US president announces a number of measures aimed at reducing deficit in next 10 years, saying rich should pay more tax.
Throughout the financial crisis, many solutions proposed, and adopted, focused on cutting funding from social services – a move that has affected the poor and let the rich continue their lives unaffected [GALLO/GETTY]
Microsoft co-founder and billionaire philanthropist Bill Gates appears poised to endorse the adoption of a controversial financial transactions tax (FTT) to be used as a new source of development aid for poor countries.
Such an endorsement, to be included in a report to the Group of 20 (G20) summit in Cannes in November, will likely boost efforts by the summit’s host, French President Nicolas Sarkozy, to persuade other countries, particularly in the European Union (EU), to impose such a tax, said activists who have long advocated what some of them call a “Robin Hood” tax.
It was Sarkozy who, in February, asked Gates to prepare a report for the upcoming summit on new ways that money could be raised to promote development and alleviate poverty in poor countries, particularly in light of the sharp cuts in official development assistance (ODA) from many donor countries that followed the 2008-9 financial crisis.
“The report will acknowledge the controversy around the proposal … but will make the case for a substantial allocation to development,” according to a “Technical Note” on the report that will be presented on Friday to officials gathered here for the annual World Bank-International Monetary Fund meetings.
“The FTT ship has sailed, and the world’s richest man is on board.“
– Richard Gower, Oxfam International
“If G20 members or some other set of countries (eg, within the EU), can agree on the outlines of an FTT, Bill’s report is likely to argue, it could generate substantial resources,” according to the Note which was attributed to Geoffrey Lamb, the senior advisor on international policy development at the Seattle-based Bill and Melinda Gates Foundation.
“For example, some modelling suggests that even a small tax of ten bp (basis points) on equities and two bp on bonds would yield about 48 billion (dollars) on a G20-wide basis, or 9 billion (dollars) if confined to larger European economies. Some FTT proposals offer substantially larger estimates, in the 100-250 billion (dollar) range, especially if derivatives are included.”
“If a substantial part of the revenues could be allocated to development, this would be a useful addition to resources – and would be additional help to some donor countries to meet their aid commitments in the current environment,” according to the Note.
Activists who favour the FTT said Gates’ position as described in the Note should help their efforts.
“The FTT ship has sailed, and the world’s richest man is on board,” said Richard Gower of Oxfam International. “We’re on course for an agreement which delivers billions to help poor countries fight poverty and climate change.”
“Even though the language is not exactly rah-rah, having him confirm the feasibility (of the tax) and that it would raise substantial resources is huge,” said Sarah Anderson, the Global Economy project director at the Washington-based Institute for Policy Studies, who participated in Foundation-sponsored consultations that have taken place over the past six months.
The wealthy stand up
|Warren Buffet recently proposed a tax on those who earn more than $1m a year [GALLO/GETTY]
“Buffett now has Obama’s ‘Buffett rule’ named after him, and we’re very happy to re-name the FTT the ‘Gates tax,'” she said in a reference to the appeal last month by Gates’ fellow-billionaire/philanthropist, Warren Buffett, to raise taxes on the “mega-rich” to help reduce the yawning government deficit.
While taxes on financial transactions date back several hundred years, the idea gained new traction after the Asian and Russian financial meltdowns of the late 1990s. In the 1970s, Nobel economics laureate James Tobin had first proposed the implementation of an FTT, refined in 2001, as a way to discourage short-term speculation – or “hot money” – of the kind that precipitated those crises.
The financial crisis that erupted three years ago with the collapse of Lehman Brothers and its immediate aftermath added momentum to the idea, which was put on the G20’s agenda by its two strongest champions within the economic bloc, France and Germany, at its Pittsburgh summit two years ago.
According to a new book, “Confidence Men”, by Pulitzer Prize-winning author Ron Suskind, US President Barack Obama, who hosted that summit, initially supported an FTT but was dissuaded by the then-director of the National Economic Council, Lawrence Summers.
Britain, which had been a proponent of the FTT under its Labour government, has since become the EU’s strongest internal critic, in part because of fears that such a tax would affect London’s standing as one of the world’s premier financial centres.
Nonetheless, France and Germany have continued to promote the tax within the EU. Last week German Finance Minister Wolfgang Schaeuble called for its adoption as soon as possible.
While most of the revenue from such a tax would be used by governments for national purposes, many advocates have insisted that some portion be devoted to fulfilling previous commitments by the Group of Seven (G7) wealthiest developed countries for development aid and help in adapting to climate change in poor countries. A number of key donor countries were failing to meet those commitments even before the latest series of financial crises.
Lamb’s Note stresses the report will argue that the G7 countries should not “retreat from aid commitments vital to poor people’s lives” despite the current “economic difficulties and fiscal consolidation”.
It will also “welcome the expansion of aid programs by G20 countries such as Korea, China, India, Turkey, South Africa, and Brazil,” which if maintained, “would provide over time a sizable ‘aid dividend’ from their rapid economic growth”.
In addition to the FTT, Gates’ report will likely suggest raising taxes on tobacco to the World Health Organisation (WHO) target of at least 70 per cent. If fully implemented by the G20 and the rest of the EU, according to the note, revenues could reach 170 billion dollars a year, “a small part” of which could be earmarked to a “Solidarity Tobacco Contribution” for global health agencies, such as the WHO, the Global Fund, and UNICEF, among others.
A third revenue proposal will be designed to help poor countries adapt to climate change, according to the Note, which suggested the adoption of World Bank/IMF proposals to introduce consistent taxes on shipping and aviation fuels. An efficient carbon-based bunker, according to their analysis, could yield up to 30 billion dollars annually by 2020.
Among proposals for engaging the private sector more directly in poverty reduction, the report will focus on lowering the cost and improving the effectiveness of remittances to developing countries, which are currently running at about 350 billion dollars a year.
A version of this article first appeared on Inter Press Service news agency.