Following my post last week on the Tobin Tax, I thought I’d say a little more on its current incarnation, and mention a few other mechanisms to create international cash.
The idea behind all these schemes is to create global funds for development, a stable and secure stream of income for fighting poverty, for healthcare and education initiatives, and for conservation and climate change adaptation. They are important because so much development currently depends on aid, and rich governments are remarkably good at promising much and delivering very little. An international piggy-bank would circumvent the Western governments and provide poor countries, development agencies and NGOs with the funds they need to get on with the job.
So what ideas are there for creating international cash?
- The Currency Transaction Tax: The latest proposals for this, the “conceptual successor” to the Tobin Tax, call for a very low rate of just 0.005%. This is because the actual margins on currency speculations are fairly small, so a tax needs to be “high enough to raise lots of money but low enough to avoid changing fundamental market behaviour”, according to Rodney Schmidt, who provides the latest estimates. Under this scheme the CTT would raise $33.41 billion a year. It would slow the currency market by around 14%, but otherwise this would be a pretty painless way of generating international funds for development.
- Global premium bonds: The UK runs a very succesful bonds system, which could form the basis for an international version. Under the UK system people buy bonds, which are a bit like lottery tickets that can be sold back. Rather than dividends, investors in bonds are then rewarded at random through regular prize draws. It is considered a stable and secure investment, and it has been suggested that a bonds system would be a better way of making loans to developing countries.
- An air ticket levy: France has proposed that an international fund for development could be created with a small levy on air tickets. Each country would be allowed to set the level of tax for their own borders, and funds would be pooled. The original plan suggested a levy of just 4 euros on a standard ticket, 40 on a business class ticket. This would go largely unnoticed by international travellers, but would raise hundreds of millions of dollars a year.
- A tax on arms sales: This eminently sensible tax was proposed by Brazil’s president Da Silva, and would generate $2.5 billion a year. As it is the poor who suffer most from conflict, and the richest countries who make the weapons, this is a just and commendable idea. The main downside would be that it may encourage further arms smuggling, although since a quarter of the small arms trade is illegal already, it’s a moot point.
- A global lottery: This could either run separately in each country, or as a global lotto, and advocates of the idea suggest it could create a $6 billion pot of cash. Since many governments do very well out of national lotteries already, they may not welcome the competition, so I can’t see this one happening just yet.
- A carbon tax: All the other proposals pale into insignificance next to this one. Working with the sum of $21 per ton, a carbon tax could generate $130 billion a year, or $61 billion if applied only to wealthy countries. This would be enough to fund all the Millenium Development Goals with billions to spare. It is also, unfortunately, viewed with such suspicion that many conspiracy theorists believe global warming was fabricated with the sole purpose of implementing such a tax. This is unlikely, given the loudest calls for it have come from outside government.
For more, see the Financing Global Development (doc) summary from Policy Innovations.
The Earthbound Report 