Mr. Speaker, to put it directly, I oppose the Tobin tax because I care about the poor and I care about the average Canadian who might wind up paying the bill in the long run.
Today we are really having a discussion about socialist myths. It is fine to have an academic debate for intellectual discourse but heaven help us if we ever allowed the world to slide into such a state where today's proposal would actually be realized. It would really hurt millions of people if the tax were ever large enough that it actually worked to its policy objectives.
The member for Regina—Qu'Appelle is urging the government to introduce a financial transaction tax, or the Tobin tax as it is known in the academic and university circles. In plain terms a financial transaction tax can be any tax. It can be any tax, fee or duty imposed by a government upon the sale, purchase, transfer or registration of a financial instrument. It can be broadly based or it can exempt a variety of instruments. It can be levied against transactions by Canadians or it can be levied against transactions in Canada, or both, cutting various ways across borders.
I think that I speak on behalf of Canadians when I say that taxes discourage positive activity, especially excessive taxes and disincentive penalty taxes. A financial transaction tax would ultimately discourage financial transactions. This would not be good for our economy. This idea responds to the symptoms rather than the causes of financial disorder.
Several weeks ago representatives from all opposition parties got together and in unison voiced a concern to decrease the premiums placed on employment insurance. All opposition parties wanted a reduction in a specific tax. What each party wanted to do with the surplus was rather different, but every party was at least against the increased levy because it hurt the employment rates we desire in Canada.
It is obvious the financial transaction tax is not viewed in quite the same way as the employment insurance tax. However my illustration was simply to show that people hate taxes, period, and in general they are hurtful if they are usurious.
Why was it that Canadians were so opposed to the GST even though some prices on consumer goods were reduced as a result? It is simply that new taxes are hard to sell to the public and they almost always create distortions in the market.
The NDP and socialists around the world want this tax to be implemented. They see it as a way to raise money for social issues but often without practical political accountability. One of the areas Professor James Tobin uses in selling his proposed tax to various countries around the world is that revenues could be used to finance the United Nations, or as others have suggested, to aid in various worldwide campaigns like that on land mines. A nice result to help the medicine go down.
To the uninformed or the resentful the idea may sound good on paper but we need to examine it closely to see how the revenue is handled. The main purpose of taxing something is for the revenue it brings. The NDP can say what it wants about how this tax would straighten out the world markets, which it certainly would not, but the bottom line is its secondary agenda.
In 1995 a group of environmental NGOs got together to form the Halifax initiative. Spearheaded by the Sierra Club of Canada the group urged for Canada to be a leader and initiate a financial transaction tax during the Halifax meeting of the G-7 leaders.
One of the briefs put forward by the Halifax initiative stated: “There are two key political issues involved with putting such a tax in place. First, it would be necessary to forge agreement amongst the major countries to implement a uniform tax, and second, there would have to be agreement on the collection and distribution of the revenue”. Perhaps it should have added a third issue, for all countries to simply agree there also is a Santa Claus.
I could say that collection might theoretically be done but even that is the easier part. The hard part is where does the money go? If the proceeds are returned to various governments, what rules would determine which country gets what amount? Whose money is it anyway?
Would redistribution favour countries that have important financial centres? Would redistribution favour countries based on their voting shares, say in the International Monetary Fund? What about assigning revenues to global causes? How could any international organization possibly get all the countries to agree? The power struggle that would occur would be disastrous.
Proponents of the tax are suggesting that all countries in the G-7 get together to create this tax. Perhaps these same proponents should look at what is happening with other countries that have had some experience with such types of disincentive taxes and how they hurt people.
Japan has a financial transaction tax in a form and has had some considerable difficulty with it as the tax has had negative effects on the Japanese market. The story is similar in the United Kingdom. It has raised some money but there is concern that much more could be achieved without the tax. The U.K. is considering getting rid of the tax. Sweden has also had bad experiences with the tax. Germany has decided that the costs and the problems of the tax far outweigh any benefits when we get into that kind of revenue generation.
To get all countries onside appears to be an insurmountable task. According to Tobin, “a transaction tax on purchases and sales of foreign exchange would have to be universal and uniform, would have to apply to all jurisdictions, and the rate would have to be equalized across all markets”. That is his criteria. Obviously that would be absolutely impossible to achieve.
There are other reasons to oppose the financial transaction tax, one being to shift to other jurisdictions. It is impossible that all jurisdictions will subscribe to the methods of the Tobin tax. Therefore, members of the financial community will simply use offshore tax havens in order to evade the tax. Complicated schemes will be developed to get around the tax. There is no end to it.
In 1995 the IMF wrote a paper on financial transaction taxes. It spoke clearly about substitutions. It is stated in the paper, “If transaction taxes applied to transactions only in domestic markets, investors could substitute foreign trading as a means to avoid the tax. Shifting the location of trade in financial assets is relatively easy, with trade shifting to other countries or to locations with established financial markets. For instance, a considerable amount of trading in the equities of the United States takes place in London”.
The stated goal of the tax is to slow the velocity of foreign exchange markets. But once the tax was established, pressure would be there to continue to raise the tax until it actually began to work. It would then become a very difficult disincentive for the overall world economy.
The bottom line is that there are insurmountable loopholes through this idealistic scheme. Financial markets contain numerous products that are close substitutes to other products. A government bond is a close substitute to a high quality corporate bond. Bank deposits are substitutes for money market funds. If we tax one product, any investor is going to search out for a replacement.
I think my NDP friends would agree that even in a perfect world not every country would sign up to such a tax treaty as they are proposing. Therefore, if a country refused to institute a financial transaction tax, it would essentially become a magnet for foreign exchange trading operations of major banks worldwide. This would be disastrous for countries that went ahead and implemented the tax. It would be a disincentive for them. It would be a competitive advantage for those countries that stayed out of the scheme.
The volatility of foreign exchange markets is a fact of life in the global economy. My recommendation is for governments to pursue credible fiscal policy and encourage strong transparent financial sectors instead of punishing currency traders. Money moves when there is a failure to perform. Accomplishments in a working market are rewarded. Those who do not perform wither. Often the volatility of money in the world has to do with seeking higher performance. That is the best kind of discipline wherein we all may be better off.
On paper the theory may be convincing to some, however in reality it simply would not work. Therefore, I directly oppose the idea of a Tobin tax.
Within our purview, the government has much more pressing matters to deal with with respect to its financial house and getting our finances in order. It is my hope the government will begin to diligently work at reducing the employment insurance premiums for example in order to rebuild the deteriorating confidence Canadians have shown in respect of our domestic financial markets. We need lower taxes. For markets to work better, rather than have a bureaucrat deal with money, it is better to leave the money in the hands of a taxpayer, a consumer or an investor.
Money markets worldwide are volatile. Eventually it is revealed that the underlying fundamentals of these—