Smart taxing solutions to global warming

James TobinBetween the Rudd Government's 'friendless' ETS and the Federal Opposition's 'climate con job', Australians concerned about global warming have little to cheer about. One consolation, however, is that the debate opens the door to further discussion of a Tobin Tax, mooted by some significant players in the lead-up to and during the Copenhagen climate summit as part of a possible mix of solutions.

Named after the Nobel Prize winning (in 1981) economist James Tobin (pictured), a Tobin Tax is a tax on foreign currency transactions. John Maynard Keynes proposed a similar tax during the Great Depression. Such a tax was last on the public radar in the late 1990s, when social justice organisations such as the broad-based Jubilee 2000 movement made a serious assault on the global financial architecture.

A growing acceptance of the failings of our market based economy, linked to both global warming and the Global Financial Crisis, has put wind in the sails of an idea becalmed for a decade. With powerful backers such as Gordon Brown, Nicolas Sarkozy, Warren Buffett and George Soros, a tax of this nature is a serious proposition.

Set at a tiny 0.005 per cent (the most commonly cited rate), the tax could collect around $76 billion each year, although estimates vary significantly. The funds could assist developing countries cope with the effects of climate change and finance the necessary technological adaptations; it is unlikely any legally binding climate agreement that includes most developing countries will be signed without such commitments.

The money can also be used to finance poverty reduction measures and, hence, make progress on the UN's ailing Millennium Development Goals.

A global financial transactions tax is also being posited as a means of insuring the global financial system against future shocks. A tax at the rate nominated above cannot alone address all these needs, but it can make a substantial contribution. And a more ambitious rate is possible.

Predictably, the European Union is leading the push for a Tobin-type tax; the International Monetary Fund and US Treasury Secretary Timothy Geithner are less enthusiastic.

Developing countries will not line up in support of the proposed tax. S. Venkitaramanan of The Hindu cited the IMF argument that the tax 'would interfere with the flow of liquidity between markets', in contrast to the alternative view that such a tax would stabilise economies by slowing the speculative movement of capital. 'Countries like India may not support a Tobin Tax because they have become dependent on capital flows for supporting their external account.'

Australian Greens leader Bob Brown has been a strong advocate for a global financial transactions tax. But Kevin Rudd rejected the Prime Minister of Ethiopia, Meles Zenawi's call for the tax when they met in Copenhagen.

Of course any new tax, especially one that could see a transfer of wealth from the developed world to developing nations is anathema to Tories, including Barnaby Joyce it seems. Tony Abbott elevates the volume of his rhetoric, like a television commercial, every time he describes the ALP's proposed ETS as a giant new TAX! 'Beware the UN's Copenhagen Plot' was the headline of a Janet Albrechtsen blog posting for The Australian.

In the conservative mode of thought 'morality is obedience to an authority ... it requires personal responsibility and discipline ... enforced through punishment', writes cognitive scientist George Lakoff. The market is one such legitimate authority; wealth is viewed as a mark of discipline, hence poverty is deserved. Any interference with the market and the freedom to make money in business 'any way you can' is immoral.

For progressives 'empathy is the basis for the concept of a fair and responsible market', claims Lakoff. However, a fearful ALP dodges hot-button issues like taxation and immigration as much as they can. This leaves the field open for conservatives to frame these issues as they choose.

Poverty alleviation, tackling Global Warming and preserving the world's ecosystems — these are the pressing moral issues of our age. Describing a tax on financial transactions in these terms is not just spin. 'Framing the truth, so that it can be understood, is ... central to honest, effective politics,' Lakoff argues.

Hard-core conservatives will never be convinced. But activating progressive modes of thought in a critical mass of citizens, by focusing on the moral dimensions of these issues, is crucial to building support for measures such as the proposed tax. How can the global community make progress on crises like global warming without such a dialogue?

Peter HodgePeter Hodge is a teacher and freelance journalist.

Topic tags: peter hodge, global warming, tobin tax, john maynard keynes



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Existing comments

At first I thought you had meant "Token"not "Tobin" but reading further the trend of your thought is that our government is being dis- ingenuous and sneaking a tax on us for another purpose than stated However, you also seem to be saying, we need more money for the government to spend on new items.

Well I AGREE the Rudd mob should be allowed a few more than the three years in view of the changes happenning on it's watch.The opposition has a right to political teactics and Abbott is warming to his leadership.Democracy dicxtates he has to handle the job better to stay there if they win.The second world war cost plenty more than .001%, do we want Victoria's Fires etc to happen to teach people to elect a Goverment, then give them a fair go!

Jack | 08 February 2010  

Note that Tobin's tax on financial transactions, at 0.005% is a hell of a lot less than the brokerage fee charged by the merchant bankers and traders any way, so it'll hardly put a dent in the finance sector's gouging any way.

Regarding carbon emissions, I've been saying for a long time that a carbon emission tax can be GST-like, so administratively simple. The correct thing to do with it is to phase in the carbon emission tax at a low rate, and slowly ramp it up, year by year.

Make it revenue-neutral by making compensating cuts to other taxes (including phasing out all other fuel taxes at dollar for dollar rates) so as to free money up for investment in low/zero emission technology.

In this way taxation is used to transfer the tax burden toward recalcitrants who refuse to undertake emission cuts. At the same time, announcing the carbon tax rate that will apply in a particular year several years in advance will assist planners decide when and what emission-reducing investments will be made.

Simple, really. Perhaps to simple for grandstanding politicians, and too simple for rent-seeking Mates.

David Arthur | 08 February 2010  

In tax discussions I always wonder why we shy away from the most obvious and oldest tax or levy and that is a land and resource tax. This sort of tax would help the environment and the less wealthy. Those of us interested in tax reform are waiting for the Federal Government to release the Henry Review, which may or may not have something interesting to say about holding down inflation, interest rates and the price of land via a tax on land values. The Opposition also have their own unreleased Tax Report. I do not know how strong the "Tobin Tax Lobby" put their line of argument to the Review. Workers pay enough taxes. A properly implimented flat rate tax on land and resources would I think have a more positive affect on pollution and the economy than a Tobin tax because it gets more to the heart of the matter.

Anne Schmid | 11 February 2010  

Global warming is a natural phenomena and has been occurring on and of for millenia. As for Tax just a simple direct expenditure tax of 2 to 3 percent as promoted by many qualified Tax and economic experts. Cuts out the the need for income Tax and will not need an emissions trading scheme.

There are many people able to control CO2 and carbon, refer to the Anmazing Carbon site. Finally Bob hawke recently slammed the current pollies on both sides declaring that it is a charade of the worst kind, they do not listen to us the people that vore for them.

Rod Brett | 12 February 2010  

It is no suprise that Mr Rudd rejected calls from the Prime Minister of Ethiopia, and that The ALP is "fearful" of Taxation decisions.

I too, wonder why there is never an honest discussion of Land Value Taxation.

Wayne Swan was yesterday calling for the release of more land, and his "personal concern" regarding Housing Availability.(I would respectfully suggest Mr.Swan google "Clyde Cameron,how labor lost its way".)

The advantages of such a system would assist, all Australians; including,of course,"working families."

Perhaps the "fear" is of a level playing field ?

Ray Franzini | 12 February 2010  

Going back to basics, the objective of effects of the climate change reduction scheme is to discourage consumers from using energy; usually electricity and oil products. If a stepped, progressive tariff was placed on the rate of use of energy then consumers would, depending on their elasticity of demand, cut back their consumption; in other words "the user pays" and pays big. On the supply side, energy producers would have mandated polllution production targets above which they would be taxed heavily. The Carbon Pollution Trading Scheme opens up another gambling outlet in the Futures Market with all of the attendant uncertainties and questionable benefit to energy consumers. The objective of any scheme (tax if you like) is for it to be sure (maximum coverage), simple and fair. The Rudd proposal offers none of these criteria.

Peter David Harrigan | 15 February 2010  

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