Press Responses - March 25, 1999

PUBLICATION: The Ottawa Citizen
DATE: 99.03.25
EDITION: FINAL
SECTION: Business
PAGE: C4
BYLINE: Gord McIntosh
SOURCE: The Canadian Press

Tax on speculation gets all-party federal approval

MPs from all parties -- including Finance Minister Paul Martin -- have supported introduction of a new tax on all transactions in international financial markets. But the various supporters of a motion urging the so-called Tobin tax have different reasons for voting the way they did. The small tax, first advocated by American Nobel-winning economist, James Tobin, would be applied to every international financial-market transaction to slow down such things as currency speculation and capital flight from weak economies. Based on financial-market activity in 1995, a Tobin tax of 0.1 per cent on trading transactions would have raised $175 billion U.S. Another application touted for the tax would be to raise money for international projects such as environmental cleanup or Third World development. The Tobin tax has been opposed by the United States, Germany and Britain as well as most of the international financial community, which hates the idea.

The Commons voted Tuesday 164-83 in a support of a motion by New Democrat Lorne <Nystrom> that the federal government should enact the Tobin tax in concert with the international community. Mr. <Nystrom> told a news conference yesterday that the next step is for the finance minister to get the tax on the agenda at international forums like the G-7. He also credited Mr. Martin, whom he met before the vote, with being critical to the success of the resolution. ``What we have done in Canada will be extremely helpful in terms of people around the world in persuading their national parliaments in adopting the Tobin tax,'' he said. Mr. <Nystrom> added that with the influence of nation states declining in a globalized world, some sort of mechanism is needed to raise money for international projects. Mr. Martin, who first raised the Tobin tax issue at the G7 in 1995, said he agrees that the tax would be a good international fund-raiser and for that reason should be discussed. ``It would enable many ... countries such as Canada to actually lower taxes if in fact a large vehicle for large international requirements were found,'' he said. But he said such a tax would be a poor way to control the flow of hot money because if the tax were as small as many people say it would be, it would not be effective in discouraging speculation. And if it were large enough to discourage speculation, it likely would have counterproductive side effects, Mr. Martin added. Still, speculation control was exactly the reason Reform MP Keith Martin supported the resolution. He added that the wide support among MPs could be interpreted as a vote of non-confidence in the international financial system after last year's Asian and commodity crises. ``I compliment Mr. <Nystrom> and the NDP for putting it forward,'' the Reform MP said. ``I think it will start an extremely important debate that no one is putting forward.'' That support was not shared by Monte Solberg, Reform finance critic, who said the tax would act to shelter weak economies. Liberal backbencher John Bryden called the resolution just as dreamy as the motion passed in the Commons by all parties in 1989 to ban child poverty by 2000. All agree that to be effective the tax would have to be jointly implemented by all major industrialized countries and, as the finance minister noted, that unanimity simply isn't available.