By: Andrew Wainer, Director, Policy Research at Save the Children
Even as Mark Green was sworn in this month as USAID Administrator with widespread support, President Trump’s America First-inspired budget and its proposed 32% cut to foreign assistance continues to provoke anxiety for much of the US development community.
In the wake of the proposed cuts, development experts are weighing in with foreign assistance reform proposals in an attempt to shape the looming reorganization expected in coming months.
While the foreign assistance budget cuts proposed by the Administration conflict with the vision put forth by most external experts, there is at least one point of emerging common ground between the Administration and development analysts: The importance of foreign assistance in strengthening developing nations’ domestic resource mobilization (DRM) – building partner nations’ tax policy and administrative capacity to better finance their own development.
For its part, the Modernizing Foreign Assistance Network (MFAN) has issued guiding principles on effective foreign assistance emphasizing that USAID, must, “Remain independent; control its policy and budget authorities; operate with accountability, transparency, and efficiency; have a selective and focused presence; and be sufficiently resourced.”
Other analysts and development organizations have largely been aligned with this general vision for foreign assistance reform and have also emphasized the role of DRM.
In a report published last month, the Center for Strategic and International Studies’ (CSIS) included DRM within its three goals for US development. Specifically, CSIS recommends supporting, “Domestic resource mobilization efforts to gradually transfer U.S. assistance onto host-country governments,” and, “Transfer[ing] the delivery of direct services to partner country budgets through a series of programs aimed at improving their public financial management and efforts to mobilize domestic resources.”
A recent report from the Center for Global Development (CGD) states, “Two big shifts will define development engagement in the next decade,” one of which is, “The shift of development financing in stable states away from aid and toward private and domestic financial flows [which includes DRM].”
DRM: A Trump Administration Priority
DRM could also emerge as a Trump Administration emphasis, as stated by Trump-nominated USAID Administrator Mark Green.
During his testimony before the Senate Foreign Relations Committee, Administrator Green cited three overarching priorities for USAID. One of them included DRM: “We should emphasize programs that incentivize local capacity-building and implementation, mobilize domestic resources and ensure that our host-government partners have ‘skin in the game,’” Green told the committee.
The Addis Tax Initiative
Consensus in Washington is rare. How can it be harnessed in the case of DRM?
This summer, Save the Children joined representatives from more than 40 countries at the Addis Tax Initiative’s Tax and Development conference to discuss how to coordinate and deepen DRM in the developing world. The conference brought together government officials from donor and partner nations, civil society, and research institutions, among others. Civil society organizations emphasized several issues relevant to the US development community:
- DRM efforts should better engage civil society organizations. DRM efforts often center on technical assistance between a development agency (for example USAID) and a partner country’s revenue authority (similar to the IRS). While this link is central, it isn’t always enough to strengthen accountability and governance while also increasing revenue. Educating taxpayers about the benefits of taxes is an important component of increasing domestic revenues. Civil society can also bring new ideas to the tax conversation and help to ensure that revenue mobilization is done equitably and transparently. In many ways, civil society organizations are the best positioned to support tax transparency and accountability central to a strong citizen-state compact.
- DRM work should lead to better public services. Enhanced tax collection and compliance is not an end unto itself. If governments are not spending increased revenues effectively and equitably, then they will not benefit citizens. As the World Bank states, “Domestic revenues can lead to improved development only if they are translated into productive and beneficial public expenditure. For this reason, both sides of the fiscal equation—revenue and expenditure—need to be examined together.”
- DRM investments should be directed at the subnational level. Tax revenue and expenditure should be part of a broader decentralization strategy if it is to meaningfully increase resources for local social services and enhance government transparency and accountability for citizens. Local-level tax revenue and expenditure is key to both enhancing governance – since citizens interact most with local branches of government – and for enhanced service delivery – since services such as healthcare and education are often delivered at the local level. National tax-to-GDP ratios are not sufficiently nuanced to describe how tax is impacting citizens where they live and work. DRM success must also be assessed by examining impact at the local level.
In an uncertain foreign policy environment tax policy assistance is recognized as an essential tool to improve governance and self-sufficiency, and to increase resources for development. To maximize its value, donors and others should support a strong role for civil society at both the international and local levels so that DRM is not only comprised of technical assistance, but includes societal buy-in to ensure that development gains are sustained over time.