Transaction based funding mechanisms for public goods

Nicoletta Dentico Policy advocacy advisor, DNDi

KEI & UNU-MERIT Workshop on Medical Innovation Prizes Maastricht, 28-29 January 2008

DNDi was created in 2003

Kenya Medical Research Institute (KEMRI)

WHO/TDR (permanent observer)

Medecins Sans Frontieres (MSF)

Malaysian MOH

Institut Pasteur France

Oswaldo Cruz FoundationBrazil

Indian Council for Medical Research (ICMR)

Kenya

7 Founding Partners

Malaysia

USA

India

Japan

Coordination team Geneva + consultants

5 Regional Support Liaison Offices

Brazil

RDC

2 Project Support Offices

Tropical diseases: 18

Source: Chirac P, Torreele E. Lancet. 2006 May 12; 1560-1561.

New drugs developed from 1975-2004

Tropical diseases and tuberculosis account for 12% of the global disease burden but only 1.3% of new drugs developed.

TB: 3 1.3%

Total: 1,556

Our Vision A virtual patient-driven, non-profit drug R&D organization to

develop new treatments against some of the most neglected communicable diseases

…and Mission Primary Objective

Deliver 6 - 8 new treatments by 2014 for leishmaniasis, sleeping sickness, Chagas disease, & malaria

Complementary Objectives

Use and strengthen existing capacity in disease-endemic countries via project implementation

Raise awareness about the need to develop new drugs for neglected diseases and advocate for increased public responsibility

the mandate of the WHO Intergovernmental Working Group

WHA 59.24 (May 2006)“to draw up a global strategy and plan of action in order to provide a medium-term framework” with the ultimate goal of “securing an enhanced and sustainable basis for needs-driven, essential health research and development relevant to diseases that disproportionately affect developing countries, proposing clear objectives and priorities for research and development, and estimating funding needs in this area”.

From the winners of globalisation to those that have been left behind

Government Leading Group on Solidarity Levies

• UNITAID

• International Financing Facility for Immunization (IFFIm)

“The proposal to levy a tax on financial transactions at a very low rate would lead to the collection, on a stable and predictable basis, of a significant amount of resources for development, while not interfering with the normal functioning of the market”

[Presidents of France, Brazil, Chile and Prime Minister of Spain, in 2004]

Looking for a long-term, predictable source of financing for needs-driven R&D

The idea of a Currency Transaction Solidarity Levy (CTDL): a concrete proposal for tackling global inequality in health R&D for both

• raising substantial new revenue equitably

• spending it in ways that strategically target the “weak spots” in the international development effort -MDGs

Why tapping financial markets?

• Global market for currencies has expanded from $ 4 trln in 1973 to $ 40 trln in the mid ’80s to $ 450 trln in 2004 (a more than 100-fold increase)

• Turnover in world equity (stock) markets has registered a 7-fold increase to $ 51 trln from 1993 to 2006

• The wealth held in the global bond market has increased more than 3-fold to almost $ 60 trln over the same period

A tiny slice off the topAll foreign exchange (FX) transactions to be subject to

a levy of 0.005%• Transfers carried out electronically • Implementation simple (using existing market infrastructure and networks)• Each transaction traceable• Similar transaction taxes already operate successfully (UK, Brazil, Perù)• Financial markets able to shoulder the burden of such low-rate leavies • Such leavies collected electronically at minimal cost (50 times less than costs

for the collection of income taxes)• Evasion very difficult• Quality and not only quantity of the money

Most transactions in the FX markets are conducted between banks or other large players in the financial service industry (individual 0.1% - trade related ~ 10%)

Why foreign exchange transactions?

• Foreign exchange market is unusual for not being taxed;

• It is the largest financial market in the world;• A levy on foreign exchange trading would be

expected to provide an increasing amount of revenue;

• The financial service industry disproportionately used by the richer segments of society, tax incidence likely to be socially progressive

• The redistribution factor in the Leading Group debate

A solidarity levy not the Tobin Tax

• Tobin’s original 1970s idea was for a tax to alter motivation in the foreign stock exchange market, and discourage speculative activity

• The rate proposed was 1%

• Income not designated to any specific purpose

• CTDL is a financing instrument for global public goods

• The 0.005% rate is 200 times less than Tobin’s

• Rate designed not to hamper normal market operations

Financial transaction taxes (FTTs) in place

• Taxes on financial transactions have a long history and most have operated sucessfully

• Recently FTT regimes imposed in India, Peru, Argentina, Colombia, Ecuador, Greece, Finland

• 2003 : Peru introduced a 0.1% general financial transaction tax with the aim of raising finance for the public education sector in the country

“The world we have made, as a result of the level of thinking we

have done thus far, creates problems we cannot solve at the

same level of thinking at which we created them”

[Albert Einstein]