Global Policy Forum

By Gord McIntosh

Ottawa - MPs from all parties - including Finance Minister Paul Martin [who is currently senior finance minister at the G-7] - have supported introduction of a new tax on all transactions in international financial markets. (Tobin Tax Motion M-239 Passed by Canadian Parliament) But the various supporters of a motion urging the so-called Tobin tax have different reasons for voting the way they did. And nobody expects the international community to support such a tax soon.

The small tax, first advocated by American Nobel-winning economist, James Tobin, would be applied to every international financial market transaction to slow down such things as currency speculation and capital flight from weak economies. Another application touted for the tax would be to raise money for international projects such as environmental cleanup or Third World development.

The Commons voted Tuesday 164-83 in a support of a motion by New Democrat Lorne Nystrom that Ottawa should enact the Tobin tax in concert with the international community. Nystrom told a news conference Wednesday that the next step is for the finance minister to get the tax on the agenda at international forums like the G-7. He also credited Martin, whom he met before the vote, with being critical to the success of the resolution. "What we have done in Canada will be extremely helpful in terms of people around the world in persuading their national parliaments in adopting the Tobin tax," he said. "I believe if Mr. Martin didn't want this to happen he would have made sure that it would not happen." Nystrom added that with the influence of nation states declining in a globalized world, some sort of mechanism is needed to raise money for international projects.

Based on financial market activity in 1995, a Tobin tax of 0.1 per cent on trading transactions would have raised $175 billion US. Martin, who first raised the Tobin tax at the G7 in 1995, said he agrees that the tax would be a good international fundraiser and for that reason should be discussed. "It would enable many . . . countries such as Canada to actually lower taxes if in fact a large vehicle for large international requirements were found," he said. But he said such a tax would be a poor way to control the flow of hot money because if the tax were as small as many people say it would be it would not be effective in discouraging speculation. And if it were large enough to discourage speculation it likely would have counter-productive side effects, Martin added.

Still, speculation control was exactly the reason Reform MP Keith Martin supported the resolution. He added that the wide support among MPs could be interpreted as a vote of non-confidence in the international financial system after last year's Asian and commodity crises. "I compliment Mr. Nystrom and the NDP for putting it forward," the Reform MP said. "I think it will start an extremely important debate that no one is putting forward."

That support was not shared by Monte Solberg, Reform finance critic, who said the tax would act to shelter weak economies. Liberal backbencher John Bryden was also opposed. He called the resolution just as dreamy as the motion passed in the Commons by all parties in 1989 to ban child poverty by the year 2000.

The Tobin tax has been opposed by the United States, Germany and Britain as well as most of the international financial community, which hates the idea. All agree that to be effective the tax would have to be jointly implemented by all major industrialized countries and, as the finance minister noted, that unanimity simply isn't available.

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