Middle-east Arab News Opinion | Asharq Al-awsat

G20 fails to endorse financial transaction tax | ASHARQ AL-AWSAT English Archive 2005 -2017
Select Page

CANNES, (Reuters) – A proposal for a financial transaction tax to raise new new funding for poor countries failed to win the backing of the G20 although France President Nicolas Sarkozy said he planned to still pursue the idea.

The tax proposal, formally made to the Group of 20 leading economies by billionaire philanthropist Bill Gates, has faced opposition from the start by countries such as the United States, Britain and Canada worried about its added burden to their banks.

Germany was initially in favor but has turned lukewarm and is contemplating what the proceeds of such a tax should be used for.

“I remain convinced (the tax) is possible …that it’s indispensable financially given the crisis and that morally it is absolutely necessary,” Sarkozy told a news conference at the end of the G20 leaders’ summit.

An end-of-meeting G20 communique referred to the tax proposal but failed to support it. “We acknowledge the initiatives in some of our countries to tax the financial sector for various purposes, including a financial transaction tax, inter alia to support development,” the communique stated.

“Unfortunately the clear political divisions that exist around the concept (of an FTT) will prevent the G20 from effectively acting on this topic,” said Sam Worthington, chief executive of InterAction, an alliance of U.S.-based development groups who met with Sarkozy.

“Whether or not a coalition of individual countries will take that step led by France is unclear and will to a large extent depend on the political willingness of others to act as well,” Worthington told Reuters.

In a report to the G20, Gates proposed taxes on financial transactions, aviation and shipping fuel, and tobacco as new ways that countries could raise resources for poorer countries.

The Microsoft co-founder argued that even a small tax of 10 basis points on equities and 2 basis points on bonds could generate about $48 billion from G20 member states, or $9 billion if only adopted by larger European countries. A basis point is one hundredth of a percentage point.

The levy, commonly dubbed a “Tobin tax” after the U.S. economist who proposed the idea in the 1970s, has been mooted at regular intervals to raise funds but routinely struggles to overcome the hurdle that it is easy to avoid unless all countries impose it.

Once a marginal idea, the global financial crisis has brought the argument for the tax into the mainstream and international development groups were disappointed that the G20 communique did not propose pursuing it.

“It is shameful that measures that could have helped pull millions of people out of poverty and contribute to global growth got ignored or paid lip service,” said Luc Lampriere, a spokesman for international aid charity Oxfam.

Development groups have strongly favored the tax because it would provide significantly more money for development at a time when rich donor nations are cutting foreign aid budgets.

“This summit will not yield an FTT but it will yield a process whereby some countries may act and a clear and frank support of the FTT by Bill Gates certainly helped advance this cause,” said InterAction’s Worthington.

U.S. official said President Barack Obama discussed the financial transactions tax with both Sarkozy and German Chancellor Angela Merkel in Cannes on Thursday but the United States remains wedded to its own approach to ensure American big banks help pay for clearing up the 2009 financial crisis they caused.

“The president made clear that he shares the objectives that Chancellor Merkel and President Sarkozy have in ensuring that the financial sector contributes an appropriate share to the resolution of crisis,” White House deputy national security adviser Michael Froman told reporters.

“The administration has proposed one approach to that, through the financial crisis responsibility fee. The Europeans have another approach,” Froman said.

Emerging economies such as Brazil and Argentina have also cautiously favored a financial transaction tax to fund social programs.

Brazilian President Dilma Rousseff said in Cannes she did not oppose a global financial tax if there is consensus among countries to bolster social investments.

There is concern among emerging and developing countries that proceeds from a global financial transaction tax would go toward to helping heavily-indebted euro zone countries and not the poor.