Opening statement at conference on fragility, taxation and state building

Our goal is to eradicate extreme poverty by 2030. That is an enormous but achievable task.

Let us not forget the progress we have made. One billion people have escaped poverty during my lifetime. Nevertheless, based on the current trajectories, half a billion people will still live in extreme poverty in 2030.

80 % of them will live in fragile states.

We also know that most of the financing needed to achieve the Sustainable Development Goals must come from domestic resources.

Therefore, if we are to eradicate extreme poverty, we must address fragility. And we must strengthen tax systems in fragile states.

We know that building fair and efficient tax systems is challenging in all countries. And we know that it is even more challenging in states affected by fragility.

This is why we must cooperate with actors that have experience in this field. We must learn from past mistakes. We must replicate what has worked and be open to new solutions. Academia is a critical partner in our quest for solutions that are fit for purpose.

I therefore have high expectations of this unique gathering (no pressure). I encourage you to tackle the challenges that you will be discussing with real passion.

It is not always an advantage to be the first speaker on such a challenging issue. Let me nevertheless have a go:

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There are many reasons why countries fail to achieve progress in reducing poverty:

• Lack of good governess.
• A weak private sector.
• Conflict and violence,
• and - increasingly - vulnerability due to climate change and natural disasters.

Particularly in fragile states, weaknesses in the way revenues are collected and used reduce macro-economic performance.

Low-income fragile countries had an average tax to GDP ratio of 12 % from 2004 to 2014, compared with 18 % for non-fragile low-income countries. This is well below the 15 % minimum threshold defined by the IMF as necessary to sustain delivery of basic services.

It is difficult to exit fragility. 27 countries have remained chronically fragile since the OECD started mapping fragility in 2008. Paradoxically, 19 of these countries have not experienced any major conflicts during this time. This shows that fragility is due to more factors than conflict and security challenges alone.

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So the big question is: How can countries escape the quagmire of fragility?

It is clear that there is not a silver bullet. As if there is for any challenge! Each context is different. Each context has its unique underlying causes, drivers and levers for change. I am, however, convinced that a predictable, fair and effective tax system is part of the solution.

Our first priority is to do no harm. For us as a development actor, this means that we must understand the context we engage in. We must understand how the tax system can contribute to stability and prosperity. However, we must also understand under what circumstances it could prolong or rekindle a conflict.

In fragile contexts, we must make sure that tax capacity building is part of a legitimate process to build core government functions:

• to raise revenue,
• to reduce tensions and inequality
• to deliver basic services
• and to strengthen the bond between citizens and the state.

We must promote nationally driven development, coupled with accountability, transparency and zero-tolerance for corruption.

Our partner countries must be in the driver’s seat, supported by a coordinated group of UN agencies, international organisations, bilateral donors and other stakeholders.

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Let me give you an example of how we apply these principles in practice.

Somalia has long been classified as a failed state, highly fragile in all its dimensions. In spite of this, the Somali Government and the Somali people have been able to gradually improve stability under very difficult conditions.

When I met Somalia’s Minister of Finance last month, he said that they were pleased to have graduated from a failed state to a fragile state.

Norway has been, and will remain, a crucial partner to Somalia in this process.

Our support has followed several tracks:

We have partnered with the UN, the World Bank and other donors to support the three levels of government and their ability to perform basic functions. The issue of taxation is a small, but important part of this effort. We have seen some impressive results.

Somalia achieved its highest revenue in recent history earlier this year. Some districts increased revenues from local taxes by as much as 400 %, although this was an increase from a very low level.

Norway has just committed itself to providing an additional 450 million NOK to the World Bank fund. This initiative brings the Federal Government and the Federal Member States together to discuss financial reforms, resource distribution and service delivery across the country.

Furthermore, we are planning a bilateral partnership on natural resource management through our Oil for Development programme. Our partner countries increasingly request transfer of knowledge rather than money. There are opportunities for collaboration even in extremely fragile contexts.

We will, of course, tailor our approach to the context, and take a long-term view, but we believe the Oil for Development programme will be a valuable contribution to Somalia’s stabilisation and state-building process.

We have a strong political dialogue with the Somali Government. State Secretary Holte and I have both met our Somali counterparts during the last month, and our Embassy has an active dialogue with the Federal Government and the Federal Member States.

This enables us to support the reform efforts of the current Government. In return, we expect to see transparency and accountability and that priority is given to anti-corruption.

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Our experience from Somalia could be a model for our future engagement in taxation in fragile states.

Norway has committed itself to doubling its tax-related development assistance from 2015 to 2020. In the budget proposal for 2019, the Government has proposed a significant increase.

We are building our tax related development policy around four pillars:

The first pillar is to collaborate with the Norwegian Tax Administration to enable them to establish partnerships with tax authorities in developing countries.

Norway’s expertise on taxation is in high demand - not least when it comes to developing a fully digitalised tax system with high compliance rates and low collection costs. The first partnerships the Norwegian Tax Administration enter into will most likely be in contexts that are only moderately fragile, but we will seek to widen the portfolio in the coming years.

The second pillar is to support global multilateral organisations - the World Bank, the IMF, the UN and the OECD. In addition to supporting their work on setting global standards on taxation, we will explore how these organisations can help to build tax capacity at an early stage.

The third pillar is to support regional organisations, like the regional development banks and regional tax administration forums. These are unique vehicles of South-South cooperation, and we believe they have a role to play in fragile states as well.

The final pillar is what I have spent most of my time on today – making sure that all our other efforts benefit low-income fragile states. Our aim is to foster stabilisation, build legitimate states that deliver basic services to their citizens, and eventually exit fragility, or - as in the case of Somalia – escape failure.

The pillars are supported by targeted efforts to strengthen civil society, research, and the private sector. We are very aware of the crucial role non-state actors have in holding governments accountable and advocating new solutions to common challenges.  

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Going forward, we will explore how these various instruments can best be employed in countries with different degrees of fragility, and how they can interact.

This is a type of development assistance that can have enormous catalytic impact and permanently improve public services. But it is also incredibly complex and requires extensive knowledge and expertise.

This is why TaxCapDev is so important. The work you have all done to expand our knowledge base on taxation and state building is of crucial importance.

In your future work, I urge you to continue to challenge conventional truths, to help us innovate, and show us what works and what does not. You should continue to exchange views, and challenge one other’s assumptions.

Seek solutions, but do not avoid the hard questions. Keep the ideal end-point in mind, but focus on what is possible. Bring your minds together, and exchange experience, but – most importantly – decide what must be done next.

Again, national resource mobilisation is at the heart of the 2030 Agenda. I am confident that we will reach the SDGs. But 2030 is only 12 years away. We have no time to lose. You are crucial for shaping the new politics of development that we need to reach the goals. We have to increase domestic resource mobilisation and tax is key to achieving this.

Thank you.