Worlds of Education

GPE/Chor Sokunthea
GPE/Chor Sokunthea

Why Teachers Need Tax

published 10 November 2016 updated 27 April 2023
written by:

The Sustainable Development Goal on education establishes ambitious targets and to finance the achievement of these, we need a radical shift, a rebuilding of confidence in the capacity of the governments to fully finance public education that is of good quality – and that can only come from a substantial scaling up of investment.

Fundamentally education is a long term investment that requires predictable financing. It is not a short term, one-off, quick win. The major returns to investment in education accrue over 10 or more years (when children complete their education and contribute to their society). The biggest single costs are recurrent costs – especially for teacher salaries. Aid is seen as both too short term and too unpredictable to cover such costs. We need systemic solutions and sustainable financing – features that are most closely identified with tax.

Tax is presently the major source of financing government’s education plans– even in highly aid-dependent low income countries. Many countries are coming close to achieving the two common benchmarks of 6% of GDP and 20% of public expenditure being spent on education, but still lack sufficient revenue and this means we need to pay more attention to the size of government budgets overall.Tax-to-GDP ratiosare a widely used measure of tax collection and in order to provide universal education, a state is likely to require (according to Piketty) at least a ratio of 20% - which many low income countries fall short of.

Focusing on tax as source of revenue has other benefits – as well as raising predictable revenue, it is a key means to redistribute resources andreduce inequality. There are also major benefits in terms of building accountability – strengthening relations between citizens and state and encouraging better governance.

Some forms of tax are “progressive” (put simply, where those with more, pay more as a proportion of their income) and some “regressive” (where those with more pay less as a proportion of their income). Whilst a case can be made for expanding revenue for education by any means, there is a particular virtue to use a progressive tax base for progressive spending on education as this doubles the dose of inequality-reduction at a time when everyone from the Pope to the IMF are concerned to achieve this.

One important place to start in promoting tax reform is aroundcorporate taxation, partly because this has become the focus of a lot of international attention in recent years as illustrated by the OECD’s Base Erosion and Profit Shifting (BEPS) process and the G20 political impetus behind it, the African Union’s High Level Panel on Illicit Financial Flows and the growing popular movement calling for companies to pay a fair share of tax. This is also an area of taxation where there is a huge impact from tax avoidance strategies in developing countries - and which therefore represents a potentially significant means for scaling up financing of education. The $39 billion resource gap for education could be more than filled by coordinated action in this one area!

A major focus needs to be onmultinational corporationsbecause domestic businesses are not usually offered the same tax incentives or holidays (which are mostly used to attract foreign investment); because MNCs have particular opportunities to avoid tax due to their international nature, and because a tremendous amount of money is at stake. A progressive intervention in the area of tax justice should rightly start where the inequality is greatest – and this is particularly so when supporting education which has such a powerful equalising potential.

In focusing on corporate tax and multinational companies we need to recognise that there are many ways in which the scope for domestic action depends, in part, on bettercoordinated international action. At present global tax rules are set by the club of rich nations – the OECD – and it is clearly time for an inclusive and well-resourced UN body to be established to both set fairer rules and enforce them. The failure to agree such a recommendation was a major disappointment from the Financing for Development conference in Addis in 2015 which sought to come up with ways to finance the SDGs.

There is a particularly strong case for teachers and education activists to push for tax reforms in four areas:

  1. Ending harmful tax incentives($139 billion in revenue is foregone by governments under the illusion that they need to give tax breaks in order to attract investment),
  2. Challenging aggressive tax avoidance(between $100 and $200 million is lost to education and other public services by increasingly common but unethical practices),
  3. Renegotiating dodgy tax treaties(many treaties are profoundly imbalanced, depriving developing countries of desperately needed resources) and
  4. Raising earmarked taxes(specifically for education).

Each of these is spelt out a little further in the attached annex. It can get a bit technical – but we all need to overcome our fear of tax! An excellent new toolkit “Financing Matters” jointly published by the Global Campaign for Education, Education International and ActionAid will help in this task - offering some practical, easy-to-use resources for teacher unions, coalitions and activists around increasing domestic financing of education.

Thebottom lineis that we need to raise both significant and sustainable new financing to help countries achieve full implementation of all the targets in the education SDG. Short-term, one-off solutions will not represent a breakthrough. An extra billion or two will not make a lasting difference. Placing a strong focus on how to expand the tax base for financing of education offers the best prospect for delivering what is urgently needed – tens of billions of dollars in sustainable funding, year on year to pay for the millions of new professional teachers that are urgently needed around the world. Crucially, this also offers a way to provide sustainable financing that deepens rather than undermines the accountability of national governments to deliver on the right to education.

This is an issue whose time has come. The furore around the world following the Panama Papers showed the widespread public and political support for reform. It is time for the negative cycle of lost revenue and low investment in education to be replaced by a positive cycle of expanding domestic tax revenue to invest sustainably in the core recurrent costs of education that will yield the long term economic growth - that in turn will expand revenues further.

This Blog is based on a report Domestic Tax and Education written by ActionAid for the Education Finance Commission . Also recommended is a new toolkit Financing Matters that offer practical guidance on domestic financing of education for teacher unionists and education activists – produced by EI, ActionAid and GCE.

For further details contact [email protected]/ Twitter @DavidArcherAA

The opinions expressed in this blog are those of the author and do not necessarily reflect any official policies or positions of Education International.