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Pilot project of a solidarity contribution on plane tickets

Pilot project of a solidarity contribution on plane tickets. High Level Dialogue on Financing for Development New York, June, 27 2005. Presentation by Mr. Thierry BRETON, Minister of Economy, Finance and Industry . The enlarged Lula group. A shared assessment:

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Pilot project of a solidarity contribution on plane tickets

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  1. Pilot project of a solidarity contribution on plane tickets High Level Dialogue on Financing for Development New York, June, 27 2005 Presentation by Mr. Thierry BRETON, Minister of Economy, Finance and Industry

  2. The enlarged Lula group • A shared assessment: • Additional, stable and predictable resources are needed in order to reach the Millennium Development Goals by 2015 • Global issues require global answers • The benefits of globalization must be shared fairly • Brazil, Chile, Germany, France and Spain (recently joined by Algeria) have been working for a year on concrete proposals for innovative financing mechanisms

  3. Proposal • Set up a pilot which: • Proves the feasibility of innovative mechanisms • Addresses the most urgent financing needs, in particular for HIV/AIDS, by providing stable and predictable resources • This pilot would be based on a solidarity contribution on plane tickets and is already supported by Brazil, Chile and Germany • The contribution rate would be: • Low • Differentiated between travel classes as well as types of flights (domestic vs international) for equity purposes • The proceeds would be earmarked to some development programs, in particular for the purchase of HIV/AIDS drugs

  4. Why a pilot project on plane tickets? (1/2) • A fast growing industry: • Average annual growth of 9% since 1960 • + 7.4% since April 2004 • Annual growth expected to reach 5% in the coming decade • A pragmatic mechanism • Passengers of airline companies are seldom among the poorest • The contribution rate could be higher for passengers in business and first classes • As an illustration, a € 5 contribution would merely increase the price of a € 400 holidays package by 1.25% Source: IATA

  5. Why a pilot project on plane tickets ? (2/2) • The solidarity contribution can be implemented by a limited number of countries without any negative economic impact: • A low rate contribution would not trigger any evasion nor important distorsions • The exemption of passengers in transit would ensure that the hubs of participating countries are not penalized • No legal or practical impediments: • A fixed rate contribution on plane tickets is compatible with international agreements on air transport as well as EU and WTO regulations

  6. In Europe, Denmark, Malta and the United Kingdom already have a levy on plane tickets Existing levies on plane tickets in Europe United Kingdom Denmark Malta • € 8 to € 64 according to destination and travel classes • € 5 to € 10 • € 23 • (to be doubled by August,1st 2005) Data: OECD and European Agency for Environment

  7. Implementation issues • Payment of the contribution: • By passengers of planes departing from an airport located in a participating country Legally In practice Airline companies will be in charge of collecting the contribution • The contribution will be included like other airport fees in the total price of the plane ticket • As shown in countries which already have a levy on plane tickets, collection costs are very low: • Eg. In the UK, collection costs = 0.1% of revenues

  8. New substantial revenues for development • 2 illustrative scenarii, with a different rate between economy and business classes • Scenario 1 : € 1 in economy, € 5 in business and first • Scenario 2 : € 5 in economy, € 25 in business and first • A few benchmarks: • Past commitments from the Global Fund: around € 3 Bn • Estimated financing gap for the MDGs: at least € 50 Bn • Current level of total ODA: around € 60 Bn Expected annual revenues with 2002 data Area of implementation Scenario 1 Scenario 2 Worldwide • Around € 2 Bn • Around € 10 Bn

  9. Fairness and Diversity between participating countries • The contribution rate could be different between international and domestic flights. It could even be nil in the latter case. • The contribution rate could be lower in some developing countries

  10. What will be done with the revenues? • France suggests to earmark a share of the revenues to the fight against HIV/AIDS • Purchase of ARV drugs • Possible participation at a later stage to Advanced Purchase Commitmentmechanisms • Expenses will be channeled through existing national and international institutions without any additional cost • The fiscal sovereignty will be fully preserved. The use of proceeds will be coordinated between participating countries.

  11. Next Steps • Besides the ongoing European talks, 2 major milestones: • Gleneagles G8 Summit (6-8 July) • United Nations Summit on MDGs (14-16 September)

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