An IMF staff discussion note issued on 25 January 2019 entitled “Fiscal Policy and Development: Human, Social, and Physical Investments for the SDGs” examines the tax rises needed in emerging economies and less developed countries to make the changes required to achieve the sustainable development goals (SDGs). The discussion note estimates annual sending required to make progress on the SDGs in certain areas.

The study looked at a sample of 49 low-income developing countries, 72 emerging market economies, and 34 advanced economies. The study concluded that delivering on the SDG agenda would need additional spending in 2030 of USD 0.5 trillion for low-income developing countries and USD 2.1 trillion for emerging market economies.

The emerging market economies would require average additional spending amounting to around 4 percentage points of GDP, however these economies can rely on their own resources to achieve the SDGs.

In the case of low-income developing countries the average additional spending required to achieve the SDGs represents 15 percentage points of GDP.

The countries will need to push ahead with reforms to create the conditions for sustainable and inclusive growth that will itself generate the necessary tax revenue. The study suggests that they need to focus on strengthening macroeconomic management; improving governance; strengthening transparency and accountability, and creating a favourable business environment.

It is essential for countries to raise more domestic tax revenue to achieve these targets. In many countries it would be possible to increase the tax to GDP ratio by five percentage points within the next decade although this is an ambitious target.

Countries can achieve increases in tax collection without necessarily holding back economic growth. Well structured tax policies can aim to broaden the tax base and reduce distortions in the economy, thereby supporting economic growth. The most important feature is the combined effect of tax and other measures, including the quality of the increased spending that results from the additional tax revenues.

Countries also need to increase the quantity and quality of government spending. There are opportunities to save as much from efficiency efforts as can be raised from tax reforms.

In developing countries the scale of the additional spending will need support from all stakeholders including the private sector and international financial institutions. If official development assistance targets are met this can help in closing development gaps in many low income developing countries. In mapping out a national reform agenda taking into account national circumstances the countries should also pay attention to the complementary role of the development partners.