Hitting the overseas development aid target of 0.7 per cent of GNP could cost €1 billion every year. Are people ready for tax increases or limited spending to achieve that? asks Dan McLaughlin
Live8 is over, the G8 summiteers have gone from Gleneagles and the letter-writers to The Irish Times have moved on from "Make Poverty History". To some, including the pop celebrities calling for increased aid to Africa, the G8 commitments made at Gleneagles represent a major step forward, but to others, mainly in the poverty industry, the results fell far short of what was required or indeed expected.
In truth those expectations were wildly out of line with reality. It is insulting to all concerned to think that a handful of world leaders can make poverty history with an act of will. Survey evidence also suggests that the majority of people understand that Africa's problems are complex, and that progress depends not just on aid, but on trade, better governance and debt reduction; and that Africa itself must seize the opportunity afforded by the West's greater willingness to engage.
A minority are still willing to blame all the world's problems on global capitalism, multinationals, the US or the G8. But try telling that to an average person in India, China or other parts of southeast Asia, where living standards have risen sharply as a result of hard work and willingness to embrace capitalism.
The G8 communiqué spelt out that aid can help rather than transform the continent, stating: "Further progress in Africa depends above all on its own leaders and its own people". The G8 leaders want to give impetus to this process and as part of that plan pledged substantial financial commitments, including a large increase in Overseas Development Aid (ODA).
The EU pledged that ODA would reach 0.7 per cent of GNP by 2015, with a doubling of aid between now and 2010, with the US also committed to doubling aid in the same timeframe. Ireland, too, is committed to reaching this 0.7 per cent target, although there appears to be some confusion as to the timescale.
The actual aid delivered by Western governments has been well short of this 0.7 per cent level for some time, averaging 0.3 per cent or so, which begs the question as to delivery in the future.
Bob Geldof urged the Live8 crowd to punish at the ballot box those politicians who reneged on these aid pledges, perhaps forgetting that most of the assembled G8 leaders were either unable to seek re-election (Bush), unwilling to (Blair) or very unlikely to see office again anyway (Schröder, Chirac and Berlusconi).
The concept of accountability at the ballot box is interesting nonetheless, because it gets to the heart of the matter. Political leaders represent electorates, after all, and it is a moot point whether taxpayers in the West are prepared to pay for African development, particularly in the form in which aid has been distributed in the past.
Take the Irish case. The ODA budget for 2005 is €545 million, and GNP this year is likely to reach more than €136 billion, putting the ODA spend at about 0.4 per cent of GNP. Hitting the 0.7 per cent target would require spending of about €1 billion, to keep the figures simple. Remember that this is not a one-off commitment to increase aid, but a pledge to spend this sum every year, or its equivalent in relation to GNP in the future.
Consequently vague talk of using one-off tax overshoots or comparing the sums required with estimates of past waste in government spending misses the point. Meeting the target would require the Government to find €1 billion a year, implying an additional €500 million to that currently spent.
How could this be done? There are three options. The Government might simply decide to borrow that sum, which in effect pushes the bill on to the taxpayers of the future.
Alternatively, it might seek to raise the additional sum through taxation. An extra 1 per cent on the standard rate of income tax would raise about €400 million, although it would take 2 per cent on the top rate.
Attaching a 1 per cent rise to the top rate of Vat would go part of the way by raising €350 million a year, with 80 cent on a packet of cigarettes or 12 cent on a pint of beer making up the difference.
Alternatively, the Government might decide to remove or reduce current tax breaks or allowances, and indeed there is an attractive symmetry about abolishing the tax exemption for artists so the pop industry could make a more direct contribution to the Third World.
Brian Cowen's refusal to ask Irish air travellers to pay a surcharge on ticket fares to fund African aid hardly suggests a willingness to switch to Irish taxpayers to fill the funding breach.
There's always Government spending, of course, particularly as the total is large, amounting to more than €50 billion a year. Perhaps some Ministers might be willing to forgo money from their own departments, arguing that too much is spent on education, health or social welfare? Then again perhaps not, given the perceived need for more rather than less social spending.
The point is that finding additional resources for aid is not painless and it behoves anyone putting it forward to spell out how it will be funded.
Dr Dan McLaughlin is chief economist at the Bank of Ireland