Global Policy Forum

By Keith Suter

Another aspect of global financial management would be the extra power governments would acquire over taxation. There is a trend to reduce income tax and impose some form of VAT/GST. Voters think they will benefit from such a tax but then change their minds after it comes into effect. Many governments that introduced VAT/GST lost the following election.

Meanwhile, transnational corporations shop around for low tax regimes. A Tobin Tax would provide an extra source of revenue for governments in the country taxing the speculators and be popular with the average citizen. In American political language, it is a tax on Wall Street not Main Street.

International Projects: The Tobin Tax proposal also attracted support from organisations concerned with Third World development. Fifty per cent of the revenue raised would stay in the country where it was collected, with the other 50 per cent going to the UN to assist the Third World. This could replace the reduction in official development aid. Again depending on the rate of the tax and the amount of money to which it is applied, the sums of money to be collected under a Tobin Tax vary around $US150-300 billion a year. By comparison, a World Bank survey in 1997 put the figure for eradicating the worst forms of poverty and providing environmental protection at about $US225 billion.

The irony here is if the Tobin Tax is effective in dampening speculation, then less money will be traded and so less tax will be collected for international projects. Concerns about the Tobin Tax idea can be put into three groups. One comes from the previous point: the mere fact that some money would still be collected for international development projects (or other purposes) proves that such a tax would not stamp out foreign exchange speculation.

The second group comes from people and organisations that have a broad sympathy for the idea but doubt whether it can be implemented. Most obviously it would require the co-operation of all major governments and, as the creation of the Euro has shown, that is very difficult. The UK has refused to take up the Euro and so it may well not go into a Tobin Tax, especially since it is the most important location for foreign exchange trading. While the danger of exchange rate instability is spread across the world, the trading itself is concentrated in only a few markets. Thirty two per cent is in the UK, US with 18 per cent, Japan eight per cent, Singapore seven per cent, Germany five per cent, with Switzerland, Hong Kong and France at about four per cent. It would be difficult to get all of these countries to agree to a Tobin Tax. It would be all the more difficult if such a tax led to the creation of additional tax havens in countries that boycotted the Tobin Tax regime.

Finally, there are outright objections to the idea. Neo-classical economists believe in the sanctity of the market. If people wish to speculate, then they should be allowed to do so – and either reap the benefit of their wisdom, or pay the price for their stupidity. Governments should not use taxation as a form of social or economic engineering. Some members of the US Congress oppose the current (comparatively small) amount of US money going to the UN; so they would certainly oppose the revenues to the UN that could flow under a Tobin Tax. Such revenue would increase the UN's potential activities, which is what the Tobin Tax supporters welcome but the politicians fear.

There are then some major political obstacles to introducing such a tax and so change will come slowly. Looking generally at the economic, political and social changes during the past century, there is a pattern. Proposals for change tend to begin with non-governmental organisations and scholars, then they get moved into the media, and then eventually into the corridors of power. Politicians are usually the last to learn and the most reluctant to change. The Tobin Tax proposal has now reached the stage where it is moving slowly through the corridors of power. For example, the June 2000 United Nations General Assembly Special Session on Social Development called for a study of the tax. The study will probably reveal little that is not already known, but it will result in an official report that will be read by the media and politicians. Therefore the momentum for change is being maintained.

FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.