New taxes to help… international bureaucrats

Montreal, October 24, 2013 – Bono, the popular leader of the U2 rock band, recently said that he was aware that international aid only has a limited impact on the fight against poverty, as opposed to trade and entrepreneurial capitalism. Meanwhile, international bureaucrats are still busy crafting new taxes for development assistance. In 2000, the United Nations Development Programme started talking about Innovative Financing for Development (IFD), a complex set of spending projects and organizations in the field of development assistance that are to be funded mostly by new taxes.

In a Research Paper unveiled today by the Montreal Economic Institute (MEI), economists Youri Chassin and Pierre Lemieux are unequivocal: “IFD taxes combine nearly all the possible flaws a tax can have, both politically and economically.”

“The institutions that are currently advocating for new taxes simply want to secure a new source of revenue for themselves. It should not come as a surprise that organizations that have received IFD funding subsequently increased their operating costs,” states Mr. Chassin. For instance, the Global Alliance for Vaccines and Immunisation (GAVI) more than doubled its number of employees, who now enjoy an average remuneration of US$199,000 per year.

The tip of the iceberg

Canada and the United States have so far resisted this trend, but the citizens of other countries are not so lucky. A tax on airline tickets is currently being levied in France—the “taxe Chirac”—and a few other countries, ranging from US$1 to US$40 per ticket. In Germany, a 15% IFD tax is applied to carbon dioxide emission permits earmarked for climate protection in developing countries.

These taxes each raise about US$200 million a year. More “solidarity” IFD taxes are currently being proposed, such as financial transaction taxes, carbon taxes and tobacco taxes.

A serious lack of transparency and a net loss

“These IFD taxes, current and planned, are worrisome because they are hidden and complicated. Taxpayers are unaware that they are paying them, and even less aware of what the taxes are supposed to pay for. Even the governments that implement the taxes are unsure,” continues Mr. Chassin.

For instance, both the WHO and UNICEF, which benefit from the money raised by the French airline ticket tax, refused to allow the French government’s auditor access to their internal audits. The French auditor, who was thus unable to carry out a full audit, raised questions about the lack of transparency of international organizations.

“Even if you believe in development assistance, IFD taxes are an inefficient way to do it because the small benefits to developing countries do not exceed the costs of the measures. This situation causes a net loss,” explains Mr. Chassin. The authors based this conclusion on a thorough analysis of IFD taxes on the basis of Nobel Prize Laureate economist Joseph Stiglitz’s criteria of a “good” tax.

The Research Paper entitled Why New International Taxes for Development Are Inefficient was prepared by Youri Chassin with the collaboration of Pierre Lemieux, respectively economist and senior fellow at the Montreal Economic Institute. This publication is available on our website.

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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its publications and conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.

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