Global Policy Forum

Chirac's Taxing Idea

January 28, 2005


In case anyone is getting carried away with the idea that Britain has the only government in the world interested in aid and development, take a note of Jacques Chirac. The French president is an elegant performer in the international arena, and although he could not make it to Davos because of bad weather, Mr Chirac showed he was not about to be upstaged. In his speech to the World Economic Forum, Mr Chirac spoke movingly of the "silent tsunamis" of famine, disease and violence that regularly strike the developing world with a ferocity as devastating as the natural disaster that caused vast damage on the shores of the Indian Ocean. But the possible solutions for the developing world are far more complex and difficult in scope - and Mr Chirac has promoted an innovative and thought-provoking solution to the problem of raising funds for development, which deserves to be studied and supported by the international community.

The Chirac plan begins from the basis that the amounts being called for, while large in their own right, are small in comparison with the sums generated by the global economy. The $50bn in extra funds needed each year between now and 2015 to meet the UN's millennium development goals on poverty, health and education, Mr Chirac points out, is a mere 3% of the annual increase in the world's wealth. That would easily pay for the concrete measures - such as the $2bn needed annually to provide free primary education for all children in sub-Saharan Africa - that are currently on the table. The problem, of course, is how to tap these funds, in order to harness them for development.

For his answer, Mr Chirac laid out ideas that sprang from his Landau commission, which suggested international taxes or levies on a variety of cross-border activities. As a start, Mr Chirac floated the idea of a $10bn annual fund being raised to fight HIV/Aids. Campaigners for a "Tobin tax" were delighted by Mr Chirac's speech - but their celebrations are premature. A Tobin tax - named after the Nobel prize-winning economist James Tobin - is designed to dampen down international capital flows and speculation. Mr Chirac's levy, in contrast, is designed to be as painless as possible; the tax would be applied, in tiny amounts such as 0.001%, to a fraction of international financial transactions such as currency sales. Mr Chirac offered two other possibilities: that the levy could be used to punish tax and bank havens, by placing it on flows of foreign capital moving across their shores. The second, just as ambitious, was a proposal to tax aviation and shipping fuel. This would have the added advantage of being seen as a green tax - although if the levy was set so low, it might not have much effect on the environment.

The idea of a global tax is controversial, and it is heartening that both Gordon Brown and Tony Blair have expressed support for the idea - although Mr Blair admitted yesterday that he had not looked at it in detail. Their response was as heartening, in fact, as Mr Chirac's own expression of support for the international finance facility put forward by Britain as a means of front-loading international aid contributions. Of course, the two approaches are not mutually exclusive. But the mood of cooperation must be catching: a speech by Mr Brown this week was unusual in its warmth for ideas that only a few years ago would have got a chilly reception. In particular, Mr Brown talked of "making sure developing countries have the additional resources they need to take advantage of trading and investment opportunities - and to prevent their most vulnerable people from falling further into poverty". This, like Mr Chirac's scheme, is encouraging. It is a world away from the "free trade fixes everything" nostrum that was once the status quo.



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