resources. Hopefully, this modest initiative will make some progress, if it is implemented well.

Commit to stop illicit financial flows

The recent High-Level Panel Report on Illicit Financial Flows from Africa found the continent loses approximately $50 billion per year in illicit flows, or illegal movements of money from one country to another.  This is roughly double the amount of aid going to the continent. The hemorrhage of resources from the South to the North leaves governments with few resources to invest in essential public services, including sexual and reproductive health services. For example, a recent report by Save the Children called Making a Killing: How Tax Scams Are Robbing Poor Countries of Life-Saving Health Care shows how mis-invoicing of international trade alone cost Kenya $435 million in missed revenue per year. This money could have funded the entire gap in funding for the Kenyan health sector, with huge benefits for women and girls’ sexual and reproductive health and rights.

In the final Addis Agenda, member states commit to, “redouble efforts to substantially reduce illicit financial flows by 2030, with a view to eventually eliminate them.” In UN-speak, this is as weak of a commitment as member states can make. It is not measurable nor time-bound in a meaningful way.

Colleagues are working hard to mobilize government budgets for reproductive health in Malawi, Kenya, Zambia, and around the continent. But Ministries of Health and Finance are constrained by budgets that are inadequate to meet the needs of their own people, so they rely on donor funds. These efforts to get a bigger slice of the pie for family planning need to be complemented by efforts to grow the size of the pie, such as broadening the tax base and stopping illicit financial flows.

Despite the opportunity, Addis did not bring about a transformative shift to keeping money in the countries where it is needed most. But even in failure, Addis brought attention to the need to democratize international tax cooperation and stop illicit financial flows. Now I’m paying attention. Are you?

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