The role of leaders in politics

Tackling Poverty: Why Not Tax the Money Trade, Gordon?

Perhaps it is not surprising that the market that trades money itself is the richest market in the world. Astonishing, perhaps, that the amount traded is fifty times greater than the total value of all world trade. Extraordinary, though, that unlike its sister market in shares, the foreign exchange market has remained entirely exempt from taxation.

A stamp duty on share dealing, for instance, raised £4.5 billion for the Exchequer last year; foreign exchange dealing raised nothing. So when Gordon Brown says we need to double the amount of money we spend each year on aid to halve world poverty by 2015, why does he not look in the most obvious place? The money trade - dominated by the biggest banks, who annually make profits of thousands of millions of pounds. The money trade – worth more than 300,000 billion pounds each year, which amazingly equates to a pile of £50 notes stretching from the earth to the moon.

So why has the money trade not been taxed? Perhaps the idea is seen as too radical, not one that can be taken seriously. If so, why have world leaders like Prime Minister Zapatero of Spain, President Lula of Brazil and UN Secretary General, Kofi Annan, pronounced in September that: “a tax on foreign exchange transactions is technically feasible”. And how come Belgium became the second European country, after France, to pass a currency transaction tax in July 2004. On the contrary, the idea of taxing the money trade is now being taken extremely seriously with an unprecedented degree of high-level support. The key question is what has changed. Why have these decision-makers come to the view that taxing the money trade is feasible and desirable? The answer is that the proposal has been significantly modernised. To understand this we need to briefly look at the proposal’s history. The idea of taxing the trade in currencies was first put forward in the 1970s, when the proposed tax rate was 1%. However, the market has grown more than 100 times greater in size. This far greater market volume has led to far smaller profit margins on each trade. Consequently the proposition has had to be significantly adapted to adjust to today’s circumstances. Most especially, over the last few years the proposed rate of the tax has been markedly reduced to around one hundredth of 1 per cent (0.01%) – a rate the market can afford and politicians can now accept. This would generate £3 billion in revenue each year for international development if applied to sterling alone. So why is Gordon not convinced? Well, to be fair, the Chancellor has said that he is “open-minded” to innovative sources of financing international development such as taxing the money trade. He has acknowledged that to meet the United Nations Millennium Development Goals (MDGs) to reduce infant and maternal deaths, get children into school, improve healthcare and halve poverty, current aid levels need to be doubled. But, the Treasury has persisted in saying that the foreign exchange market cannot be taxed unless every country imposes a currency transaction tax (CTT), otherwise traders will avoid paying the tax by operating from a place where a CTT is not levied.

Political leader's decisions are then important and crucial to eradicate universal issues such as poverty that is taking place in almost every country.