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Africa: Innovative Financing

AfricaFocus Bulletin
Sep 30, 2006 (060930)
(Reposted from sources cited below)

Editor's Note

Beginning in July, international air travelers from France have been paying a 4 euro tax on an economy ticket and 40 euros on a first-class ticket, with proceeds going to pay for treatment of children with AIDS, tuberculosis, and malaria. Eighteen other countries have pledged to implement the tax, including Brazil, the United Kingdom, Norway, Mali, and South Korea.

This measure, one international initiative by a group of countries calling themselves the Leading Group on Solidarity Levies, will initially provide only a modest $300 million a year. And the United States remains adamantly opposes even to mention of such "international taxes." But supporters hope it will set a precedent for new ways of financing international development. This AfricaFocus Bulletin contains several documents on initiatives by the Leading Group on Solidarity, a coalition now counting more than 40 countries working on "innovative sources of financing for development." For additional background and updates on this and related issues, see the Global Policy website (http://www.globalpolicy.org/socecon/glotax/general).

Another AfricaFocus Bulletin sent out today contains a press release and excerpts from an overview from the new UNCTAD study. The full report is available on the UNCTAD website (http://www.unctad.org).

++++++++++++++++++++++end editor's note+++++++++++++++++++++++

Chair's Summary of the Paris Conference on Innovative Financing for Development

Paris - March 1, 2006

http://www.elysee.fr

93 states met in Paris on 28 February and 1 March 2006 on the occasion of the ministerial conference on Innovative Financing for Development organised at the initiative of the President of the French Republic, Mr Jacques Chirac, with Mr Denis Sassou Ngesso, President of the Congo Republic, Chairman of the African Union, Mr Toumani Toure, President of the Republic of Mali, Mr Kofi Annan, Secretary General of the Organisation of United Nations, and Mrs Graca Machel in attendance. International and non-governmental organisations were involved in this event and are listed in the annex. This conference marks a new step towards rallying the support of the international community for innovative financing for development. It follows the World Leaders' Meeting for Action against Hunger and Poverty organised by the United Nations at the initiative of Brazilian President Luiz Inacio Lula da Silva in September 2004 and the subsequent signing of the Declaration on Innovative Sources of Financing for Development by 79 countries in September 2005. The idea of innovative financing for development is now an issue on the agenda of all major international forums and its principle has gained broad support on the part of the international community. Substantive technical work has provided solid bases for action, as shown by the Report of the Technical Group on Innovative Financing Mechanism presented in New York in September 2004.

Participants recalled that the Millennium Development Goals (MDGs) cannot be achieved in 2015 unless globalisation becomes more equitable. In addition to the commitments that have already been made, official development assistance (ODA) must be increased and made more predictable. Innovative financing sources supplementing traditional ODA will help finance over the long term recurrent expenditure that is needed to achieve the MDGs.

Participants reviewed the different options for Innovative Financing for Development sources and noted that it was essential to continue discussions at an international level on several issues including international solidarity levies, the International Finance Facility (IFF) and its pilot applied to immunisation (IFFIm) in particular, contributing to reduce tax evasion and taxing financial transactions, facilitating and lowering remittance costs for migrant workers, a humanitarian lottery, initiatives on the part of local governments, and voluntary contributions from individuals and companies such as the recently announced "RED" initiative for combating HIV/AIDS. These issues were debated in workshops on March 1, 2006.

The intention expressed by Brazil, Chile, Congo, Cyprus, Ivory Coast, France, Jordan, Luxemburg, Madagascar, Mauritius, Nicaragua and Norway to implement the international air-ticket solidarity contribution was welcomed. Other countries are set to follow suit.

France and the United Kingdom, which have already implemented an air ticket solidarity levy, had the opportunity during the conference to publish a joint communiqu‚ on innovative financing mechanisms.

Participants noted that several innovative sources were particularly well adapted to financing health-related development programmes, although this is not the only sector in which they can be applied. They stressed that the fight against HIV/AIDS, tuberculosis and malaria must be carried out via the strengthening of developing countries' health systems. National authorities with the help of cooperation agencies must take strong and sustainable action to this end. However more efforts must be made at an international level to improve access to low-cost drugs if the goal of universal access to HIV/AIDS treatments is to be achieved by 2010. With this in mind, participants reviewed the proposal to create an International Drug Purchase Facility (IDPF).

Participants would like innovative financing for development to remain on the agenda of the United Nations and other major international forums and will take an active part in future discussions on this issue. They agreed to meet again in 2007 at a "Forum on Innovative Financing for Development sources" to build on the momentum created in New York in September 2004, renewed in September 2005 and continued during this conference.

Participants have welcomed the creation of the Leading Group on Solidarity Levies to fund development which includes the following countries:

Algeria / Austria / Belgium / Benin / Burundi / Brazil / Cambodia / Cameroon / Cape Verde / Chile / Congo / Cyprus / Ethiopia / France / Gabon / Germany / Guinea-Conakry / Ha‹ti / India / Ivory Coast / Jordan / Lebanon / Luxemburg / Madagascar / Mali / Mauritania / Mauritius / Mexico / Morocco / Mozambique / Namibia / Nicaragua / Niger / Norway / Spain / South Africa / South Korea / United Kingdom


Plenary Session of the Pilot Group on
Innovative Financial Mechanisms, Brasilia, July 6-7, 2006
Leading Group on Solidarity Levies to Fund Developmen
t July 6-7 2006

http://www.globalpolicy.org/socecon/glotax/general

Chair's Summary

The Meeting of the Pilot Group on Innovative Financing Mechanisms was held in Brasilia, July 6-7, 2006. The Opening Session was presided over by Ambassador Celso Amorim, Minister of External Relations, and was attended by Luiz Dulci, Minister-Chief of the President's Office's Secretariat, Jacques Lapouge, Director of the Economic and Financial Affairs Department of France's Ministry of Foreign Affairs, and Jorge Durao, President of the Brazilian NGOs Association (ABONG). Forty countries, in addition to international and nongovernmental organizations also participated in the meeting, as shown in the attached list.

The Meeting took place at a new stage of the Action against Hunger and Poverty launched by President Luiz Inacio Lula da Silva in September 2004. This new stage is characterized by the definition of specific actions aimed at raising funds and channeling them to the promotion of economic and social development.

The Plenary Meeting demonstrated the growing consensus about the role innovative mechanisms may play in raising the amount of resources available for developing countries, as a supplementation of the traditional sources of funds, so that they can achieve the Millennium Development Objectives by 2015. In less than two years we have managed to raise the international awareness of the hunger and poverty issue and to make significant progress. The issue is now part of the agenda of the major international organizations.

The ripening of the discussion and assessment of innovative financing mechanisms already makes possible the adoption of specific, concrete projects, as witness the Paris Conference in February and March of this year convened at President Jacques Chirac's initiative. On that occasion, the proposal for the establishment of a solidarity levy on airline tickets met with broad support.

This meeting worked through panels at which government, civil society, and private sector representatives furthered the debate about innovative financing mechanisms and the advantages of their implementation.

Studies were presented on the potential for raising funds from the levies on international financial transactions, particularly in view of the advances of globalization and the increased volume of transactions. On the other hand, urgent attention must be given to the issue of tax evasion, which erodes the tax base of several countries, thereby reducing the resources available for combating hunger and poverty. In this connection, several participants suggested that international institutions devoted to this issue should amplify their action on behalf of developing countries, and proposed that a specific conference on tax evasion should be held. The discussion of the issuing of special drawing rights for development projects was carried further.

The participants called attention also to the role the International Financing Mechanism could play in anticipating disbursements of resources needed for achieving the Millennium Development Objectives. It is thus promising that a pilot project for the financing of vaccination in developing countries will be launched in the short run.

With respect to emigrant remittances, it was thought that, although they are not a properly called innovative mechanism, they inject significant resources into the developing countries. Obstacles to be overcome in this regard include the excessive cost of transfers, the scarce geographical coverage, and the lack of a banking culture. It would also be necessary to enhance the impact of remittances on the development of the receiving countries while respecting the transfer's private character.

In addition, the participants thought that it is important to further encourage voluntary contributions through international and nongovernmental organizations, and the private sector. Civil society has an equally important role in monitoring the use of resources, so as to make project implementation more effective and transparent.

The Meeting confirmed the broad support to the proposal of a solidarity levy on airline tickets and provided the opportunity for an exchange of information on the modalities to be implemented. The pilot project on this matter is already being implemented in several countries. The participants reiterated the legitimacy of this contribution, which is based on a sector that does not suffer from a heavy tax burden. The Meeting made decisive progress also toward the establishment of the International Drug Purchase Facility. With resources from the solidarity levy, this Facility will play a major role in combating AIDS, malaria, and tuberculosis.

Also examined were issues pertaining to the structure of governance; there was also broad consensus on the need to ensure the participation of civil society in decision-making processes. In this connection, the meeting gave opportunity for consultations with representatives of civil society, who made suggestions on various aspects of the initiative. During the meeting a precise timetable was agreed for encounters up to the opening of the United Nations General Assembly, when the establishment of the Drug Purchase Facility will be made official at high level.

This encounter has also served to identify other innovative projects, thereby fulfilling an essential Pilot Group task. As indicated by the panels, some of these projects are already yielding fruit, such as the Social Stock Exchange and the Global Digital Solidarity Fund. Other projects, such as the humanitarian lottery, are also very promising.

The Guyana representative informed that that country, as Pro-Tempore President of the Rio Group, intend to hold a workshop on innovative financing mechanisms. The representative of Norway, which will assume the rotating chairmanship of the Group in September, announced the intention of organizing a technical workshop with international organizations, NGOs and the academy. The results of this workshop will serve as an input to the meeting of the Leading Group, to be held in Oslo early in 2007. The representatives of Spain and Chile put forward proposals of new pilot projects, relating, respectively, to remittances and child malnutrition. These proposals could be death with by the Group in the next months.

Encouraged by the progress made at this Meeting, the participants expressed the hope that, as new pilot projects are adopted, other countries will decide to join the Group and adhere to the innovative financing mechanisms, thereby reinforcing concrete actions and increasing the resources available for combating hunger and poverty.


From Concept to Reality

On the present state of the debate on international taxes

by Peter Wahl

Friedrich Ebert Stiftung

[Brief excerpts only. Full 9-page briefing paper available at http://www.fes.de/globalization]

Introduction

In 1996 a number of UN Development Programme staff members published a book (Ul Haq et al. 1996) in which they proposed an international tax on currency transactions (the so-called Tobin tax). The publication may be said to have opened the discussion on international taxes.
...

Breakthrough in Paris

As of July 1, 2006, France will be levying a tax on air tickets; the revenues from the tax are set to flow into a fund set up to combat Aids, malaria, and tuberculosis in the developing world. France sees this as a contribution to reaching the Millennium Development Goals (MDGs). The Chilean government has also decided in favor of an air-ticket tax and has already initiated the appropriate legislative procedures. Brazil likewise plans to introduce a tax on air tickets in the course of 2006.

,,,

The Paris conference is the culmination point of a process set in motion by UNDP in 1996. This is a brief period of time, particularly if we consider the fact that in historical terms international taxation is a wholly new phenomenon. After all, until now taxation has been conceivable only in the national framework

Under heavy attack, above all by the finance community, the currency transaction tax (CTT) has dominated the debate up to this point. But in view of the political acceptance problems with which the CCT has had to contend in recent years, other taxes have also come in for discussion. In 2002, for example, the German Advisory Council on Global Change (WBGU) published a report taking a closer look at air-ticket taxes and other instruments of environmental policy (WBGU 2002). The most influential relevant study published thus far is the so-called Landau Report (Landau 2004). Prepared on behalf of French President Chirac, the report analyzes the whole range of different concepts advanced for international taxes. It has at the same time served as the basis for a report submitted to the UN General Assembly by the so-called Lula Group - France Brazil, Chile, and Spain.

With the votes of 115 countries, the UN General Assembly in 2004 adopted a resolution calling for an examination of international taxes as an instrument of development financing. Problems associated with the need to fund the MDGs are exerting more and more pressure working to develop both new and additional sources of funding. The interim review of the progress made in five years of work in implementing the MDGs shows that it will not be possible to reach the goals using the conventional instruments of development financing (Sachs 2005).

IMF and World Bank dealt with the issue at their annual spring meeting in 2005, and in the meantime an internal analysis has weighed the pros and cons of the various proposals advanced thus far (World Bank / IMF 2005). While the report makes no recommendations, it does point to the political acceptance problems faced by international taxes. In fact, it is mainly the US that is adamantly opposed to any international taxes. To cite an example, in 2005 Washington demanded, successfully, that the term "international taxes" be deleted from the Final Declaration adopted by the UN General Assembly.

All the same, the French initiative has now sparked a new dynamic. A strategy based on a plurilateral approach is proving successful: starting out with a "coalition of the willing," a lead group paving the way for and promoting the project, without first waiting for a universal consensus to emerge. To cite an example, the Paris conference saw the formation of a "Pilot Group on Solidarity Contributions for Development," an alliance extending beyond the hard core of countries that have already declared their willingness to adopt an air-ticket tax. Thirty eight countries have joined the group (including e.g. Belgium, Germany, the UK, India, Mexico, Austria, Spain, South Africa, South Korea). This is an institutional framework designed to guarantee the continuity of the process. The group is also open for an involvement of civil society.

...

What is international about international taxes?

The French air-ticket tax will be levied by the internal revenue authorities on every airline ticket purchased on French soil. In this regard the new tax may appear to be just another, normal national tax. Its innovative elements include the facts that it

  1. is levied in concert with other countries. It is for practical reasons only that the course of implementation will be staggered, with France taking the lead and Chile and Brazil then following suit. In other words, the first characteristic of an international tax is that it is adopted simultaneously at least two countries. The aim of this ticket tax is to continuously raise the number of players, ideally to include all of the countries of the world.
  2. is earmarked for an international use, in this case for a subgoal of the Millennium Development Goals, viz. to combat Aids, malaria, and tuberculosis.

The tax will be collected on a national basis, and sovereignty over the use of the revenues will lie with the nation-states concerned. In other words, international taxes do not necessarily require an international organization. However, other, more extensive configurations would also be conceivable. The tax could, for instance, be collected by a multilateral institution, and decisions on the use of the revenues from it could be reached on a multilateral basis. This, though, would call for far more multilateral integration than we have at present. The EU is now practically the only place where some rudimentary steps toward such a higher level of integration have been taken.

Globalization and taxation

The systems of taxation that developed in the course of the 19th and 20th centuries were conceived for the comparatively closed economy of the nation-state. Capital and labor were territorially bound to roughly the same degree. It was relatively easy for national tax legislation to establish the national tax base. Globalization has given rise to a new situation. The latter's economic core may be seen in the fact that national boundaries are increasingly vanishing for movements of capital, goods, and services. And in this connection no other factor of production has proven to be as mobile as capital.

To cite an example, thanks to digitalization and satellite communication, today some US$ 1.9 per day are transacted in the international foreign-exchange markets trade (BIS 2005). What we see emerging here is something similar to the cyberspace of the Internet, a transnational space. These processes are becoming less and less accessible to control and regulation.

Globalization as a legitimation for international taxes

The globalization-related erosion of the nation-state's tax base is not only an economic problem. This development at the same time strikes at the heart of modern statehood and democracy. A good measure of democratic sovereignty is being lost because the sovereign is gradually being deprived of the material means it needs to shape and sustain the community. If the chronic crisis of public finances leads to further deterioration of community social and physical infrastructure, the erosion of democratic policy spaces and options will also be a consequence.

Hence, international taxes may be seen as democratically legitimate because they restore to the democratic sovereign - the citizenry - some of the scopes it needs to give positive shape to life in the community. ...

Earmarking as a key factor for legitimacy

And last but not least, earmarking revenues from international taxes for purposes that enjoy a high level of moral authority may serve to boost the acceptance of such taxes. This is the reason why advocates of international taxes are in favor of starting out by using these revenues to finance the MDGs (United Nations 2004).

...

The air-ticket tax

The French air-ticket tax levies a rate of one euro on every ticket sold for economy-class domestic and European flights. The rate for business and first class is ten euros. The respective rates for intercontinental flights are four and forty euros per ticket.

The rationale for the higher rates on business and first-class tickets is not distributional policy. With 60% of the revenues of air carriers stemming from these classes, the tax revenues collected are accordingly high. On the whole, the French government anticipates revenues from the tax amounting to up to 200 million.


AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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