Brussels, 11/04/2005 (Agence Europe) - While Louis Michel presents a series of measures designed to speed up progress in realising the Millennium Goals to the College on 12 April, the EU Finance Ministers meeting in Luxembourg are due on the same day to discuss the fiscal and non-fiscal options to increase financing for development aid. The Commission working document which will be presented to the Ministers brings together the analysis by the services of Commissioners Almunia, Kovacs and Michel (economic and monetary affairs, taxation, and development). The objective is to arrive at an EU joint position for the UN summit assessing the Millennium Goals in New York in September, which will notably deal with innovative financing for development aid. The document concentrates on the options which: (a) have appropriate potential for increasing revenues for needs linked to the Millennium Goals; (b) do not require a consensus at world level and can be implemented at EU level while still guaranteeing an appropriate share of the burden at international level; (c) offer prospects of rapid implementation; (d) assume predictable and stable resources; (e) avoid major economic distortions.
In general terms, the Commission considers that there are “reasons to wait for donors to act on budgets allocated to public development aid”. An increase in these budgets, which are more sensitive in political terms that difficult in technical terms, could be facilitated by the adjustments to the Stability and Growth Pact, the Commission services note, also considering that temporarily exceeding the deficit limit of 3% of GDP because of spending linked to development aid could be accepted. The “open” definition of relevant factors gives particular attention to efforts designed to encourage “international solidarity”.
The International Financing Facility (IFF) favoured by the UK as part of its Presidency of the G8 (EUROPE 8883) would not allow extra finances to be made available but only to achieve objectives set within their deadlines. The mechanism would be temporary and would allow bonds to be issued on the international capital markets guaranteed by donors through regular contributions to the facility. Its lifespan would be thirty years; fifteen for dispersing the aid and fifteen to reimburse the bond-holders. The UK proposal provides for an annual contribution of 15 billion euros from donors from 2006, which would subsequently increase by 4% annually.
None of the options for an alternative ODA financing mechanism is a perfect solution, but a combination could be possible, the Commission indicates; it will in particular examine the possibilities of taxes on aviation fuel, air tickets, and financial transactions and of raising VAT and excise duties. It does not detail the options of taxes on maritime transport and on arms sales, which would require an agreement at world level, nor that of creating a specific tax on the profits of multinational companies, which does not appear to be “a viable option in the long-term”. Similarly, a tax on food products for health reasons; such as the sugar contained in foodstuffs, does not exist in the Member States and would be difficult to implement from a technical point of view. According to Commission forecasts, a tax on aviation fuel of 330 euros per tonne of fuel would generate between 6 and 7 billion euros a year, and a levy on airline tickets of 10 euros per intra-Community flight and 30 euros per international flight departing from an EU airport would generate 6 billion. A tax on airlines would primarily affect passengers of low-cost companies and the tourism industry, says the Commission, which nonetheless believes that a rise of 40 euros per return ticket “should not have a significant impact” on the development of the sector or the attractiveness of European destinations. A tax on aviation fuel for all airlines on intra-Community flights would require amendments to hundreds of bilateral air service agreements with third countries, the Commission observes. A Rate of 0.01% applied to exchange transactions by operators in the EU15 could generate between 7 and 11 billion euros. There is great uncertainty about the impact of such a measure in terms of relocation of operations to countries which do not impose the tax, acknowledges the Commission, which is also looking into the compatibility of such a measure with the free movement of capital and the General Agreement on Trade in Services (GATS). An increase of 0.5% on VAT would increase revenue by 14 billion euros but the accompanying price rise would lead to a drop in consumption (of 1%, according to the Commission) and GDP (of 0.13% in the long-term). Finally, an increase of 3 eurocents on excise duties on engine fuels would bring in 11 to 12 billion extra euros. In any case, a phasing-in of the tax would enable negative effects to be compensated, the Commission predicts.