What Is A Tobin Tax, And Why Does Bill Gates Back It?

November 3, 2011Taxesby EW News Desk Team

0

 

Microsoft founder Bill Gates has lent his weight in support for a Tobin tax, ahead of his presentation at the G20 meeting in Cannes.

Bill Gates, billionaire technology entrepreneur and philanthropist, recently spoke to the BBC about asking the G20 to step up development efforts to ease poverty and his backing on a tax on financial transactions, adding that “steps have to be taken to restore confidence” that governments will pay their debts.

In the wake of the current financial crisis, the idea of a tax on financial transactions has been making news headlines in recent weeks.

Often called the Tobin tax, and named so after the late Nobel economist James Tobin, the tax was first mooted in 1972 over concerns that rapid international money flows were putting constraints on governments and central banks to pursue the right economic policies for their national economies.

Related: Who is James Tobin?

Exchange rate speculation, he wrote (in 1978), "can frequently have serious and painful real internal economic consequences".

To limit the problem and restore some of the autonomy to governments, he said, "we need to throw some sand in the well-greased wheels" (of the foreign exchange markets). In other words, raising the cost of currency transaction would reduce their volume and destabilising effects.

Gates, believed to be the first private individual to address G20 leaders at a summit, was asked to do so by this year’s host, French President Nicolas Sarkozy. Gates has spent six months preparing a report on innovative financing to fight climate change and poverty in developing nations.

Gates is also adding his weight to calls for the Tobin tax, which could raise an extra $48 billion to $238 billion annually.

Despite opposition from Britain and the US, the Microsoft founder’s support will add clout to growing calls for a so-called Robin Hood tax when he tells the G20 in Cannes that a financial levy would help hard-pressed rich nations to meet their aid pledges to the poor.

But there has been a lack of unanimity for the financial transaction tax, especially within the G20.

For one, Britain’s finance minister George Osborne opposes a Tobin-esque financial transaction tax, arguing that it would provide additional incentives for businesses and banks to take their businesses abroad.

Sweden, an EU member, had tried to introduce a Tobin tax unilaterally in the 1980s but had to scrap it after market participants took evasive action.

Andrew Tyrie, chairman of the treasury committee in Britain's parliament, agreed with Osborne, saying: "What evidence do you have that the derivatives business will not just move to markets outside the euro area, in particular to Asia?"