One Man And His Tax: The Tobin Debate Widens

by Jason Gorringe, Tax-News.com, London

11 September 2001

While EU Governments adopt contradictory positions on the Tobin tax, a mooted tax on speculative currency transactions due to be discussed at the Ecofin meeting of Finance Ministers later this month, the IMF climbs on the bandwagon, saying it may reconsider its hitherto negative view, and Professor Tobin himself has clarified his current position on the tax. The anti-globalisation movement, encouraged by French Premier Lionel Jospin's espousal of the tax, has adopted it as a flagship measure which could raise money for third-world poverty relief and development.

Jack Straw, UK Foreign Secretary yesterday outlined his opposition to the global tax in a speech on the anti-globalisation issue, saying: "The Tobin tax risks distracting us from the real issue - how to respond to global poverty and inequality." However, he did say he agreed with Chancellor Schroeder that the rich nations needed to tackle the "weak spots" in international financial regulation. Schroeder himself is sceptical about the Tobin tax, but would like to have greater control over what he sees as destabilising international currency markets (what politician wouldn't?).

Clare Short, UK International Development Secretary, who has a mixed hard-left/green background is predictably in favour of the tax, but the Treasury, while open-minded, is doubtful about the practicability of the tax, and will be strongly influenced by the City, which with nearly a third of global currency trading would lose heavily from any unilateral EU move to tax currency transactions. Said one currency trader yesterday: "If such a tax were introduced it would have to be done globally. If the European Union agreed to do it alone, that would automatically push the business to places such as Singapore or the Bahamas and it would just go off-shore."

That's a view shared by Nobel Laureate James Tobin, Emeritus Professor of Economics at Yale University, who proposed the tax in 1978. Professor Tobin, now aged 83, agrees that to be workable the tax would have to be applied in all states with a significant transaction volume, and senses that with the Internet allowing instant trading anywhere in the world, that means everywhere. He says he is uncomfortable his name has been adopted by groups that were involved in the violence at the G8 conference in Genoa. "They are abusing my name," he told Der Spiegel newspaper last week. "I have nothing to do with these anti-globalisation revolutionaries."

The IMF meanwhile, which has historically had liberal economic leanings, is going as far as it can towards joining in the current Tobin hysteria. Tom Dawson, director of external affairs at the IMF, said: "The Fund would expect to be part of a dialogue as people look as to whether and how such a proposal might be implemented." And yesterday, Horst Köhler, IMF managing director, who used to be German Finance Minister, acknowledged the growing interest in mechanisms to restrain unbridled activity in international capital markets.

Speaking in Berlin after a meeting with 18 European non-governmental organisations in preparation for the IMF and World Bank annual meetings in late September, Mr Köhler said that "if it is necessary to look again at the Tobin tax and related issues, we should certainly do so". He said, however, that he remained very sceptical about the introduction of a Tobin tax.

Mr Köhler said IMF research suggested that such a tax would be very difficult to implement. He also called for greater clarity from those proposing the tax. Was it intended to reduce speculation by "throwing sand in the wheels" of the international financial system? Or was the key aim to raise revenues to be used for poverty reduction in developing countries? If the latter, then the boosting of the aid budgets of industrialised countries would be a more effective means, he said.

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