Jeffrey Sachs is an American economist and director of the Earth Institute at Columbia University. He also gained fame for advising developing economies in Africa and Eastern Europe to implement shock therapy and more recently as a director of the United Nations Millennium Development Goals.
He was speaking to EurActiv's Claire Davenport.
You are in the UK promoting a so-called 'Robin Hood Tax', a tax on financial transactions? Have you met with UK Chancellor Alistair Darling and do you have any indication of what stage its plans to tax the financial sector are at?
I met Darling today. The UK Treasury is definitely interested in some kind of financial sector tax but I get the feeling they want it done jointly with the US and that they are probably waiting for the IMF report, which is due in April. I have every indication that this is very much a live proposal.
Right now we have two kinds of financial sector tax proposals. The US has proposed a tax on banks' balance sheets, called a bank levy, and the UK has proposed a tax on financial transactions, the FTT. Which is better and which should the G20 endorse when leaders meet in June?
My view is that we should aim for a mix. We should definitely aim for a financial transactions tax, which would be a progressive revenue raiser like the James Tobin proposal.
On the spending side, we should use the revenues to reduce our deficits and make good on our development aid commitments.
Shouldn't we be concentrating on public deficits and not on development aid?
We made very specific commitments, the so-called Gleneagles commitments. We are about 22-25 billion dollars short of our commitments for this year and an FTT would help close the gap.
This is not just a nice thing to do; this concerns the life and death of a vast number of people. The fact of the matter is we must find a way to reach our commitments.
It is time for the EU to tell the US to collect more revenues to do a better job on development assistance and have fairer burden-sharing.
Could the FTT then cover the treble burden of plugging deficits, tackling climate change and development aid?
When it comes to climate change, we need a different levy, that is, a levy on greenhouse gases. The levy should be based on national emissions and should be pooled among nations to improve efforts at mitigating climate change.
So how would a global tax work? Would we have a global tax collector?
Basically this should be a harmonised national tax across the G20. There should not be a global tax administration but a national administration. The taxes' uses should also be harmonised to encourage fair burden-sharing.
There is some debate on whether a financial sector tax should cover all transactions, like the UK proposal, or whether the US proposal of a bank levy on the bigger and riskier institutions would be better. So what is best – a catch-all tax or an exceptional tax?
There are arguments for doing both. We need a broad-based tax and we need to ensure that the administration of it would be manageable. We should go beyond narrow banking to include derivative assets like credit default swaps.
The FTT debate has been going on for over 30 years and now I think it is time to try it out at a low tax rate. We need to check it can be administered feasibly and need to check whether transactions will try to evade the administrative environment.
But with the US and the UK marching to a different beat, will the idea of an FTT ever fly?
Yes it will fly because at the end of the day finance ministers need to find the revenues.
We have a huge budget hole in the US and in Europe and I think there is plenty of evidence that the financial sector is under-taxed and under-regulated.
If ministers were looking for new revenues for new uses, then I doubt that it would fly. But this time is different. The argument to keep your hands off the financial sector is no longer convincing.
As usual and unfortunately the Obama proposal is rather narrow and is not focused on the public good but on raising revenues for its war chest for future crises.
Do you think there is an appetite to change Obama's proposals and target the whole financial sector?
In the US there is a deficit of 10%. I think the public mood is behind more taxes on the financial sector and when the public is ready for it, then politicians will be induced to follow.
Could the EU impose a tax without the US if the Obama administration is moving too slowly, or would this harm the bloc's competitiveness?
The EU is big enough to do this. It would be desirable that the US also does it. I would recommend that the EU moves forward at a modest rate even without the US. We cannot lock the tax in stone yet, but without seeing how it performs, we don't know anything.