New Internationalist

Tax the richest:why are we waiting?

Issue 416

In November the most important UN conference for six years on combating poverty is taking place. Paying for the Millennium Development Goals is at the top of the agenda. David Hillman explains why we don’t need to look very far to find the funds.

The flags of all the UN countries that flank the famous building in New York billowed in the gentle April breeze. I had stepped outside for a bit of fresh air and to call my office in London.

I had just heard Douglas Alexander, the British Development Minister, say that  ‘additional finance needs to be brought on stream to meet the unpredicted costs of climate change’. These words – conceding the need for extra money – had never been used by him in Britain.

‘What’s more,’ I said to my colleague back in England, ‘you’re not going to believe this: Douste-Blazy has just said we must have Currency Transaction Taxes.’

‘No way!’

‘Yes way – from the podium.’

It had been quite a moment. The NGO representatives sitting in the gallery had looked across at each other wide-eyed with surprise.

‘Did he just say what I think he said?’ I had asked my German colleague, Eva.

‘That’s never been said before on the record at the UN,’ she said, with a huge grin on her face. And Eva should know. She has an encyclopaedic knowledge of such matters.

So is something progressive actually happening at the UN? Who is Douste-Blazy? What are Currency Transaction Taxes?

Let me explain.

In the year 2000 all the countries of the UN signed up to the Millennium Development Goals (MDGs). These set uncontroversial health and education targets for all the world’s people by 2015 – rolling out the basics that people in richer countries take for granted.

In 2002, the UN held a major ‘Financing for Development’ summit in Monterrey, Mexico, to address how all this could be paid for. It covered areas such as traditional aid, debt and new sources of finance.

Six years later, and there we were at the meeting in New York, at the half-way point to the 2015 deadline. The follow-up summit is about to take place in Doha, and things are looking bad. We are seriously off-track, especially in sub-Saharan Africa. The shortfall in funding is considerable – by 2010 aid needs to have increased by $80 billion per annum.

Yet, rather than increasing, recently aid levels have been falling. What’s more, according to Oxfam, the amount now needs to be increased by at least another $50 billion a year to cover the extra costs of the effects of climate change. These include degradation of forests, fisheries, pasture and crop land; extreme weather causing damage to homes, infrastructure and employment; and increased prevalence of diseases such as malaria and dengue fever.

Just in case you think this is so much money it simply can’t be afforded, let’s put it into context. The world’s military spending is in excess of $1,000 billion a year. So it’s not that the money isn’t out there – it’s an issue of political priorities and how money should be spent. And some interesting developments have begun to illuminate this rather bleak picture.

Illumination

First, since the UN Climate Conference in Bali in December 2007, the finance needed to combat climate change is firmly on the agenda. For rich countries, the inevitable conclusion is finally being drawn: additional finance is not an optional extra but a requirement. And one way to create it is through ‘innovative instruments’ to supplement traditional aid.

Second, in an unprecedented move, UN Secretary-General Ban Ki-moon has appointed the former French Foreign Minister, Philippe Douste-Blazy, to the new role of Special Representative on Innovative Finance.

Third, until recently this field was largely theoretical. But two innovative health schemes have, over the past 18 months, generated more than $2 billion between them. One is the French-led UNITAID – a drug-purchase facility for HIV/AIDS, TB and malaria treatments, funded by air passenger levies. The other is the British-led International Finance Facility for Immunization (IFFIm), funded through a borrowing instrument using specialized bonds.

Innovation

Innovative finance is a relatively new field that has the potential to create substantial new income streams. Broadly, these fall into three categories: taxation, borrowing and voluntary. The proponents of borrowing insist that it can mobilize money immediately to save lives now, as with immunization. However, many countries and NGOs have reservations about taking a ‘mortgage’ approach to aid, and are not enthusiastic about rolling this out further. Voluntary mechanisms, such as a possible global lottery, may have some appeal, but they fail an essential test – development finance has to be long-term and predictable. On this score, taxation is the most favoured mechanism. Levies under consideration include air and maritime transport, carbon, extractive industries, financial transactions, e-commerce and (more exotically) the electro-magnetic spectrum.

UNITAID is worthy of further mention here. It is principally funded through aviation levies from many countries, mostly from air passenger tickets, but also, in the case of Norway, as a tariff related to aircraft emissions. The levies are collected nationally, then pooled for disbursing by the UNITAID board, which includes donor countries and representatives from NGOs and communities affected by the three major diseases.

UNITAID’s strategic objective is not just to buy and dispense more drug treatments but also to bring down their cost – providing medicines for the many rather than just for the few who can afford them. UNITAID is the first fund to be financed by what amounts to international development taxes, and it sets an important precedent – as a stepping stone to similar initiatives, not least the Currency Transaction Development Levy (CTDL) .

Transaction

In April 2008, Ban Ki-moon described the CTDL in an official note, saying that ‘there is renewed international interest in a possible currency-transaction “development levy” of 0.005 per cent.’ Douste-Blazy then broke new ground by calling for its implementation.

Anti-poverty campaigners are rightly overjoyed, having argued for this measure for a number of years. The market in foreign exchange – the trade in money itself – is the richest in the world, worth a staggering $3,200 billion a day. It forms an excellent base for a new income stream to combat poverty because it is so large,  and it is growing significantly year on year. A duty of less than a hundredth of one per cent just on pound sterling transactions would generate $5 billion annually. If all major currencies were captured the figure would be in excess of $30 billion. The tax would effectively redistribute wealth from the richest organizations in the world, the banks – the ultimate winners of globalization – to those most in need who have been left behind.

Action

The support of senior officials at the UN is a sign of progress, but what else does it reveal?

It tells us that the CTDL proposal – approved as feasible by Nobel economist Joseph Stiglitz last year – is technically possible, thanks to the wholly electronic nature of today’s foreign exchange market.

It tells us that there is a hunger for tangible results at the forthcoming UN summit in Doha.

It tells us as well that in high-level discussions a broad menu of new financing options may now be up for consideration.

The urgency of generating funds quickly dictates that those proposals best researched and most ready to roll should take pride of place. Politicians like Douglas Alexander are realizing that additional finance has to be found or his Department will end up paying for everything, from flood defences in Bangladesh to protecting forests in the Congo. This would lead to an enormous dilution of the development budget that is supposed to be spent directly on the alleviation of poverty.

The recent jolt to the financial system has unnerved the sector’s hitherto blind self-confidence, while still leaving the vast majority of institutions excessively wealthy. Politicians need to seize this moment, follow the lead of the UN Secretary-General and introduce innovative taxation instruments now, starting with the CTDL. The time for words is over: action has to begin! Targeting the world’s richest market to benefit both the world’s poorest people and our shared environment is surely at once justified, popular and fair. So what are we waiting for?

David Hillman is the Co-ordinator of Stamp Out Poverty.

Stamp Out Poverty is a network of more than 50 British NGOs that has been working for several years on new sources of finance to meet the Millennium Development Goals – visit: www.stampoutpoverty.org

Be sure to see a new 10 minute film introduced by Britain’s Channel 4 newscaster, Jon Snow – www.stampoutpoverty.org/film

TOP DODGERS!

Tesco - 'Every little bit helps'

The corporate motto of the world’s fourth-largest supermarket chain may be aimed at its customers but it is applied with equal zest to minimizing its tax bills. Both The Guardian and Private Eye have been investigating a network of ‘offshore’ schemes set up by Tesco and designed to reduce its tax liability in its British base.

One such scheme uses subsidiaries registered in the Grand Duchy of Luxembourg, said to be accumulating $100 million a year free of corporation tax. Another has deposited $2 billion in the Swiss tax haven of Zug. Tesco is currently suing The Guardian on the detail of its reports, though not the existence of the schemes. The corporation claims: ‘Successful British companies need to plan and manage their investments, including those overseas, in a responsible but efficient manner, in order to compete successfully on the world stage.’ The world stage netted Tesco profits of $5.5 billion in 2006/7 and $5.6 billion in 2007/8.

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