Financing Development: Are International Solidarity Levies the Answer?

In an age of tightening aid budgets, ‘innovative financing’ is the latest buzzword to sweep international organizations determined to maintain the provision of their services despite years of stagnation in donor countries. The global health initiative UNITAID, chaired by Philippe Douste-Blazy, is offering its system of an ‘international solidarity levy’ as a model for other actors. Could transnational taxes be the new face of development?

The economic crisis has not been kind to international development. As hard times and austerity measures have forced much of the West to focus its attention inwards, aid efforts to the world’s poorest countries have been forced to look for novel ways to meet ends.

According to the OECD, development aid has continually fallen since 2010. Official development assistance (ODA) fell by 4% in 2012, following a 2% drop in 2011, prompting concern that even the more realistic UN Millennium Development Goals will not be met. “The protracted global economic crisis has begun to take its toll on international development cooperation,” acknowledged UN General Secretary Ban Ki-moon in September 2012 in a press briefing with donors. “Fiscal austerity should not be on the backs of the poor,” he added.

Though there have been attempts to correct this trend (the European Commission recently announced a slight increase in the amount of its 7-year budget earmarked for humanitarian aid), it is widely felt that online organizations can no longer depend on the coffers of donor states for their funding. It is here that UNITAID steps in.

The ‘solidarity tax’

An initiative borne from talks between former Presidents Jacques Chirac of France and Luiz Inacio Lula da Silva of Brazil, and now hosted by the World Health Organization (WHO) in Geneva, UNITAID is a drug purchasing facility whose activities are similar to that of a central buying organization. Pooling its funds, UNITAID uses its considerable buying power to negotiate global price reductions on pharmaceutical drugs, which all public health organizations are able to profit from. A specific emphasis is placed on drugs designed to treat the diseases that plague the world’s poorest inhabitants, such as tuberculosis, malaria and HIV.

Where UNITAID truly shows its innovative spirit, however, is in its funding structure. While half of the organization’s budget comes from several institutional sources, multi-year government contributions and the Bill and Melinda Gates Foundation, the other half comes from an international levy placed on airline tickets. This surprising financing tool is implemented so far a dozen countries, including Cameroon, Chile, Congo, France, Madagascar, Mali, Morocco, Mauritius, Niger and the Republic of Korea. To each economy class ticket purchased in these countries, a one US dollar tax is added, or a $40 tax on each first or business class ticket. According to France’s Directorate General for Civil Aviation (DGAC), this “solidarity tax” has generated over one billion euros since its inception in 2006.

Needless to say, the idea of an international tax, whatever the cause, is anathema to individuals of certain political persuasions, and immediately begs the question of the levy’s impact on business. Indeed, many in France were particularly worried about the tourism and travel sectors, as the country is consistently among the world’s top travel destination. According to a 2011 report by France’s National Assembly, however, the tax displayed “no negative effects on air traffic or jobs in the airline sector”, and France’s position as the number one tourist destination has remained unchallenged. Following the report, France even increased its annual pledge to UNITAID to $110 million.

The FTT: development’s new golden goose?

Having weathered the 2008 financial storm and other external crises such as the Eyjafjallajökull eruption in 2010, UNITAID and its airline levy have been widely applauded. In 2013, former President Bill Clinton even called the organization “France’s most exceptional gift to the world”. On April 1st of this year, the organization will welcome Bill Gates at a large dinner in Paris where future directions for development will be discussed.

Indeed, UNITAID President Philippe Douste-Blazy, former French Minister of Foreign Affairs and current Special Advisor to the UN Secretary General, wants to go even further, turning the financial transactions tax (FTT) that European countries have been flirting with into a perennial source of funding for international development. Where UNITAID’s airline levy has succeeded in securing funding for health programs across the developing world, an international tax on financial transactions could secure funding for other development sectors, such as education or sanitation.

According to Douste-Blazy, the FTT could generate over $30 billion a year and “should have no significant negative impact on national financial markets”. “European leaders must learn from UNITAID’s successes and insist that over 50 percent of the proceeds of an FTT are allocated to poverty eradication,” the UNITAID President argues. Time will tell if Western political leaders will follow his call.