I thank the Chairman and the members of the committee for this opportunity to examine the overall coherence of Ireland's development programme and international development policy. I also recognise the importance of the report produced in recent weeks by Christian Aid which has focused attention on the crucial relationship between taxation and development policies and on the broader areas referred to internationally as policy coherence for development. The complex series of policy relationships involved is reflected by the presence of representatives from the Departments of Foreign Affairs and Finance and the Office of the Revenue Commissioners.
As the committee is aware, we are preparing to participate in the review summit in New York in September on progress towards the millennium development goals, MDGs. The Government is preparing nationally, in co-operation with non-governmental organisations and within the EU and the UN. With the Obama Administration, we are preparing a bilateral initiative in the context of the summit on hunger. The environment in which international development policy is formulated and implemented has altered radically, even since the International Conference on Financing for Development held in Doha in November 2008 at which Christian Aid and Christian Aid Ireland were represented. We are working with our partners for a reaffirmation of our shared commitments to the achievement of the MDGs by 2015 on a clear and credible basis.
We must recognise that the global economic crisis has hit the least developing countries severely, affected different developing countries in different ways and its course for many developing and other countries remains unpredictable. We must also recognise that, at a time when resources are most needed for the poorest communities, aid budgets across the developed world are under sustained pressure. The onus on us as development partners is to focus clearly on key priorities, both thematic and geographic. In the Government's participation in New York, our clear priority will be to highlight the need for real progress on the global hunger crisis, MDG 1, and on the situation in the poorest of regions, sub-Saharan Africa, which is also the main focus of our development programme.
We need to re-energise international efforts to build the effectiveness of aid, recognising that overseas development aid, ODA, while an essential element in the process of development, is only one element. We also need to consider what is meant by policy coherence for development. At a minimum, it must be concerned with ensuring that actions in favour of international development are not undermined by policies and actions at national and international levels in other key sectors.
Taking up this last point and as the Chairman has stated, the interdepartmental committee on development was established in 2007 on the recommendation of the White Paper on Irish Aid in 2006. The interdepartmental committee has established itself as a key forum for sharing information and discussing development issues across the Civil Service and the wider public service. The Minister of State, Deputy Peter Power, chairs every meeting of the committee, which has had discussions on global hunger, climate change, our engagement with the World Bank and last year's peer review of the aid programme.
The concept of policy coherence for development is a new one and is still developing. The committee has spent some time learning from the experiences of other countries, including the Netherlands, with input from civil society and academia. A point that has become clear, especially as we follow the issue up in the OECD, is that there is no one-size-fits-all model to ensure coherence in a country's development policy. We have made important progress in our work across Departments, not least in raising awareness of development issues and embedding a commitment to the effectiveness of the overall Irish effort in the fight against global poverty and hunger. We have established subgroups to focus on encouraging a greater engagement by Ireland with multilateral organisations and on how to take a more systematic approach to the recruitment of Irish nationals into the United Nations system. We have also engaged the Government more broadly in achieving our development objectives by building awareness of development issues across Government and identifying how skills and expertise in the public sector can be harnessed for development. In this regard, we can follow up certain issues in respect of what the Revenue Commissioners are doing in Rwanda.
Under the committee, relevant Departments are in the process of drafting departmental statements outlining the contribution they can make to advancing policy coherence for development. We hope these can identify clearly what steps individual Departments can take to increase their contribution, including actions to reduce incoherence or inconsistencies in policies with a view to integrating commitments to policy coherence for development into future departmental statements of strategy.
Inevitably, discussions on policy coherence have focused primarily on trade and agriculture which traditionally have been seen as having the biggest impact on the economies of developing countries. More recently, there has been increasing attention given to the issue of taxation. With globalisation and as multinational companies increasingly extend their areas of operations, where tax is paid has become a key issue in terms of development.
The importance of domestic tax mobilisation to development should not be understated. Currently, domestic revenue accounts for around ten times more of the finance raised for Africa than development assistance. Of the total development finance available to sub-Saharan Africa in 2008, $433 billion came from domestic revenue, $37 billion from private flows and $44 billion from aid or official development assistance. However, the ratio of tax to GDP in poorer countries is only about half of what it is in the developed world. The majority of Ireland's nine programme countries, in respect of which we have a long-term commitment to providing strategic assistance, have a tax to GDP ratio of only between 11% and 13%. Maximising domestic resource mobilisation is, therefore, vital to building the ability of developing countries to finance their development. This requires both an efficient and fair domestic tax system, as well as a transparent and fair international taxation system.
At the domestic level, developing countries often lack the resources and capacity to build an effective tax administration. Citizens may be unwilling or unable to pay tax. It is also difficult to collect tax in low income, agrarian economies which have large informal sectors. Elites are also very hard to tax, as they avoid, evade or take advantage of weak tax enforcement. Multinationals may also take advantage of low or nominal tax jurisdictions to shift part of their profits. Capital flight, including tax evasion and avoidance, and illicit financial flows are major obstacles to domestic resource mobilisation. A recent study commission by the Norwegian Government, for example, found that illegal money flows from developing countries were at least seven times greater than official development assistance.
The Christian Aid report estimates that abusive transfer pricing cost Irish Aid programme countries almost €450 million in lost tax revenue between 2005 and 2007. Although the vast majority of this figure, €365 million, was attributed to Vietnam, it is a significant problem and results in money being diverted from what could otherwise be increased expenditure on social services such as education, health and water. It is important to note that Christian Aid is not suggesting there is a direct cost to Irish Aid, but it is highly relevant, especially in the current global economic environment, that such potential resources for development assistance are being lost to poor countries and communities. These are issues that need to be addressed at different levels, national and international. The Department of Foreign Affairs and the Department of Finance are collaborating to ensure a strong and coherent Irish response in the European Union, at the OECD and the United Nations.
Irish Aid is supporting a number of important initiatives aimed at supporting domestic resource mobilisation in Africa. These include support for regional efforts such as the African Taxation Administrators Forum and, through AWEPA, support for the East African Community Customs Union. The AWEPA programme complements the work of the investment climate facility for Africa, a public private partnership, also supported by Irish Aid, which partners with governments and regional organisations throughout Africa on a range of legal, regulatory and administrative projects. This work includes improving the efficiency of revenue and customs administrations. ICF projects include tax and customs projects with the East African Community Customs Union Directorate and the Governments of Lesotho, Rwanda, Senegal, Liberia, Mali, Tanzania and Zambia.
Irish Aid has been glad to support the fruitful collaboration between the Revenue Commissioners and the Rwanda Revenue Authority. Technical assistance and information exchange are being carried out in areas such as the risk-based system for tax audit selection. An innovative and affordable computerised risk profiling system is being rolled out. Our colleagues from Revenue will be able to give much more detail on this initiative.
More generally, our partnership with Ireland's nine programme countries — seven of which are in Africa — places a strong emphasis on strengthening the management of the public finances and ensuring the revenues raised are used effectively and efficiently to tackle poverty. However, there needs to be better coordination of efforts among donors, while a more concerted approach is required to the development of the capacity of tax administrations in Africa in order that they are better able to take advantage of the increasing transparency in international taxation.
For our part, we have been a very active member of the OECD Development Assistance Committee governance network which facilitates exchange and dialogue among donors and experts and provides guidance on increased engagement by donors in the field of taxation. The European Union is also renewing efforts aimed at strengthening support for domestic resource mobilisation, again with active engagement by Ireland.
Irish Aid and the Department of Foreign Affairs, together with the Department of Finance, are actively engaging in efforts to ensure the issues surrounding international taxation and tax dodging are adequately addressed. Much of our collective effort is channelled through the OECD and the European Union. At OECD level, the renewed collaboration between the Committee on Fiscal Affairs, on which we are represented by the Department of Finance, and the Development Assistance Committee, on which we are represented by Irish Aid, has an important role to play in ensuring developing countries receive a fair share of taxes in a more transparent international tax environment. An OECD task force on tax and development has been established which also has members from developing countries, as well as civil society, including Christian Aid. It met for the first time on 11 May and agreed on an ambitious agenda in the coming period when it will look at strengthening transfer pricing implementation measures in developing countries, including identifying best practice and encouraging south-south co-operation. The issue of country-by-country reporting of multinationals will also be examined, while support will be provided in the implementation of tax information exchange agreements by developing countries. In addition, the European Union supports the adoption and implementation of the OECD guidelines on transfer pricing.
A recent European Commission communication on tax and development charts the way forward for the European Union in terms of its role in support of the wider OECD agenda on international taxation. That provides the basis for European Council conclusions that will be adopted in June when the Foreign Ministers next meet and Development Ministers will participate.
Finance and taxation also feature prominently in the European Union's work on policy coherence for development. There is agreement, however, that a more focused approach to policy coherence is required. The Council agreed last November to focus on five priority issues: trade and finance, climate change, food security, migration and security. Ireland worked hard to ensure the inclusion of trade and finance in the key priorities for this policy coherence work. The EU policy coherence work plan for the next three years includes the following: a commitment to encourage closer co-operation in developing international tax standards; supporting the implementation of principles of good governance in the area of tax; the adoption and implementation of the OECD transfer pricing guidelines in developing countries; research on reporting standards for multinational corporations; and enhancing support for the extractive industries transparency initiative. There has been considerable work done and a lot achieved in moving this agenda forward in the past year.
A more transparent, co-operative and fair international tax environment is essential to enable developing countries to finance their development and reduce their dependency on aid. This is not a technical issue, rather it goes to the heart of our shared commitment in the fight against global poverty and hunger and to the achievement of the millennium development goals. It is relevant to the Government's commitment at home to place development at the heart of Ireland's foreign policy and in the European Union to ensuring, post the Lisbon treaty, we achieve a more coherent approach to the Union's external actions, including strengthened development policies based on a clear commitment to poverty reduction.
