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Digital public finance: top trends in May 2023

Expert Comment

Written by Nicholas Gates, Cathal Long

Image credit:UNDP Ukraine / Flickr

Welcome back to the Budgets and Bytes blog, where it is time for another monthly review of the top trends in public finance and digital.

May was a big month for digital development conferences. We saw the World Bank’s GovTech Global Forum in early May, the Code for America Summit 2023 in mid-May and the e-Governance Conference 2023 at the end of the month. We at ODI and Public Digital spent part of last month with the teams from the Chartered Institute of Public Finance and Accountancy (CIPFA) and the Center of Excellence in Finance (CEF) at a conference on ‘Advancing Digital Change through Public Financial Management’ in Pristina, Kosovo. The conference featured several exciting examples of digital public financial management (PFM) happening in practice, which you can read more about on the Budgets and Bytes blog in the coming days.

Besides conferences, May also saw significant press around Ukraine’s digital government application Diia, as well as continued debate around the relative importance of, and relationship between, the three foundational layers of digital public infrastructure (DPI): digital identity, data exchange and digital payments. We also saw quite a bit of interest in the relationship between digital and taxation.

Without further ado, here are some of May’s top trends in digital and public finance.

1. Diia – Ukraine’s digital government application and mobile e-portal – got the full red carpet treatment

One of the flashiest moments in May came when USAID rolled out the metaphorical red carpet at the Warner Theater in Washington DC for Diia, Ukraine’s first-of-its-kind mobile application for interfacing with the government. Entitled ‘Diia in DC’, the event convened big names like USAID Administrator Samantha Power and powerhouse tech journalist Kara Swisher with Ukraine’s Minister of Digital Transformation Mykhailo Fedorov to discuss the app’s challenges and the road ahead (they continued the discussion on Swisher’s podcast).

The event highlighted the nature of Diia as a ‘state in a smartphone’ – a common rejoinder – as well as the centrality of the Diia approach to documentation in promoting resilience during the war in Ukraine. The model – which mixes elements of a digital identification scheme and an e-services portal – appears to be taking off, as there is a high level of attention on it globally. The ‘wrapper’ of a smartphone application has made it easily accessible and comprehensible for a general audience, too.

There was plentiful press coverage to support the push. The Atlantic Council gave a glowing write-up, promoting many of the platform’s functionalities and introducing the push to roll it out in other countries as far afield as Colombia, Kosovo and Zambia. In large part as a consequence of Diia’s popularity, Estonia, one of the leaders in digital public services, is talking more about the impending launch of its own version called mRiik. And as this Guardian article made clear, a lot can be made – and is being made – of not just Diia’s core features, but also its ability to help the state distribute social assistance benefits and public funds, as well as provide critical revenue-generating activities like taxation.

While the level of attention might feel like a bit much, it is clear that the accessibility, interface and packaging of Diia is resonating across the globe. We are sure there will be more to come on the trend of ‘government as an app’ in the months to come, and that there will be big implications for those working on digital PFM.

2. Different layers of DPI are receiving an influx of attention

While we talked at length about the continued push around DPI in last month’s blog, we mostly focused on the level of attention they have been receiving in public finance circles. This time around, we wanted to focus a bit more on what is happening across each of the three capabilities of DPI (or at least the ones people can agree on): digital identity, data exchange and digital payments.

Digital identity

In Nairobi, the ID4Africa 2023 conference kicked off near the end of the month, with a focus on the role of digital identity as public infrastructure. MOSIP, an open-source digital identity solution, featured prominently, and there was significant debate around how to make digital identity work for the needs of people-centric, demand-driven DPI. There is a lot that can be made of these efforts, but it is notable how well-attended the event was, with stakeholders joining from all across the continent and the rest of the globe.

Kenya, the host of ID4Africa 2023, proved to be an interesting case to see where digital identity is going. Following the collapse of its Huduma Namba digital identity scheme, the Kenyan government has begun looking to Pakistan’s National Database and Registration Authority for guidance on how to implement a new digital identity system and has announced its intention to roll out Unique Personal Identifiers (UPI) beginning in September.

In Europe, the UK government officially shut down its Verify ID service, which was challenged by government departments continuing to demand their own identity solutions. Another trend – as highlighted in Richard Pope’s excellent newsletter ‘Platformland’ – was the proliferation of the digitalisation of licences in locations as diverse as France, South Africa and some US states.

Meanwhile, the India model for DPI – with the centralised digital identity system Aadhar at its core – is continuing to take off, with member states of the Shanghai Cooperation Organization – including China, Kazakhstan, Kyrgyzstan, Pakistan, Russia, Tajikistan and Uzbekistan – agreeing on adopting the model.

Data exchange

The Observer Research Foundation (ORF) put out a piece in May on ‘Digital Public Infrastructure for Efficient Cross-Border Data Flow’, which set a good tenor for the conversation happening around data exchange DPI facilitating cross-border data flows.

The concept is similar to the recent idea of data free flow with trust (DDFT), which is being bandied about in G20 circles and by the World Economic Forum (WEF). DDFT is a concept that is focused principally on the ability to use networked and interoperable technologies and systems to share information and data across borders, though it also pays some lip service to the idea of building robustly-governed and inclusive data ecosystems.

Importantly, both the ORF and WEF pieces highlight the importance of robust data exchange DPI as a key enabler of DFFT, and the need for verifiable, quality data to improve financing and budgeting. On the other hand, it also requires substantial upfront investment in those data collection and data exchange systems. While the concept of DFFT may come and go, the growing centrality of systems to securely exchange data within and across borders for both public finance and the digital economy will continue to be an increasingly important space to watch.

Meanwhile, the UN released a new report from its High-level Committee on Programmes (HLCP) Working Group on International Data Governance, which called for a better global vision for how data is governed as it is increasingly exchanged within and across borders. There must be principles of human centricity and inclusion included in these practices. For example, writing for the Digital Impact Alliance (DIAL) from the end of April, Prasnna Lal Das notes the need for human-centred data governance to improve public service delivery in lower-income countries.

Digital payments

In other news, decision-making around digital payments infrastructure is ramping up, a foundational DPI capability we highlighted last month that got more mainstream coverage in The Economist in May. By way of example, Japan announced its intention to think about adopting the Indian model of UPI following a G7 declaration which noted agreement among member states around ‘shar[ing] and accelerat[ing] best practices on digital identity and credentials and support[ing] discussions on the ongoing development of the OECD draft recommendation on the governance of digital identity’.

What do we make of these DPI solutions from a public finance perspective?

The centralised collection of data is not a trend with a long history in finance ministries and treasury departments across the globe. These trends are critical because, as more and more articles like this one from the Harvard Business Review note – DPI has vast potential to unlock economic value and enable emergency payments, which is hugely relevant for government revenue and expenditure. Not only that, but some forms of digital identity remain vital in linking taxpayer data, identifying individuals and delivering benefits and social protection services in a way that meets the needs of business and citizens.

3. New solutions for digital taxation, and the taxation of digital, are on the up

Last year, the ODI team demonstrated how digital innovations are shaping the future of property taxation, featuring some lessons from their report. Since we launched the Digital Public Finance Hub, we have been increasingly interested in how digital transformation is shaping the future of public taxation more broadly, and what its implications might be for PFM.

May saw movement on both sides of the digital taxation/taxation of digital continuum. The digitalisation of the economy is a trend that is shaping taxation regimes in countries across the world (see comments from the Minister of Finance, Budget and National Planning in Nigeria, for example). At the same time, we are seeing an expansion of interest in digital solutions to help make taxation work for the needs of digital-era governance.

Many countries have adopted some sort of regime around digital taxation, but the topic is receiving more attention in a PFM context, most notably from the Organisation for Economic Co-operation and Development (OECD). The month of May highlighted notable examples in e-filing and tax systems more broadly. For example, in the United States, plans accelerated for an e-filing system for taxes, which would be available during the 2024 tax-filing season. The argument for such a programme was captured quite well earlier in the month by Gabriel Zucker at Code for America, who made the case for how a user-centred, simple-to-use digital tax-filing system could help improve transparency and trust in government, while enabling it to better work for people.

On the tax systems side, we are also noting some movement around digital public goods (DPGs) that touch on various aspects of public taxation, tax compliance and benefits. At the very end of April, Policy Engine – an open-source software solution that provides microsimulation of tax benefits – was recognised as a DPG, as was OpenFisca – an open-source standard for rules as code that might have implications for fiscal policy-making. There was also a great overview from the International Monetary Fund (IMF) and African Regional Technical Assistance Centre in West Africa (AFRITAC West 2) on how digitalisation is affecting the West Africa region, with an illuminating example of how it continues to affect revenue administrations and authorities.

Separately, the International Centre for Tax and Development (ICTD) has put together a rousing summary of where we are currently in discourses around global tax governance. We also saw some movement on the adoption of a ‘VAT Digital Toolkit for Africa’, one which would help countries in the region adopt regulations for the taxation of e-commerce, a trend the OECD has started to put forth in other regions.

Reflecting on the taxation of the digital economy, the ICTD piece goes into some useful detail on the implications of the increasing digitalisation of public sector administration in jurisdictions across the globe for their tax regimes. The piece does spend time reflecting on the proliferation of digital services taxes but, importantly, it also addresses the increasing tension between an OECD-centric tax regime and one that creates more tax sovereignty for lower-income countries, particularly in a way that helps meet the needs of the digital era.

Lastly, we encourage you to read this piece called ‘In Tech We Trust’ by Nanjira Sambuli. It notes how the digitalisation of public services and the critical functions of the state, and especially PFM, are issues of trust and accountability. The failure to efficiently and equitably manage public finances using taxpayer money is one of the critical trade-offs governments make and, in turn, greatly impacts public trust in government. The piece points out the digital dimension of this trust and accountability issue, noting how the lead-up to - and scandal surrounding - the rollout of Kenya’s IFMIS system provides a crucial example of how good intentions can be sacrificed in the name of control, and how digital is not a silver bullet