Official development assistance: where do we stand?
The COVID-19 pandemic has made it all the more crucial to have a development policy that meets the challenges. We had made enormous progress in the fight against extreme poverty since the 1990s: that is no longer the case. 120 million people could fall into extreme poverty in sub-Saharan Africa in 2020 alone, for the first time in 30 years. That is almost twice the population of France.
As a result, the presidential commitment to raise French official development assistance (ODA) to 0.55% of GNI before the end of his term, welcome in 2017, is no longer enough. The COVID-19 health crisis has upended orders of magnitude. France must upend its own, and not forget the poorest countries: it must massively increase its development aid in order to reach the historic target of 0.7% of GNI allocated to ODA in 2022.
More than €400 billion has already been invested in the French recovery plan. Yet nothing additional has been planned to help vulnerable countries cope with this unprecedented crisis. From the 2021 budget, France must revise upwards the planned trajectory of its development aid and make sure it is on track to reach 0.7% of GNI in 2022. That represents an increase of €5 billion over 2 years, only slightly more than 1% of the financial effort designed for the domestic recovery. It is France’s duty, but it is also a smart investment: no country will overcome this pandemic alone, and no one will be safe until we all are.
The finance bill for 2021, published by the government on 28 September, provides for an increase of the “official development assistance” mission by €683 million, reaching €4 billion. The two solidarity taxes earmarked for development represent an additional €700 million. This increase, although welcome, merely confirms the financial trajectory planned by the government since summer 2019 to honour the 0.55% commitment. The government’s draft therefore excludes international solidarity from its recovery plan, despite the explosion in needs.
The financial transaction tax (FTT): an opportunity to increase ODA in 2021
The FTT is one of the two “earmarked taxes” for development. Like its counterpart the air ticket solidarity tax, the FTT aims to correct the scale of global inequalities by taxing some “winners” of globalisation (the financial sector) to benefit its “losers” (the populations of developing countries). The revenue from these two taxes mainly funds grants to sector priorities such as health, education and the climate. Together with the “official development assistance” mission, these two channels form the core of aid, that is, its most steerable and effective part, including grants to the poorest and priority countries of French aid, while benefiting essential social services and the most vulnerable populations.
The FTT is also the only parliamentary lever to act on French official development assistance within the annual budget1. It is a very effective but little-known tool whose full use could fuel official development assistance that meets today’s challenges, painlessly for public finances. We must put an end to the myth that the FTT would hurt our competitiveness: 6 European countries have already introduced a national FTT2, with no demonstrated impact on competitiveness, three others are drafting legislation3, and many global financial centres have an FTT and are thriving, notably Hong Kong, Singapore, South Africa, Switzerland and the United Kingdom4. Moreover, the FTT does not affect the real economy and does not hold back household consumption or investment. Yet in 2020, while the rest of the economy collapsed, financial transactions benefited from the current economic situation and COVID-19 lockdown owing to “the rise in volumes traded on the markets in the first half-year”, as the 2021 finance bill puts it. The FTT’s yield almost doubled between January and August 20205. Strengthening the French financial transaction tax has thus become a matter of justice and equality: financial transactions are among the only transactions that are not taxed today (the French FTT does not cover all transactions, notably intraday trades and derivatives) and the financial sector benefited from the consequences of the pandemic, so it must contribute to rebuilding the world’s vulnerable countries. Parliamentarians should increase French FTT revenue and increase the funds allocated to development.
What can parliamentarians do in the 2021 finance bill?
Parliamentarians have 3 levers to increase development aid through the FTT:
- Increase the FTT rate from 0.3% to 0.5%: this would raise FTT revenue from the current €1.6 billion to €2.6 billion.
- Raise the development earmarking ceiling, currently set at €528 million (about 32% of FTT revenue). Parliamentarians can thus decide to allocate 50% of FTT revenue to the Solidarity Fund for Development, which requires raising the earmarking ceiling to ensure the additional revenue generated is directed to international solidarity.
- Tax intraday transactions, that is, all speculative buy and sell operations of a security recorded during the day, and not only the result of transactions at the end of the day. Financial transactions are among the only flows that benefit from daily taxation instead of per-transaction taxation. Taxing intraday transactions would increase FTT revenue by €2 to €4 billion, of which 50% could be allocated to fighting extreme poverty in the poorest countries.
Sources:
1 Article 40 of the French constitution indeed prevents them from tabling an amendment that would result in “either a reduction of public resources, or the creation or increase of a public charge”.
2 Belgium, Finland, France, Ireland, Italy and Poland.
3 Hungary, Portugal and Spain.
4 Leonard E. Burman, William G. Gale, Sarah Gault, Bryan Kim, Jim Nunns, and Steve Rosenthal, March 2016, “Financial Transaction Taxes in Theory and Practice”, National Tax Journal, 69 (1), 171–216, https://www.robinhoodtax.org.uk/sites/default/files/Burman%20et%20al_%20NTJ%20Mar%202016%20%282%29.pdf
5 Les Echos, “The financial transaction tax will bring in more than expected for the State”, 16 September 2020, https://www.lesechos.fr/economie-france/budget-fiscalite/la-taxe-sur-les-transactions-financieres-va-rapporter-plus-que-prevu-a-letat-1242790#xtor=CS1-3046