Press Responses - March 23, 1999

Canada's lawmakers, activists push Martin on Tobin Tax

By Paul Badertscher, Bridge News

Ottawa--Mar 23--Canadian Finance Minister Paul Martin on Thursday promised his fellow lawmakers he would continue lobbying for a controversial tax on global currency transactions to help curb the negative impact of speculative foreign exchange movements. Exactly a year ago, Canada became the first country to endorse a "Tobin Tax", named after a famed US economist, but follow-up among rich nations has been slow, a group of Members of Parliament and social groups said.
Martin has been under pressure from grass roots activists at home to push for the idea on the international stage.
In reply to questions in parliament, Martin said Thursday that the Tobin Tax "has been raised on numerous occasions, at G7 (Groups of Seven) meetings and at the IMF (International Monetary Fund).  Unfortunately...a number of the major financial markets do not support the plan, (but) we will continue to work on it."
Martin added that "the G-20 is the ideal forum to deal with the many ways of dealing with speculation and that is indeed what we will be doing at the meeting."
On Mar 23 1999, the House of Commons voted to support a motion that read:
"In the opinion of this House, the government should enact a tax on financial transactions in concert with the international community." It passed by a comfortable 164-83 margin, with some members of all five political parties supporting it, along with more than a dozen cabinet ministers including Martin, junior Finance Minister Jim Peterson, then-Trade Minister Sergio Marchi, and current Trade Minister Pierre Pettigrew. A handful of ruling Liberals voted against it, but no cabinet ministers were among them.
"Since that time the Federal government has made little effort to act on the will of Canadians and the will of Parliament," said Pamela Foster, coordinator for an umbrella group of social activist organizations known as the Halifax Initiative.

TAX SAID FEASIBLE

At issue is the tax proposed by Nobel Prize-winning US economist James Tobin. He suggested that all countries impose a tax set at a fraction of a percent on short-term currency transactions, estimated to total more than US $1 trillion daily. He hoped that the tax could slow currency speculation and destabilizing short-term capital flows, and as a pleasant side-effect, billions of dollars could be raised for governments around the world. The standard reply of most governments is that the tax is unworkable, as it would require every country to implement it at the same time.

Otherwise, currency trading would migrate to Tobin Tax-free countries. That has certainly been the prevailing view in Canada's Finance Department. Martin himself has said he is interested in the idea not because he thinks it will dampen currency speculation, but because of its money-raising potential.

But Foster rejects the view that the tax is unworkable. "The feasibility is not the question, the distribution and the administration is the question and so we're asking for Canadian leadership" in spelling outhow the tax can work, she said.

Foster points to work done by former Finance Department economist Rodney Schmidt, who in a paper for the North-South Institute argued that a Tobin Tax could easily be implemented by way of the settlement mechanisms now in place for international foreign exchange deals.

GLOBAL GROUNDSWELL

Last year's resolution in the House of Commons seems to have broken the ice among the world's parliaments, the group said. The tax has since been endorsed in Belgium and Finland, Foster said, and a resolution in support was defeated in the European Parliament by a mere five votes in January. It was debated in Brazil and endorsed by the group Parliamentarians for Global Action, she said.

Liberal Member of Parliament Wayne Easter said momentum is more important that legislative success at this point. "We should not become preoccupied should a Parliament somewhere in the globe not pass the resolution, because in my view, a good idea never dies," he said. "It's important that at least the debate is taking place in those areas and we build political momentum."

New Democratic Party Member of Parliament Lorne Nystrom, who sponsored the original motion, called the concept of the tax "an idea, in terms of Parliamentary action at least, that's at the embryonic stage, and it's actually gaining a fair amount of momentum."

Foster said it is currently being discussed in the British parliament and "there's a strong possibility that the UK will endorse the motion." It is also slated to come before the US Congress next month, about the time Group of Seven (G7) finance ministers will gather in Washington a few blocks away in conjunction with the Spring meetings of the International Monetary Fund.

INTERNATIONAL FORUMS

It's this kind of forum that Tobin Tax supporters want to see Martin use to push the idea. "It's important that the Minister of Finance, that the Prime Minister, and ministers in international forums express the will of Parliament," Nystrom said.

Foster said her groups have been advocating the Tobin Tax for over five years now, and that it's high time for Martin to act.

"In 1995, Minister Martin brought this up before the G7 meeting in Halifax and he said there's no constituency for this tax," she said. "In five years we delivered him a Canadian constituency. He's now saying there's no international constituency for him to bring up that tax. We're delivering him an international constituency. There's nothing now to stop Minister Martin."

Nystrom needled Martin on the issue in the House of Commons Thursday, reminding him of last year's vote and asking him to put it at the top of the agenda at the Group of 20 meeting which Canada will host later this year.

OTHER AVENUES EXPLORED

But Martin faces stern opposition to the idea in the financial community. Nystrom noted that Bank of Canada Governor Gordon Thiessen is vehemently opposed to the idea, as is most of the Finance Department. "Martin is getting barraged on this thing often by bureaucrats that are very much opposed to the idea," he said.

So proponents are looking for other ways for Canada to further the idea.

Canada has proposed text, calling for more study of the idea, to be inserted in the communique at the upcoming United Nations conference on Social Development to be held later this year.

"While this action is laudable, it is simply not enough," Foster said. The group called on the government to make an annual report to the House of Commons on its efforts to advance capital control measures, to refer the issue to the Standing Committee on Foreign Affairs and International Trade for public hearings, to commission studies on the concept, and to hold an international conference on the issue.

Bloc Quebecois Member of Parliament Stephane Tremblay said there is an urgency to the issue, despite the current relative calm in the global economy. "There might be a lot of other crises in 10 years, so we don't have time to wait. We have to make regulations right now."

Paul Badertscher
Ottawa Correspondent
Bridge News