Inter Press Service - August 19, 2004
Sanjay Suri

A currency transaction tax (CTT) was approved by the lower house of the Belgian parliament last month. The tax was approved with 67 votes for the legislation and 42 against, with 19 abstentions. Such a tax is known popularly as a Tobin tax, after Nobel Prize winning economist James Tobin who first proposed it in the 1970s.

"There is a good chance that the legislation will now be approved by the Senate," a spokesman for the Belgian government in London told IPS. The tax, he said would cover transactions that take place if one of the parties or an intermediary is in Belgium, or if the payment is made in Belgium.

The money raised by the tax would be sent into a European Union fund and managed by the EU for development cooperation, promotion of social justice, conservation and for protection of cultural heritage, he said. Support for development cooperation is expected to lead specifically to achieving the UN Millennium Development Goals (MDGs).

The Belgian move is nevertheless more suggestive than substantial. A CTT cannot become really effective unless it is accepted by the European Union as a whole.

"The Belgian legislation shows that introducing such a tax is entirely feasible, and demonstrates how this can be done," David Hillman, coordinator of the Tobin Tax Network in London told IPS. "It is conditional on others in the EU introducing it, but Belgium has set a precedent. If a number of leading countries in the EU would decide that currency transactions should not be exempt from taxation, it would not be a problem to introduce this tax."

The Belgian legislation proposes a miniscule 0.02 percent tax on currency transactions. "But even at this very low level, this tax could generate anything between 10 billion and 20 billion dollars a year if it covers all currency transactions," Hillman said.

UN Secretary-General Kofi Annan had spoken of a need for an additional 7 to 10 billion dollars a year to eradicate AIDS. Even at this low level this CTT "could help eradicate AIDS, and there would still be money left over for other development".

The tax at this level could also help fulfil its second aim of containing currency speculation, Hillman said. The transactions on that market are massive "but the margins are razor-thin," he said. Besides, the legislation includes the ability to be hiked up to contain volatility on the market.

In India a similar tax in the form of a securities transaction tax is expected to be passed in September this year. The proposed Indian tax is a far higher 0.15 percent, though it is not specific to currency transactions. But the Indian tax is expected to generate up to one billion dollars.

The initiatives in Belgium and India show that taxation on the money market can be a "sensible and reasonable" step, Hillman said. The very low level of taxation could mean that politicians would be likely to support it.

The Tobin Tax Network in London that has been campaigning for introduction of the tax spells out what a Tobin tax can imply. The network has grown out of the non-governmental organisation War on Want.

"Imagine now, adding together everything that is bought and sold in the world like all food, housing and transport," the network says in a statement. "The money trade is worth more than 50 times the value of all these other markets combined. Even a tiny tax on this enormous pile of money could bring millions of the world's poorest people out of poverty -- providing them with clean water, medicines and education."

A Tobin tax can have a second line of benefit, its promoters argue. "More than a trillion dollars (1,000 billion dollars) changes hands every day on global foreign exchange markets," the network says. "More than 80 percent of this trading is of a speculative nature, buying and selling money for profit's sake."

A currency tax can limit such speculation because it turns on very small margins, its supporters argue. Tax at this level is expected to calm short-term speculation without affecting long-term investors -- while raising substantial funds for development.

Following the success of the move in Belgium, Labour Member of Parliament in Britain Harry Barnes has tabled an early day motion (resolution) to invite MPs to sign their support for a Tobin tax in Britain. Earlier resolutions on a Tobin tax have drawn the support of 147 MPs in a total of 659.

The new resolution says the Belgian legislation can serve as "a blueprint for the raising of billions in revenue to benefit the world's poorest people" and help meet the UN Millennium Development Goals agreed by the international community four years ago.

It says the new law "surpasses previous CTT propositions because the tax rate in normal trading conditions is sufficiently low as not to adversely affect the market" and acknowledges that "this law is testament to the feasibility of the technical aspects of the CTT".

The Tobin Tax network says aid to developing countries stands around 55 billion dollars and is falling. A 0.02 percent CTT could provide a big boost to supporting substantial development moves.

Several development agencies have said that development aid will need to be doubled if the MDGs are to be met. Many of the rich countries have been reluctant to put more money on the table. The moves in Belgium and India show just how more money can be raised without an increase in aid budgets.

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+Tobin Tax site (www.tobintax.org.uk)

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