Education is a fundamental human right and a global public good. So how do we address the lack of financing for it around the world? TJN has written a study on the role of global tax in financing the Sustainable Development Goals (SDGs) for the United Nations Education Commission (in full, the International Commission on Financing Global Education Opportunity). That study, developed with the support of ActionAid and Oxfam, and written with Prof. Steven Klees, is published by the Commission today.
We identify a set of areas in which international tax interventions have the power to make a major contribution to the globally agreed SDGs, and argue that these will ultimately best be achieved by the creation of a meaningfully resourced, globally representative, intergovernmental tax body.
This paper has been prepared for the International Commission on Financing Global Education Opportunity. Their overall mandate, “to reverse the lack of financing for education around the world”, links directly to the newly-approved U.N. Sustainable Development Goals (SDGs), of which Goal 4 concerns education:
“Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all.”
Education is a fundamental human right, an established global priority, and a global public good, the provision of which is not only a moral imperative but also essential to the achievement of all development goals. While the Commission’s concern is with education, this report focuses on global taxation to support all the SDGs. Overall, the SDGs provide a powerful framework for global commitments to human progress for the period 2016-2030.
The SDGs also imply a step change in ambition – including in the level and nature of the required funding. Leading estimates suggest an overall requirement, annually, of additional public financing equivalent to around 27% of GDP in low-income countries (LICs), and 7% in lower-middle income countries (LMICs). Education accounts for around a fifth of that requirement in LICs, and a third in LMICs. The additional financial requirement is estimated at $1.4 trillion annually overall. The most optimistic assessments of the potential for domestic revenue mobilisation to contribute still leave a gap of $150 billion or more each year.
For a variety of reasons, and despite some progress in the last decade, tax revenues in most lower-income countries have not seen any great convergence towards OECD country averages. In addition to their different economic structures, and domestic political issues such as elite willingness to support progressive tax policies, two main reasons for this international pattern can be identified. One is the relatively consistent advice from international organisations following a ‘tax consensus’ that has overemphasised taxes on the sale of goods and services, while neglecting direct taxes on income, profits, assets and capital gains.
The second reason is the global failure to challenge tax havens, which has grown as a cause and facilitating factor of international tax avoidance and evasion, and the driver of a wider regulatory and tax ‘race to the bottom’.
Two main types of response are considered: global reforms to support domestic taxes, and globally-levied taxes. Of the former, reforms can help to address the major losses due to international evasion and avoidance. Globally, revenues losses due to multinational corporate tax manipulation is estimated (including by IMF researchers) at or above $600 billion annually (for all countries, not just lower income ones). Revenue losses on income taxes due to undeclared offshore wealth, meanwhile, are estimated to approach $200 billion. Progress in these two areas – which will depend in large part on global counter-measures – can make a vital contribution to closing the domestic revenue gap.
Of globally-levied taxes, a financial wealth tax, as suggested by Thomas Piketty, has major revenue potential. Levied at 0.01% annually, revenues could cover the estimated requirement for additional public financing of the SDGs. Levied instead at 1%, revenues might plug the entire incremental financing gap. Finally, a global financial transactions tax could potentially contribute revenues in a range of $60 billion to $360 billion.
In each case, international measures to ensure greater transparency could alternatively support the levying of such taxes at the national level. As discussed below, the important role of tax in supporting governance and state-citizen relationships would suggest a preference for national taxes where feasible.
Our main recommendations to the Commission therefore concern coordinated international action to ensure the availability of information for national or global taxes, with the following measures likely to have high benefit: cost ratios and to be relatively readily achievable:
- Publication of country-by-country reporting on the OECD standard (with later changes possible), from all MNEs
- Public registers of ultimate beneficial ownership of companies, trusts and foundations
- Comprehensive, automatic exchange of financial information between jurisdictions
- A global, public registry of financial wealth
The first three measures can be enacted by or between national policymakers, to standards developed by international organisations such as the OECD. The risks of information flowing primarily to OECD members and not to developing countries would be likely to remain, however; as well as the deeper issue of a non-representative organisation holding responsibility for global standard-setting. A global financial registry would require an overarching global body, since the underlying markets and institutions are effectively transnational in character.
A single body coordinating each of the four data and exchange processes identified would in fact be highly valuable, ensuring consistency and comparability as well as availability. In addition, such a body could provide a mechanism also to coordinate rule changes, and to enact new, global taxes on the basis of political consensus, with revenues to be used in support of SDG achievement in lower-income countries above all.
A further recommendation to the Commission is therefore to request that the Economic and Social Council of the United Nations establish a globally representative, intergovernmental tax body. Mandated by the G20, the IMF, World Bank, UN and OECD have now launched a joint platform on tax which may offer some hope of broader coordination among researchers at these institutions; but this is a body designed to allow technical research progress and there is no intention for this to become a forum for representative political discussions among countries.
A new intergovernmental body would be charged, in addition to the measures laid out above, with providing:
- An internationally representative forum for political decisions over tax rules, including early emphasis on:
(i) the taxation of multinationals including the move towards a consistent unitary approach (potentially, but not necessarily, including common apportionment approaches);
(ii) active consideration of a global wealth tax, and/or of measures to support domestically-levied wealth taxes; and
(iii) active consideration of a global financial transactions tax, and/or of measures to support regionally-levied financial transactions taxes.
Becoming the home for multinationals’ country-by-country reporting and for global financial asset data provides an immediately useful role and the opportunity for the new body to build credibility and legitimacy. The overlap in data necessary for financial wealth taxes and financial transaction taxes imply economies of scale in this area that make it sensible to include both in the body’s remit, while providing a comprehensive fix to international corporate tax rules is likely to deliver the lowest-hanging fruit in terms of addressing egregious profit-shifting and double non-taxation.
Importantly, such a body would provide the first globally representative forum to discuss the range of tax issues that have major implications for international distribution – including, crucially, the financing of the SDGs.