Mario Monti, the Italian prime minister, who studied at Yale with the respected economist James Tobin, the first to propose the financial transaction tax, said that his one-time mentor likened the tax’s popularity through history to the Loch Ness Monster. “You see it, it disappears, then reappears…” Indeed, depending on the market situation, the future economical prospects, and the internal politics of many Western countries, the discussion about implementing a financial transaction tax or the Tobin tax seems to move on a bumpy ride. Suddenly, it emerges and then unexpectedly, it submerges under the water.
For several years, many international development organisations as well as some socio-economical movements such as the “Make Poverty History”, which is based here in Canada, have repeatedly asked and lobbied for the implementation of a financial transaction tax. The main objective of this fiscal tool is to better distribute the wealth among different economic players and most importantly to help the poor in developing countries to benefit from a sustainable and continuous source of international aid funds. Moreover, during times of austerity that where are witnessing these days, it is logical to implement a measure that would put some restraints on financial speculation and force the financial institutions to share some of the burden of the debt crisis. In fact, the population world are sick and tired of being asked to increase their contributions, mainly through layoffs and public sectors cuts every time the financial market suffers from a downturn.
In this context two important questions are worth asking:
- How genuine politicians are for pushing for Tobin tax and what are their real motivations?
- Will the Tobin tax revenues serve to help European countries get out of the financial crisis?
According to Bill Gates, co-founder of computer giant Microsoft, a mere 0.1 % tax on equity transactions and a 0.02 % on bonds could generate about $48 billion from G20 member states, or $9 billion if only adopted by the most prosper European countries.
French officials proposed a 0.01% on complex derivatives, one of the most “dangerous” suspects in this financial turmoil. However, for the currency trade, another “big” suspect in the volatility of the worldwide markets, it isn’t certain whether it will be affected by the Tobin tax.
Robin Hood Tax Primer
Sarkozy seems to be the only European leader to be insisting on the importance of the introduction of a financial transaction tax in Europe. The recent downgrade by S&P of the French debt rating (even if it is minor indicator as France isn’t threatned by bankruptcy) is undoubtely a humuliation and a clear sign that the second strongest economy of Europe is not imune from the euro zone debt crisis shaking the region. One can only speculate whether Sarkozy is trying to find in the Tobin tax a good distraction to the French electorate from their own economic problems so that he ensure his next presidential re-election in May?
Even if Angela Merker first showed some preliminary interest in the Tobin tax, she made it obvious later that the tax would not be implemented if all 27 countries of the euro-zone did not adopt it. Her hesitation seems to be caused by the various divisions that exist inside her own government. We should’t also forget that the German population was very reluctant to accept the financial package “offered” to the Greeks in order to save their economy. Adding another “gift” will certainly not make the unanimity easy this time around.
Since its inception the Tobin tax proceeds were supposed to mainly fund global problems such as disease, poverty, hunger, global climate change, deforestation and pollution threatening local communities worldwide. However, according to the European leaders, the proceeds from the new financial transaction tax will be used to mainly help the European economies get out of their economical crisis. Can we then still talk of the “Robin Hood tax”, as a tax taken from the rich to help the poor? Aren’t we here trying to find more backup funds to greedy and unethical speculators who were responsible of creating the current economic mess in the first place?
With the Greek economy on the verge of collapse and the recession affecting all the other Europeans countries, sporadic action, although excellent in principle, will not be enough to bring calm and serenity to the European ship. “The Loch Ness Monster” can’t save it… The Tobin tax is a valuable and an efficient tool. However, for now, it is too little and too late.
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