Tobin tax up for debate in Liège: diverging views

During the ECOFIN on 22 September the Belgian Presidency will ask the Commission to start assessing the feasibility of the ‘Tobin tax’. Mr Reynders wishes to enlarge the debate to examine what measures can be considered to avoid monetary speculation, but not all stakeholders agree a Tobin tax is the answer.

The Tobin tax means the levying of a (small) tax on each foreign exchange transaction. The revenue would be used to fight poverty. UK charity War on Want estimated that about 285 billion euro could be raised globally if a tax worth 0.25% of each foreign exchange transaction was levied. An issue is its practical implementation.

 

According to its proponents, the Tobin tax has a double advantage. First, it wouldreduce instability of global financial marketsby deterring speculations that cause sharp exchange rate fluctuations. Second, the tax wouldgenerate substantial sums, which could be used to alleviate problems of poverty, the environment and security.

In a position paper published on 27 March 2001, theEuropean banking federationis worried that the Tobin tax proposal is being placed on the political agenda in several countries. In their report, banking experts of the FBE say that theTobin tax is not feasiblein practice, would havedisruptive and frequently unjustified side effectson the global financial markets and would beineffectivein achieving its original objective.

The International Monetary Fund (IMF), the World Bank and the majority of the G-7 governments remain sceptical about the need for such a tax and argue that, even if desirable, there are major practical and political problems with its implementation.

A serious debate on the issue has started in France and Sweden, and several MEPs are trying to launch the debate on the European forum. A recent amendment though on 15 May 2001 supporting a Tobin style tax on speculative capital was lost in the EP by 301 votes to 190 with 11 abstentions.

 

The idea for a levy on international financial transactions was made in 1978 by American economist prof. James Tobin. Prof. Tobin introduced the idea of the tax to counter the volatility of financial markets and avert financial crisis. This suggestion has in the EU led to a resolution being voted at the Belgian Chamber and Senate and initiatives in France, the UK and Spain, as well as the creation of ATTAC (Association for a Tobin Tax in Aid of Citizens) Groups. In early 2000, the European Parliament rejected a resolution that would have asked the Commission to study the feasibility of such a tax.

The controversial proposal received new attention when the recent Swedish and current Belgian EU Presidency announced their intention to discuss the issue.

 

The informal ECOFIN Council of 22 and 23 September in Liège is due to discuss the Tobin tax.

 

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