French President Jacques Chirac yesterday called on wealthy nations to adopt an air ticket tax that will be used to fund development aid for low income countries, due to be implemented in France from July. The most immediate use of funds raised could be the purchase of antiretroviral drugs by an International Drug Purchase Fund, also floated yesterday by France and Brazil at an international summit on innovative funding for development.
The tax will levy one euro on all domestic and European flights departing from French airports, and four euros on long-haul flights. Business and first class travellers will pay ten euros on European flights and 40 euros on long-haul flights.
Chancellor Gordon Brown said that the government of United Kigdom would adopt a similar fundraising route, earmarking some money from the £1 billion raised each year from the UK’s air passenger taxes. Chile and Brazil will also back the scheme, but the the government of United States has expressed opposition.
However the British government has invested more energy in proposals for an International Finance Facility that would raise money on the financial markets through bond issues to `front load` development aid. This would allow more money to be made available prior to 2015, the target date for reaching the Millenium Development Goals. Chancellor Brown argues that unless aid is `front loaded` in this way, there is little hope of reaching the goals.
At yesterday’s conference the Chancellor said that money from the air ticket levy could be used to provide a steady stream of new money that could be used to pay interest on bonds and pay back bond holders in the future. A working party will report in September on the viability of this proposal.
Although global air travel is growing, some have expressed caution about the proposal to rely on airline taxes as a sustainable revenue stream, pointing out that air travel is also being threatened with an emissions tax as a deliberate means of reducing passenger volumes. Air travel may also become less frequent in the future if oil prices rise dramatically, or if global oil supplies begin to dwindle dramatically.
Research by the analysts Dresdner Kleinwort Wasserstein shows that an increase in UK passenger tax - from £5 to £10 for economy flights within the EU and up to £40 for long-haul — would reduce passenger volumes for British Airways, EasyJet and Ryanair by 2.3%, 4.8% and 7.6% respectively.
An alternative is a tax on international financial transactions – the so-called Tobin tax named after the economist who pioneered it. This mechanism, a levy of 0.005% of the value of any international financial transaction, could raise between $35 and $40 billion a year, according to the Stamp Out Poverty Campaign. It would be almost impossible to evade and would have little or no impact on banking profits, the campaigners argue.
An international drug purchase fund for HIV treatment?
The French government has also proposed the establishment of a ring-fenced fund for purchasing HIV drugs funded by new money from mechanisms such as the air passenger tax. The fund would use its buying power to negotiate discounted prices on antiretrovirals, but discussions at last week's UNAIDS-convened Global Steering Committee on universal access to treatment generated greater enthusiasm for regional procurement mechanisms and better demand projections as a means of bringing down drug prices.