With the gap between the rich and poor nations widening relentlessly, an old idea has resurfaced in the midst of current economic turmoil: the Tobin Tax.
The tax is named after the economist Tobin, who came up with the idea of taxing all financial exchanges at a minimal percentage – so small that it would be invisible to most of us – while reaping a huge amount of money. His idea was to avoid speculation (i.e. the quick money made by those who play with exchange rate fluctuations) but a lot of people and organisations discovered a great way to create a worldwide fund destined to solve the biggest issues mankind is facing.
Every day over 3,000 billion dollars change hands in the global currency market. With just 300 billion dollars a year it would be possible to eradicate poverty all over the world – that’s 0.027% of the world market! So what are we waiting for?
Well it’s a bit like the Kyoto protocol syndrome, it works only if all parties respect it. As British Prime Minister Gordon Brown said, “If one or two countries refuse to adopt a common levy or action or taxation, then it makes it very difficult to implement… If flows are under supervision in one set of countries, but not under supervision in other countries, then it makes it easy for people to avoid the action that even is agreed by most of the countries in the world.”
Criticism mainly comes from governments with a large international banking sector (how surprising!). They find it “impossible to implement” and think it “would destabilize foreign exchange markets”. In fact it would act as a great regulatory tool against speculators; from a pragmatic point of view it’s interesting to note that detractors would rather pay taxes from which a palpable part goes to global aid but won’t accept an invisible micro-cut to their transactions.
More and more countries through political figures are calling for action on this. French President Nicolas Sarkozy mentioned it recently and wants this tax to become a G20 measure. In the end this boils down to a political measure to put in place, as taxation after all is the realm of governments.
It’s important to note that the UN still aims to completely eradicate global poverty by 2015 according to the “millennium development goals.” The Tobin Tax may provide the answer!
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