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

2 Enlarged Lula Group’s side event 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 Enlarged Lula Group’s side event 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 Enlarged Lula Group’s side event 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 Enlarged Lula Group’s side event 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 Enlarged Lula Group’s side event In Europe, Denmark, Malta and the United Kingdom already have a levy on plane tickets United KingdomDenmarkMalta € 8 to € 64 according to destination and travel classes € 5 to € 10€ 23 (to be doubled by August,1st 2005) Existing levies on plane tickets in Europe Data: OECD and European Agency for Environment

7 Enlarged Lula Group’s side event Implementation issues  By passengers of planes departing from an airport located in a participating country LegallyIn practice  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 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  Payment of the contribution:

8 Enlarged Lula Group’s side event 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 Scenario 1Scenario 2 Around € 2 BnAround € 10 Bn Area of implementation Worldwide Expected annual revenues with 2002 data

9 Enlarged Lula Group’s side event 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 Enlarged Lula Group’s side event 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 Commitment mechanisms  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 Enlarged Lula Group’s side event Next Steps  Besides the ongoing European talks, 2 major milestones:  Gleneagles G8 Summit (6-8 July)  United Nations Summit on MDGs (14-16 September)