Growing support for a Tobin tax

Oct 19th, 2009 10:28 AM EST
By Joseph Powell

Over the past few weeks proposals for a small tax on international financial transactions, such as currency trades, have gained support from European politicians. The idea, known as the Tobin tax, originated from the Nobel laureate economist James Tobin, who in 1971 proposed a currency transfer tax to curb speculators who were causing dangerous levels of volatility in exchange rates. In recent years campaigners have suggested using the revenue generated from such a tax to fund global public goods. Suggestions have ranged from helping pay for the UN, covering some of the climate change adaptation costs to support for developing country health spending.

The current interest in the tax was arguably sparked by UK Financial Services Authority chief Adair Turner, who commented that the UK banking sector had become bloated and was engaged in too much “socially useless activity”. He suggested a tax on financial transactions could be used to rein in the City and simultaneously create a revenue source for development. Other European government figures have joined the debate, including French Foreign Minister Bernard Kouchner and German Finance Minister Peer Steinbrück. All have been more or less supportive of a tax, but made different proposals on what level it would be set at, its scope and how the money would be used. For example Kouchner called for a voluntary contribution of 0.005% on all currency transactions, which he believes can raise $44.1 billion a year.

The increased political activity has been followed by a reference in the recent Pittsburgh G20 communiqué to finding new ways of making the financial sector contribute to stabilising the global economy. The IMF is now mandated to assess schemes which will include a financial transactions tax.

Taken together these moves represent an opportunity for campaigners to argue for innovative sources of financing for development objectives. Concerns over technical feasibility remain, but could probably be overcome if world leaders agree on the principle of a transactions tax. If agreement is reached anti-poverty groups should be ready to push the case for using at least part of the revenue for international development.

-    Joe Powell

TAGS: Finance, Trade