ATI EVENT AT UN FINANCING FOR DEVELOPMENT FORUM

Integrated National Financing Frameworks (INFFs) are a mechanism for countries to align their financing strategies with their national development priorities and the Sustainable Development Goals (SDGs). INFFs aim to strengthen the coherence, efficiency, and effectiveness of financing for development. This should be done by bringing together key stakeholders from government, civil society, the private sector, and development partners to work collaboratively in the development and implementation of financing strategies while managing risks and trade-offs – thus boosting domestic revenue mobilisation (DRM).

The event was moderated by Ms Chenai Mukumba, Acting Executive Director to the Tax Justice Network Africa (TJNA), who set the scene emphasising the importance of addressing inequalities through the fiscal system by focusing on progressive taxation systems and using wealth taxes. She noted that a holistic assessment of policy changes, encompassing both revenue and expenditure sides, is crucial in reducing inequality through the fiscal system.

Three speakers – Mr Jürgen Zattler from the German Federal Ministry for Economic Cooperation and Development (BMZ), Mr Antti Karhunen from the European Commission, and Mr Marcos Neto on behalf of the United Nations Development Programme (UNDP) Sustainable Finance Hub – opened the event with high-level statements. Mr Zattler emphasised the significance of INFFs and domestic revenue mobilisation (DRM) in financing the transition towards sustainable, green, and just economies – particularly in light of the growing global inequalities. Mr Karhunen pointed out the relevance of INFFs for channelling investment in the longer term, strengthening transparency and looking at the full range of public and private sources when financing the SDGs at the national level. Mr Neto stressed the importance of INFFs in building the social contract and bringing about country ownership, but also the role of INFFs in aligning national budgets with SDGs. In this sense, he noted the INFF Facility as an initiative that aims to facilitate technical assistance as well as knowledge exchange and that provides access to technical guidance for countries developing INFFs.

ATI co-chair, Steven Rozner from USAID, welcomed the attendees and shared some insights on the work and achievements of the Addis Tax Initiative (ATI):

“Since its establishment, the ATI has become a relevant player in the tax and development arena, fostering collective action to improve tax systems in light of recognised gaps in development finance.”

Mr Rozner, underscored the relevance of progressive taxes to ensure that all segments of society contribute equitably to the fiscal system.

The 2023 ECOSOC side event featured a co-presentation by Ms Natalia Aristizabal Mora of the United Nations Department of Economic and Social Affairs (UN DESA) and Mr Abdul Muheet Chowdhary, from South Centre on the role of INFFs in mobilising domestic finance to advance the SDGs.

Ms Aristizabal gave an overview of INFFs and their building blocks, which include governance and institutions, monitoring and review, assessment and diagnosis, and financing strategy, in which the latter is the core block. She also highlighted coherence checks as crucial steps to identify financing policies that are risk-informed and take equity, social, and environmental principles into account while addressing potential spillover effects and trade-offs. In line with Mr Karhunen, she also stressed the relevance of INFFs as they address all sources of finance and the most important source of development for most countries is domestic revenue mobilisation (DRM). Nevertheless, the focus should not solely be on raising revenues, but on how we raise and how we spend these additional revenues, stressed Ms Aristizabal.

Mr Chowdhary emphasised the role of progressive taxation and public expenditure in supporting countries to achieve the SDGs:

“Reducing each country’s Gini index by 1% has a larger impact on decreasing global poverty than increasing each country’s annual growth by 1%.”

Mr Chowdhary addressed the importance of progressive taxes and targeting the better-off in order to reduce inequality (SDG Goal 10) and extreme poverty (SDG Goal 1), but also to advance climate action (SDG Goal 13). To integrate public expenditure into INFFs, Mr Chowdhary mentioned two specific policy options for countries: namely public procurement and tax expenditures. Nevertheless, he warned, it is crucial for countries to carefully monitor these expenditures and publicly disclose relevant data to ensure transparency in order to prevent loss of GDP, as these activities are prone to corruption. Mr Chowdhary finalised his intervention by supporting Mr Neto’s argument of assuring an effective domestic minimum corporate income tax (CIT) of 15% to make sure that any top-up revenue remains in the source countries ─ mostly developing countries.

A case study from an ATI partner country ─ Indonesia ─ followed the technical input provided by UN DESA and South Centre. Yanuar Nugroho, from the Ministry of National Development Planning of Indonesia, presented the country’s use of INFFs as part of a larger national strategy: the Indonesia Vision 2045. To implement INFFs, Indonesia created an institutional framework as a platform for coordination, a technical committee, and received technical support from UNDP. Indonesia has reduced its fuel subsidies and increased quality spending on productive sectors, it also introduced a carbon tax. These measures are expected to broaden the tax base, raise the tax ratio, improve compliance, enhance fairness, and support MSMEs, indicated Mr Nugroho.

The implementation of INFFs in Indonesia serves as a case study for using innovative financing mechanisms to advance the SDGs, reduce inequality, and finance sustainable development.

The event concluded with an open discussion and a Q&A session with all participants moderated by Ms Mukumba. The discussion picked up on the complexities and challenges of implementing this approach in practice. Participants raised important questions about the expectations from the Global North and the role of development partners such as the European Union (EU) and Germany in providing support to partner countries – based on their introduction of INFF strategies, but also with regard to the spillover effects of their policies on DRM capacities in developing countries.

It was acknowledged that INFFs are just one part of a larger strategy for sustainable financing. The importance of transparent tools in the policy-making process was also stressed to overcome political economy issues that might hinder fairer fiscal policies. Overall, the Q&A session demonstrated the need for continued dialogue and collaboration to ensure that INFFs are implemented in a way that effectively supports the development of partner countries and the achievement of the SDGs globally.

Please find here the slides of the presentations that were given at the ATI side event.