The Belgian Parliament has passed legislation to introduce a currency transaction tax, otherwise known as a “Tobin Tax”, after its original promoter 30 years ago. This is a step forward for the global Tobin Tax movement. Belgium follows Canada, which passed Tobin Tax-enabling legislation about five years ago.
The Belgian law has two purposes: raising revenue and putting a damper on speculative trading in currency. These require a two-tier tax.
There will be a low rate — about 1% of the transaction value — during normal trading hours, to raise the revenue needed to meet the global millennium goal of halving poverty by 2015. Considering that globally more than a trillion dollars are traded daily — currency dealing is the world’s most lucrative trading — even this low rate will raise billions of euros.
But when there is a sharp change in the value of a currency, the top tier will kick in, raising the rate to as much as 8% as an anti-speculation mechanism. It will act as a circuit-breaker to prevent currency crashes that have ruined many economies in the past decade.
The Asian crash alone cost 10-million jobs worldwide, according to the International Labour Office.
There is precedent for this type of tax revenue: security transaction taxes are already levied in six developed countries. They are easily collected because trading is mostly electronic, so the “evasion” argument is overcome.
South Africans have reason to wish the rand was less easily traded, less volatile, less unpredictable and more related to the real economy. A two-tier Tobin Tax could have the same benign effects here as the Belgian legislation envisages — not to mention the revenue raised.
Sadly, the Belgian precedent is not much use in encouraging action here yet, as it will not be implemented until the rest of the European Union follows suit. There is virtually no sign that the Belgian government is actively advocating the Tobin Tax to other EU governments: its European embassies seem unaware of any instruction to promote it. It seems the drag effect on radical change in the financial system has slowed the process almost to a halt.
So for the time being the legislation, while important in principle, is ineffective. The British Chancellor of the Exchequer, Gordon Brown, is not a fan of the Tobin Tax. He advocates using the International Financing Facility (IFF) to raise capital for the millennium goals. But this is another means to create debt, since it is about borrowing from banks for development finance. The last thing we need is more debt in the developing world, from which only banks would benefit.
It may be that this is the reason why the global banking fraternity opposes such simple, obvious means to raise funds — if revenues can be raised without borrowing, banks lose a source of profit.
It is a real pity that the Belgian government is not pushing for an EU-wide Tobin Tax. It would be part of a badly-needed process to restore governments’ capacity to respond to their own electorates to alleviate poverty — even in Europe.
Certainly it is fear of the punitive response of the financial sector that has prevented governments reasserting control over capital. The myth is that foreign direct investment will be punitively withdrawn if governments tamper with free capital in any way.
This is a myth as the countries that have most meticulously placated foreign capital have suffered more than most: the Asian “Tigers”, Argentina, Russia and Turkey among them. South Africa has not been rewarded with foreign direct investment as a result of its open capital markets.
Indeed, the country that receives the most foreign capital is China, which has hardly any capital market and a fixed exchange rate. It has the most hair-raising bureaucracy for borrowing and investment; but still the money pours in.
India and Taiwan also do well, despite regulation. Why? Because the investors they are attracting are interested in production and trading in the real economy — the kind that creates jobs. And they want stability and predictability, rather than the opportunity to make a fast speculative buck.
Is this not precisely the kind of investor that South Africa is seeking? The kind that puts bricks and mortar on the ground, and employs people?
If so, we may be reassured that they are more, rather than less, attracted to countries where the government is in control of the main parameters of the economy. Despite the currently becalmed Belgian example, South Africa should be considering a Tobin Tax.
Margaret Legum chairs the board of South African New Economies