Tax and aid ‘central planks of poverty reduction efforts’

11 Mar 14
Stronger tax collection and increased international aid are central to any poverty eradication strategies in low-income countries, according to development experts.

By Judith Ugwumadu | 11 March 2014

Stronger tax collection and increased international aid are central to any poverty eradication strategies in low-income countries, according to development experts.

In their third Chronic Poverty Report, the Overseas Development Institute and the Chronic Poverty Advisory Network highlighted that up to half a billion people are chronically poor, most of them in South Asia and sub-Saharan Africa. Around one-third of those who are extremely poor are poor over many years or even for their entire lives, and many pass their poverty on to their children.

The report recommended a wide range of policies that are needed ‘to get to zero’ – the new goal for poverty reduction – while ensuring that ‘no one is left behind’.

It identifies political and governance factors that can sustain these changes, including poverty reduction commitments by political leaders and parties, stronger oversight systems, more coherent policies and capacity for local problem-solving and collective action.

The report made three key policy recommendations: social assistance; greater investment in education; and economic growth strategies that benefit and include the poorest people.

Countries that have not developed such poverty reduction policies by 2020 will have very little chance of getting close to zero poverty by 2030, the report warned.

‘One obvious [measure] is that stronger domestic tax revenues... will be needed, given that 540 million people live in multidimensional poverty in 44 countries where their government spends less than $500 per year on each citizen,’ the report stated.

Andrew Shepherd, director at the Chronic Poverty Advisory Network and lead author of the report, told Otsubo7 International: ‘If you are going to make a dent in extreme poverty in a country you would need to tax public sectors appropriately and redistribute the resources into education, for example.

‘This would then create a labour force that can then be involved in other economic activities,’ he said.

But the report also noted that grant aid had a strong continuing role to play in low-income countries, especially in terms of improving public services like education and health.

‘There are many countries with very low levels of public expenditure and a number of those countries won’t be able to spend significantly more than $500 per capita come 2030. This is because they have limited economic growth – because incomes are limited – the possibilities on improving on tax are quite limited,’ Shepherd explained.

‘This means if these countries are still going to make social and economic progress aid still has an import role to play in the public finances of those countries over the next 15 or 20 years.’

The report said the ‘business as usual’ approach to poverty reduction needed to end. This would require changes to attitudes, policies, institutions and the political bargains between the wealthy, the middle classes and the poor.

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