Global Policy Forum

By Tony Colman *

Tax and spend can provide the resources needed for a global anti-poverty campaign. The Tobin Tax is moving from the margins to the centre of debate, creating the best chance for a generation to tackle global deprivation.

President Musharaf of Pakistan recently spoke eloquently about Haquooqul Ibad - obligations towards fellow human beings - and about the real and complex meaning of jihad. The smaller struggle, or Jihad-e-Asghar, is over, he told his people; now is the time for a greater war, a war against poverty, illiteracy, hunger and pain.

Not only in Pakistan should this idea of an ultimate struggle be heeded. The developed countries in the OECD need to undertake their own Jihad-e-Akbar, if we are to achieve what we have promised - the "Target 2015" goals of halving world poverty by 2015, as well as promoting universal primary education and reducing child mortality.

But how will a fight against poverty be funded? These goals require increased and targeted development programmes. But no country meets the UN target for overseas development assistance (ODA) of 0.7 percent of Gross National Product. Some states have in fact reduced their overseas spending budget. In Britain the dedication of Clare Short, the International Development Secretary, and of the Chancellor of the Exchequer Gordon Brown have actually catapulted us into the position of a world leader in assistance, debt relief and untying aid. But even we are increasing aid levels at only a snail's pace.

So new resources are needed. And tax and spend can be part of a new formula to deal with an old problem. World leaders have their best opportunity for a generation to do something about deprivation and poverty.

Despite an international economic downturn, it would be a mistake and a false economy if aid were first to lose out to belt tightening. The international coalition on terrorism has begun to realise that prevention is far better than cure. Because leaders realise that tackling poverty is necessary to combat the marginalisation that can breed fundamentalism, the political will is stronger than it has been for decades.

Historic opportunity

Our generation's opportunity to get to grips with deprivation comes next month in Mexico, when Monterrey hosts the UN-sponsored International Conference on Financing for Development, where radical proposals for raising funds pledged solely for development will be discussed.

Ideas once relegated to the periphery of development theory, such as the Tobin Tax, and taxing resource use in the aviation industry, are now serious fundraising proposals. The Tobin Tax, which is a low-level charge on international currency speculation, is the most promising, both in terms of revenue raising potential and practicality. According to figures from the International Bank of Settlements, a global Tobin Tax of 0.1 percent on transactions is likely to generate $264 billion annually. With overseas aid worldwide currently totalling $50 billion, the potential impact becomes clear.

Nobel Prize-winning economist James Tobin framed his proposal in 1972 as a method of calming the instability of floating currencies and the speculators who make their living from them. It is doubtful whether the low levels now proposed would have any serious impact on global financial instability. Today, however, the Tobin Tax has been repackaged as a global revenue raiser.

This has happened for three reasons. Firstly, attempts to induce development and relieve poverty in many countries have had disappointing results. Some find themselves in a worse position today than twenty years ago. Secondly, after September 11th, the political will to challenge deprivation is present as never before.

Thirdly, and probably most importantly, finance experts now think a tax on international currency speculation is not a fanciful left-wing concept but a feasible and practical form of minimalist taxation. Changes in the international financial system and a new global system for settling transactions - the Continuous Linked Settlement system (CLS) - will centralise the bureaucracy and make regulation or taxation of currency speculation possible. Most large banks have already joined the scheme and some are providing a route for smaller institutions to use it.

With today's transactions are settled electronically, the practical issues of administering the tax are not insurmountable. While the likelihood of tax evasion has often been used as an argument against Tobin, the post-September 11th crackdown on money laundering and offshore banking havens has seen national treasuries end their softly-softly approach to financial loopholes.

So the Tobin Tax is now widely believed to be administratively practicable. Even if it does not have as much effect as originally intended in slowing currency speculation, even at low levels it can raise billions for use in poverty alleviation and global service provision. The key obstacle is not practical, but political. While French Prime Minister Lionel Jospin is an avid supporter and both the German and British treasuries have made clear that they have open minds, Washington has so far not indicated that it will even seriously consider the proposal. At the Financing for Development Conference we should be able to gauge the level of opposition or support for all the revenue raising proposals.

The possible abstention of the world's largest financial centre is a serious problem. Yet it would be possible for the European Union to implement Tobin unilaterally. Clearly this would initially incur a relative cost. The US and other financial centres outside a Tobin area would be able to freeload on increased stability and decreased risk, while keeping their costs lower. But a successful pilot of the Tax in Europe is likely to encourage other regions to follow suit, from the US to Latin America and South East Asia.

The East Asian crisis of 1997 provided a lesson to all emerging economies that globalisation is a double-edged sword. The global Jihad-e-Akbar requires funds and those are dependent on a positive outcome in Mexico. The question is: can world leaders use the current global climate to ensure the opportunity provided is not squandered?

About the Author: Tony Colman MP is a member of the International Development Select Committee and is on the Council of Chatham House.

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