Caribbean could receive up to 1.2 per cent of GDP by proposed Global Tax
Monday September 05 2011 | 07:23 AM

The executive secretary of the Economic Commission for Latin America and the Caribbean (ECLAC) says the region could receive up to 1.2 per cent of their Gross Domestic Product (GDP) by implementing a proposed Global Tax on Financial Transactions.

Alicia Bárcena said the priority objective of implementing a tax on short-term financial transactions should be to raise resources for financing development, including the supply of global public goods, such as the fight against climate change.

She said this tax must be seen as “an instrument which forms part of a deep reform to the international financial system and its regulatory institutions, with the ability to increase spaces for the policy on development.”

Last week, Germany and France put forward the need to introduce a tax on financial transactions in Europe to strengthen the integration and coordination of economic policies in the Eurozone, which is going through its greatest crisis since the implementation of the euro, among other measures.

ECLAC said while this is not a new idea, it has regained importance both within and outside of Europe because of the global financial crisis.

“The financial transaction tax has international support, as evidenced by a letter requesting its implementation which was sent at the start of April 2011 by thousands of economists from 53 countries to the G-20 group, a forum which brings together the great powers and some emerging economies,” ECLAC said.

“Some suggested introducing a financial transaction tax (FTT) at a global level on the negotiation of stocks and debentures or bonds, and cash and derivative operations, among others. Others suggested a currency transaction tax (CTT) or Tobin tax,” ECLAC added.

“The general opinion is that both FTT and CTT will have potential stabilizing effects by penalizing speculation and very short-term financial transactions,” ECLAC said.

“They will also enable important tax collections, given that the base of taxes would be very wide and the rate much lower (the suggested interval is generally from 0.005 per cent to 0.05 per cent),” it added.

Recent estimates show that in the case of FTT, a rate of 0.05 per cent implemented at a global level has the potential to raise 661 billion dollars, which is equivalent to 1.21 per cent of global GDP, ECLAC said.

Likewise, it said the rate of 0.005 per cent for CTT on monetary transactions in cash and derivative operations with the four main currencies (the dollar, euro, pound and yen) could raise 33.4 billion dollars per year.

From an ECLAC perspective, the German and French joint proposal is a “step in the right direction.”

However, ECLAC said its sphere of application should be on a global scale.

“Resources raised from this type of tax could be important for Latin America and the Caribbean,” ECLAC said.

When considering the implementation of a global FTT and that the funding raised is divided in the same way as the official development assistance (ODA), of which Latin America and the Caribbean currently receive 7 per cent of the total, the region could receive up to 46,000 dollars per year from this tax, which is equivalent to 1.2 per cent of the regional GDP, ECLAC said.

“Use of this tax instrument would be a step forward in the global effort to decrease financial volatility and maintain stability,” it added.