Courtesy of Philippe Douste-Blazy

By Nora Happel
UNITED NATIONS, Jul 9 2015 (IPS)

Implementation of the ambitious post-2015 development agenda which will be adopted in September 2015 at the United Nations depends to a large extent on funding.

Amidst preparations for the upcoming 3rd International Conference on Financing for Development (FFD) to be held from July 13 to 16, 2015 in Addis Ababa, Ethiopia, discussions centre on “innovative financing mechanisms” as stable and predictable instruments to complement traditional Official Development Assistance (ODA) and fill funding gaps at a time when global growth is flagging and most donor countries are facing increasing budgetary pressure.We must fight against the scandal of a world where 870 million human beings are malnourished, a world where nearly 30 percent of children on the African continent suffer from chronic malnutrition, leading to backwardness at school and a cruel loss of growth.

Conceived in the early 21st century in the context of the adoption of the Millenium Development Goals (MDGs), the idea behind the concept is to “invisibly” raise important amounts of income to correct imbalances and provide funding for the most urgent development needs such as eradication of extreme poverty and the promotion of education and global health. The mechanisms involved range from government taxes to public-private partnerships.

A prominent innovative finance example is the global health initiative UNITAID. UNITAID is funded primarily through a one-dollar solidarity levy on airplane tickets. The income raised is spent on global measures to fight malaria, HIV/AIDS and tuberculosis.

A more recent example is the Financial Transaction Tax (FTT). It is currently seen by governments as both a tool to curb financial speculation and a mechanism to raise considerable revenue – which could be used to finance for development. Ongoing plans on an EU FTT to be implemented in 11 willing EU countries might prove as the next step in innovative finance.

In an interview with IPS, Philippe Douste-Blazy, U.N. Under-Secretary-General in charge of Innovative Financing for Development, chair and founder of UNITAID and former French foreign minister, shares his insights on the FTT and innovative finance mechanisms shortly ahead of the upcoming Conference on Financing for Development and the adoption of the Sustainable Development Goals (SDGs) later this year.

Q: Which role does innovative finance play in the context of the negotiations on the post-2015 development agenda?

A: 2015 is a historic year because three great international conferences will take place which are vital for the future of the world:  the Addis Ababa conference on Development Finance, the General Assembly of the United Nations where the international community will launch the Sustainable Development Goals and the COP21 on climate change in Paris.

In all three cases, the scenario will be the same: a magnificent political agreement but without any financial means to back it up. I want to sound the alarm! If we fail to find innovative financing now, at a time when the world has never had so much money but the gap between rich and poor is constantly widening, the 21st century will end in extreme violence.

Q: Financing for development requires considerable financial resources. Is the FTT a suitable tool to raise the necessary funding compared to other innovative finance tools?

A: Finance is currently one of the least taxed economic sectors. It is absolutely surprising when you know the terrible impact this sector had on international development because of the 2008 economic crisis. Implementing a painless percentage tax on financial transactions could generate hundreds of billions worldwide and as a result, be positively decisive on the fight against extreme poverty, pandemics and climate change.

We are now living in a completely globalised world and those threats are upon every citizen of the world. Globalised activities and exchanges should then contribute to international solidarity. That is what we had in mind with President Chirac and President Lula when we implemented the solidarity tax on plane tickets.

People are travelling more and more, so levying a small portion of the price of their tickets offered the opportunity to improve the access to life-saving treatments all around the globe. FTT follows the same logic. Financial needs are considerable and we need to take the money where it is. Innovative financing tools shouldn’t be positioned as rivals, they should instead be seen as complementary.

Q: UNITAID invests the funds raised by means of global solidarity levies to fight HIV/AIDS, tuberculosis and malaria. What are your results at UNITAID in combating these diseases?

A: First, UNITAID’s investments helped create the market for some key more effective HIV treatments in 2007, by bringing the prices down from 1,500 dollars/year to under 500.

Second, through support to the Global Fund and UNICEF, UNITAID contributed to the delivery of over 437 million of the best antimalarial treatments, helping the global community to reduce deaths by 47 percent since 2000.

Third, a 40 percent price reduction for the cartridges of an important new test for tuberculosis (GeneXpert) was negotiated for 145 countries, along with USAID and the Bill and Melinda Gates Foundation. This has saved over 70 million dollars within two years for the global community and has enabled a significant contribution to the 30 percent annual increase in detection of drug resistant TB cases.

Q: Could you tell me about your planned new project UNITLIFE? What is it about and at what stage are the preparations for this project?

A: We must fight against the scandal of a world where 870 million human beings are malnourished, a world where nearly 30 percent of children on the African continent suffer from chronic malnutrition, leading to backwardness at school and a cruel loss of growth.

Faced with this scourge which decimates generations, destabilises societies and severely penalises nations, notably in Africa, we have the duty to imagine a response combining efficacy and solidarity: this is why we want to launch UNITLIFE.

UNITLIFE is based on a simple principle: allocating to the fight against malnutrition an infinitesimal part of the immense riches created by the use of extractive resources in Africa in such a way that the globalisation of solidarity matches the globalization of the economy. So far six African Heads of State accepted such a principle. As UNITAID is hosted by the WHO, UNITLIFE will be hosted by UNICEF.

Q: How does a future FTT implemented in the 11 European countries need to look in order to be beneficial and effective? How do you assess for instance the examples of the French or Italian FTT?

A: French and Italian FTT are really disappointing. They are not fulfilling the expectations neither in terms of regulation nor about revenues. It seems that French and Italian governments were just concerned by the defence of their financial sectors.

The exemptions that are organised are preventing the tax from touching the most speculative transactions. Derivatives, market makers, intra-day and high frequency trading are not taxable with the two models whereas they’re the most dangerous.

Furthermore, it’s in taxing these instruments that a FTT would levy the most resources. For the same reasons, a European FTT that wouldn’t be applied on foreign shares will be highly disappointing. Instead of being scared of the reaction of financial sectors, the 11 political leaders must show real ambition and design a strong FFT with a broad scope and preventing loopholes.

Q: How can you make sure that a certain percentage of the money raised by the tax will be spent on development?

A: Seventeen percent of the French FTT is already allocated to climate and pandemics. President Hollande said he will allocate a part of the European FTT to the same causes; let’s hope that the portion will be bigger!

[Spanish] Prime Minister Marianno Rajoy also committed to allocate a part of the revenue to international solidarity but so far these are the only declarations we have. It would be really interesting to see the eleven

Heads of State committing together on a joint allocation to international solidarity. Using the FTT revenue to finance multilateral funds like the Global Fund, the World Health Organization  or the Green Fund would be the best way to be sure the money raised is actually spent on development.

And today when I see those tens of thousands of migrants trying to cross the Mediterranean, which is becoming the world’s biggest cemetery, I want to underline that the only solution to massive immigration from poor to rich countries is to provide what we call Global Public Goods (food, potable water, essential medicines, education and sanitation) to every human being.

Edited by Kitty Stapp

Excerpt:

Ever since the Monterrey Consensus on Financing for Development in March 2002 called for new and innovative strategies to complement traditional Official Development Assistance (ODA), various financial instruments have been discussed.

Bankers look down onto Robin Hood tax supporters gathered in New York City on Sept 17, 2013. Credit: Samuel Oakford/IPS

They include a solidarity levy on airplane tickets, debt swaps, measures to combat tax havens and capital flights – and the financial transaction tax (FTT).

With the finance ministers of 11 European countries, Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain, continuing negotiations on the modalities of a future FTT, proponents say it is an opportune moment to look at the controversial tax and its potential as innovative finance mechanism.

Most current discussions on FTTs, including plans on the European Union FTT, involve a small tax on the exchange of financial instruments, such as securities, bonds, shares and derivatives. It would apply to transactions on the wholesale market and not apply to the retail market.

The FTT has two main functions. It is designed to stabilise financial markets by curbing high-frequency trading and speculation, as well as serve as a tool to raise important amounts of revenue, which could be spent, at least in part, on development purposes.

However, there are ongoing debates on the efficiency of an FTT and its potentially damaging effects on the financial sector.

Opponents claim that an EU FTT would cause share-trading to emigrate as happened to Sweden, when it imposed a unilateral FTT about 30 years ago. Such fears have prevented countries with important financial sectors and asset-management industries like the United Kingdom and Luxembourg from consenting to an EU-wide FTT, resulting in the multilateral initiative of the 11 “willing” EU countries instead.“International targets to tackle poverty and climate were knocked badly off course by the reckless actions of the finance industry. It is only right the sector makes a fair contribution for the damage it caused." -- David Hillman

The London-based Institute of Economic Affairs argues in a 2011 report that the revenue an FTT raises is minimal due to falls in revenue from other taxes. Also, price volatility will increase as financial markets get smaller and decreasing income for companies will ultimately translate in higher prices and lower wages for workers in the whole country.

As reported by the Guardian, Matthew Fell, director for competitive markets at the Confederation of British Industries (CBI), said: “The UK government is right to reject a FTT as damaging for jobs and growth.”

“It is disappointing that eurozone economies are pursuing the FTT, whose costs ultimately fall on consumers and businesses, and will be a drag on the eurozone recovery.”

Proponents of the FTT, such as the Robin Hood Tax Campaign and Stamp Out Poverty, do not consider these arguments valid. They point to the fact that FTTs have already been successfully implemented in many countries and that an EU FTT would increase growth in Europe by 0.2 to 0.4 percent according to the European Commission’s most recent impact assessment.

Tackling climate change, ending poverty and malnutrition, enhancing social and economic development in a sustainable manner – the ambitious post-2015 development framework, which will be adopted this year in September at the U.N., requires considerable financial resources.

Those in favour of an FTT also acknowledge its potential as an innovative finance mechanism and confirm that chances to implement the Sustainable Development Goals (SDGs) will increase markedly if a sufficiently significant part of the money raised by means of the tax is spent on humanitarian purposes, climate change and development.

David Hillman, spokesperson for the United Kingdom’s Robin Hood Tax campaign, told IPS: “One of the great benefits of the Financial Transaction Tax is that it’s a proven revenue raiser. Many FTTs already exist around the world today that collectively raise at least 30 billion dollars a year.”

“International targets to tackle poverty and climate were knocked badly off course by the reckless actions of the finance industry. It is only right the sector makes a fair contribution for the damage it caused. Because financial markets have grown so large, the FTT is capable of raising the levels of finance needed to tackle these issues.”

Dorothea Schäfer, research director in the field of financial markets at the German Institute for Economic Research (DIW Berlin), also considers the FTT an effective innovative finance tool.

Commenting on the EU FTT, she told IPS: “Key benefits of the FTT are the considerable revenue it can generate and its steering effect, i.e. the fact that it reduces the profitability of high-frequency-trading, stimulates long-term orientation and thus helps to build a sustainable financial system.”

“I consider the FTT a win-win instrument: if the steering effect does not occur because trade with financial instruments remains lucrative, at least a decent amount of income will be raised. However, if the steering effect occurs, and trade with financial instruments, especially derivatives decreases, this will contribute to the stability of the financial system.”

“Provided that the FTT encompasses all financial instruments, it can generate a considerable revenue, even if the tax rates end up being lower than those provided for in the EU Commission draft.”

The proposal by the EU Commission currently requires the 11 participating member states to set tax rates to levels not lower than 0.1 percent on conventional transactions and 0.01 percent on derivatives in view of the notional value.

According to Bloomberg Business, the 11 EU member states continue quarreling over the details of a future EU FTT, especially over which trades to tax, the amount of revenue the tax should raise and modes of tax collection.

Another important point of debate is what the money raised should be spent on. In the past, both German Chancellor Angela Merkel and French President François Hollande have recognised the need to spend at least a part of the revenue on climate change and development objectives.

It remains to be seen if the potential of the FTT as Innovative Finance Mechanism will be taken advantage of to a greater extent in the future. Decisions regarding what share of the tax will be spent on development are made on the national level and depend on political will.

However, this year’s discussions on financing for development and the adoption of the SDGs at the U.N. might allow for a fruitful climate as a basis for further-reaching political decisions.

Edited by Kitty Stapp

On Friday, 62 civil-society organisations charged the U.S. State Department with spreading “misinformation” regarding the feasibility of levying a small tax on stock sales and other financial transactions, revenues from which could be used for national and international public goods.

Referring to a July meeting of the United Nations that discussed long-term financing options to help countries deal with the effects of climate change, a letter sent Friday to U.S. Secretary of State Hillary Clinton accuses a member of the U.S. negotiating team of “misstatements”. The letter requests that the U.S. government “not discourage other countries from supporting this tax”.

Calls for such a levy, known as a financial transaction tax (FTT, also called a Robin Hood tax), have been gaining strength in the United States and abroad in recent months. Proponents suggest that such an approach could not only raise hundreds of billions of dollars for use in mass-scale efforts towards health, education or climate change, but could also cut down on the type of computerised high-speed trading that facilitates damaging commodities speculation.

The letter comes just ahead of a follow-up to the July meeting, which next week will again discuss potential ways to fund the estimated hundred-billion-dollar-a-year effort to mitigate and prepare for the effects of climate change. The talks are meant to lead to a report that will guide the U.N.’s thinking on the issue of climate finance.

“We firmly believe it is past time for the financial sector to pay its fair share of taxes, and for the government of the United States to support (a) modest imposition on financiers and multinational corporations in order to meet the needs of ordinary people,” the letter, signed by dozens of environment, aid, development and social-justice organisations, stated.

“At a time when public funds are deemed scarce, a (FTT) would create a new source of revenue to pay for desperately needed public goods.”

Despite earlier hopes that President Barack Obama (rumoured to support the issue) would eventually come out as a proponent of an FTT, the president has not yet spoken publicly on the issue. In August, his communications director was described in media reports as being unenthusiastic about the issue.

Growing consensus

At the July U.N. meeting, U.S. State Department official Paul Bodnar, a member of the U.S. climate negotiations team, stated, “International revenue-generation mechanisms can seem attractive because of the large sums they appear to provide, but many of them are problematic conceptually or difficult to implement in practice.”

Bodnar highlighted FTT as a specific example.

“Actually, FTT has lots of support, especially among a number of developing countries as well as some developed countries,” Karen Orenstein, with Friends of the Earth, an environment watchdog and one of the signatories of the new letter, told IPS. “So having the United States disparage this approach in an international context is not helpful, especially when it is doing so to try to discourage other countries.”

Friday’s letter accuses Bodnar of three specific misstatements: calling into question the feasibility of imposing an FTT globally; suggesting that traders would figure out how to circumvent the FTT, thus limiting its ability to raise significant revenue and even encouraging lucrative finance centres to move to other countries; and offering that the source of climate financing should be linked directly to emissions.

(By deadline, the State Department had not responded to requests for comment.)

While the third point is open to debate – the letter notes that tax revenues are not often linked directly to the source of taxation – the first two could indeed call into question the overall feasibility of an FTT.

Yet the letter, first, points out that FTTs have already been implemented in more than 30 countries, suggesting that they “do not have to be global to work”; and, second, highlights a finding by the International Monetary Fund (IMF) that FTTs “do not automatically drive out financial activity to an unacceptable extent”.

Indeed, IMF Managing Director Christine Lagarde has publicly stated, “I persist in thinking we should explore this idea and examine how realistic and how feasible it is and do this on an international basis.”

Lagarde is joined by a rising chorus of economists, activists, development experts and even high-finance luminaries in support of the idea.

In mid-September, a new bill was introduced in the U.S. House of Representatives that would place miniscule taxes on transactions involving stocks, bonds and derivatives, revenues from which would be put in part towards deficit reduction, global health, climate change and social safety nets. The bill’s author estimates that the tax would raise around 350 billion dollars a year.

On Thursday, the United States’ widest-circulation and most mainstream newspaper, USA Today, even threw its support behind an FTT, noting that “Slap(ping) a small transaction tax on rapid trades … would be a big win for small investors, and the only people harmed would be those now putting everyone else at risk.”

E.U. lead

With Washington today overwhelmed by the final weeks of a tight presidential election, pro-FTT momentum is currently coming from within the European Union. On Friday, the finance ministers of France and Germany formally requested approval to allow nine EU countries to move forward with imposing an FTT.

An earlier attempt to push through an EU-wide FTT failed amidst strong pushback from certain members, but could now proceed in this smaller arrangement.

On Wednesday, French President Francois Hollande told the U.N. General Assembly in New York, “Today we need to … introduce a tax on financial transactions – that has already been agreed to by several European states – so that the capital movements that profit from globalisation can contribute to international development and the fight against pandemics.”

In Washington, meanwhile, current U.S. policy is traced to Treasury Secretary Timothy Geithner, the former president of the Federal Reserve Bank of New York, who has forcefully come out against the idea of an FTT. If Barack Obama wins another term in the November elections, however, Geithner has stated that he would step down from his current position.

“There’s a good chance there will be fresh thinking on FTT in the next administration,” Sarah Anderson, with the Institute for Policy Studies, a think tank here in Washington, told IPS. “Not only will there be new economic policy leaders coming in, but the international debate has changed dramatically since President Obama first took office.”