Press Responses - March 25, 1999

PUBLICATION: GLOBE AND MAIL
DATE: THU MAR.25,1999
PAGE: B5
BYLINE: SHAWN MCCARTHY
CLASS: Report on Business: Canadi
DATELINE: Ottawa ONT
WORDS: 542

Liberals vote in favour of currency transaction tax

SHAWN McCARTHY Parliamentary Bureau Ottawa Finance Minister Paul Martin and most Liberal MPs have voted in favour of an NDP motion calling for the implementation of an international tax on financial transactions aimed at curbing short-term currency flows. But yesterday, Mr. Martin held out little hope that the so-called Tobin tax would ever be adopted by the international community. On Tuesday evening, the Liberals voted with New Democratic Party MPs to approve -- by 164 to 83 -- a motion put forward by NDP MP Lorne <Nystrom>, which said that the government "should enact a tax on financial transactions in concert with the international community." Mr. <Nystrom> said yesterday that Canada is the first developed country to endorse the Tobin tax and urged Mr. Martin to follow up by pushing the idea at meetings of the International Monetary Fund and the Group of Seven leading industrialized nations. Proponents of the Tobin tax -- named after Nobel prize winning economist James Tobin who has championed it -- would impose a 0.1-per-cent tax on all international currency transactions. Such a levy, they argue, would reduce the flow of short-term investment across national borders and reduce the chances that countries could be economically ruined by a stampede of "hot money" out the door. Mr. <Nystrom> said the tax could raise an estimated $176-billion a year, which would be used for international development, land mine decommissioning and environmental cleanup. "Paul Martin and the Prime Minister now have an obligation to take the leadership in putting this on the international agenda," Mr. <Nystrom> said.

Mr. Martin said he supports the international tax in principle, though he doubted it would be effective in reducing the flow of short-term investment. Rather, he said, it could be a useful tool to raise money for international projects. "If it was as small as people say, I don't think it would work. And if it was large enough to be effective, then I think it would be counterproductive in terms of investment in emerging economies," Mr. Martin said. "However, the Tobin tax should be considered as a way of raising money for major international requirements such as environmental cleanup, such as some of the problems of the Third World." But the Finance Minister added that several countries have long opposed the idea, including the United States, and show no signs of changing their minds. Mr. Martin said he would not push the Tobin tax to the top of his own agenda at coming international meetings. But he noted that there are now other proposals to prevent the kind of financial crisis that gripped Asia and Latin America over the past two years. "There are many other more immediate and more fruitful vehicles available to us." Mr. Martin said the industrialized world has made progress in establishing greater surveillance of financial markets, in accepting the need for financial controls in some emerging markets, and in considering ideas for stemming the panicked flow of money out of an economy in crisis. Reform Party MP Jason Kenney called the proposed tax "a hair-brained idea" yesterday, saying it would represent the biggest tax increase in world history.