Tobin Tax Given a Fighting Chance

Without some measure to tax and control currency speculation, nations will continue to be held hostage to currency traders and the world will remain poised on the brink of financial disaster. On March 23, 1999; the Parliament of Canada passed a motion with a vote of 164 to 83, that will finally give the Tobin Tax the fighting chance it deserves.

Canada has shown world leadership in adopting a motion calling for an international tax on financial transactions. The motion read as follows:

That in the opinion of the House, the government should enact a tax on financial transactions in concert with the international community.

The House of Commons in Canada is the first parliament in the world to pass such a motion.

Problems with sinking currencies and global deflation have buoyed support for increased global re-regulation. The Tobin Tax could serve as both a means to cool hot speculative capital, and to raise funds for cash-strapped social programs B both at home and around the world.

Developed by US economist and Nobel laureate James Tobin, the Tobin Tax would impose a small charge of 0.5% ( some suggest a tax rate of as low as 0.1%) on all international currency transactions to discourage disruptive speculation, stabilize currencies, and lower interest rates. Aside from the revenue implications, the tax would enable governments to develop economic and monetary policies more in line with domestic needs by freeing them from the whims and demands of the international financial speculators. Regaining control over domestic monetary policy is especially relevant in Canada where high interest rates, in part caused by the volatility in the dollar induced by speculation, have been by far the main causes of the explosive rise in public debt over the last twenty years.

Under Tobin's proposal, the transactions tax would be levied on all short-term exchanges of currencies. Although the tax would be collected by the jurisdictions where the exchanges occur, it would have to be internationally uniform to protect against any tax-saving relocation of exchange markets. An international administrator, such as the International Monetary Fund (IMF) or a new financial agency, would require authority to ensure the uniformity of the tax amongst nations and handle the transfers of revenue.

Detractors of the Tobin Tax argue it would restrict financial flows and discourage productive capital investment. In defense, Tobin argues that because of the modest size of the tax, it would act as a deterrent only to short-term speculative investment, not to long-term direct investment.

Other critics warn the Tobin Tax would create an exodus of financial capital to off-shore tax- free

locations. These fears may be exaggerated because there are, according to Tobin, considerable costs involved in relocating financial institutions. If not for these costs, the lower wages, taxes and rent in other nations would have already enticed brokerage firms and others to relocate.

Nevertheless, for the Tobin Tax to be truly effective it would be desirable for all jurisdictions to cooperate. That's why Tobin has proposed collection of the tax be required by every member of the International Monetary Fund (IMF) as a condition for eligibility for credit. Then outlaw nations who refuse to collect the tax would face considerable difficulty in getting credit or financial assistance anywhere.

Tobin estimates that the tax would generate up to $1.75 trillion a year. This money could be used to fund international institutions such as the United Nations and aid world-wide relief and peacekeeping efforts. As well, revenues from the tax could help countries like Canada strength social programs and lower their debts.

The Tobin Tax may be difficult to implement, particularly in light of strong opposition from the world banking system and other powerful financial institutions that stand to lose out. But without some measure to control currency speculation, nations will continue to be held hostage to the currency traders and the world will remain poised on the brink of financial disaster. „A Material excerpted from Canadian Perspectives. Article by David Robinson

Information from Ont. Coalition for Social Justice.