Innovative Resources for Development
New York, 17 October 2001
CIDSE, Caritas Internationalis, Franciscans International, Pax Romana and VIVAT International promote an ethical approach to tackling socio-economic problems. Our networks support the concept of a preferential option for the poor, redistribution of wealth and power. We believe much more action is needed in order to achieve the 2015 international development targets as set at the UN Millennium Summit, particularly the goals of halving the number of people living in poverty. We therefore call on governments to formulate, agree and implement concrete initiatives increase official development aid, extend debt relief beyond HIPC countries and explore and implement innovative resources to prevent social exclusion and promote and finance sustainable development.
1. Regulation of excessive financial speculation
As speculative currency crises have become a major form of human disaster, our networks see an urgent need for regulating excessive financial volatility with particular attention to the impact on impoverished populations. Preventing them involves reforms that extend beyond domestic financial institutions. Therefore, our networks are calling for:
International regulatory frameworks to control financial speculation and improved preventive measures to address the excessive volatility of short-term capital;
New instruments created by the developing countries themselves to manage the risks associated with interest rate and exchange rate fluctuations, for example forms of capital control;
Better cooperation between national tax authorities to reduce opportunities for tax evasion and avoidance. An effective United Nations forum for cooperation on tax matters should be strengthened, in cooperation with the IMF and other international financial institutions.
2. Redistribution measure: a Currency Transaction Tax
Progressive income taxation is the main source of income for funding social development (education, health and other public services). Through progressive taxation, the aim of reducing income inequalities and promoting social and gender equity could be achieved. However, in many countries, a system to redistribute wealth through taxation and duties is still non-existent or ineffective. At the international level, various sources of income linked to economic and financial activities are not taxed, and yet they generate substantial profits for institutions and businesses. Consequently, priority attention needs to be given to devising viable mechanism for taxing of currency transactions domestically, within the context of an international agreement.
A currency transaction tax, as proposed by Professor Paul Bernd Spahn, is a domestic instrument to raise revenue that can be dedicated to social and sustainable development purposes. Professor Spahn developed a proposal on the basis of a two-tier taxation system:
- a minimum tax (0.01 or 0.02%, or 1 to 2 basis points) that would provide a constant income during the "normal" market development.
- a very heavy tax (50 or even 100%) during a financial crisis; the latter would in effect act as a circuit breaker to virtually halt trade if a currency was rising or falling sharply.
A similar system is already used on the stock market when the situation becomes overheated.The tax is technically far easier to implement than existing (income) tax systems. This proposal concurrently provides a certain amount of revenue, a monitoring device, and effective protection against major currency crises. Some governments have successfully put into practice similar measures. Ideally, this domestic tax instrument should function in the context of an international agreement in order to avoid tax competition between different nation states and tax havens. Also, some sort of redistribution mechanism between countries has to be established. The United Nations, in collaboration with other relevant international institutions, could establish an international agreement on redistributive measures if such a currency transaction tax were to be introduced. This agreement could feature the exact methods to be used regarding application, monitoring, possible sanctions, and the way in which the revenue from this tax could be spent and redistributed. The collection of the tax would come under the judicial responsibility of each member state, but the conditions of the international agreement would provide for it to be carried out globally in the same way, at the same rate, and as such would avoid new tax competition between nation states.
The political debate on the currency transaction tax reached a new momentum with the French Prime Minister, Lionel Jospin, the German Chancellor, Gerhard Schröder making statements on a possible review of the currency transaction tax. The debate on the volatility of capital and development aid proposed by the Belgian Presidency at the EU informal ECOFIN Council meeting in Liège led to an agreement on having a report of the European Commission on globalisation issues, including the currency transaction tax, to be presented to the next ECOFIN Council in December. At the same time the European Parliament has commissioned a study on «the feasibility and impact of an international tax for development assistance on capital transactions» also to be ready by the end of the year.
Our networks are stimulating discussion on such a proposal because we see the challenges of providing sufficient international resources for development as well as avoiding financial crisis as crucial. In a recent meeting with NGOs the IMF Managing Director indicated a willingness to look again at such a tax, which could serve to raise additional revenue and act as a circuit breaker to halt currency trade in a case of financial crisis. If international institutions come up with other more efficient proposals to solve these problems, we would be happy to support them.
CIDSE brings together 14 Catholic development organisations located in Europe and North America. (http://www.cidse.org - 16 rue Stévin - B-1000 Brussels, Belgium, Tel. 32.2/230 77 22 - Fax 32.2/230 70 82 Email: postmaster@cidse.org)
CARITAS INTERNATIONALIS is a confederation of 154 Catholic relief, development and social service organisations present in 198 countries and territories. ( http://www.caritas.org - Piazza San Calistoo 16, V-00120 Vatican City, Tel. 39.06/698 797 99 - Fax 39.06/698 872 37 - Email: caritas.internationalis@caritas.va)
Franciscans International works in the areas of peace-making, care for the poor and concern for creation.(http://www.FranciscansInternational.org - 211 East 43d Street, New York, NY 10017-4707, USA, Tel. 1.212.490 46 24 - Fax 1.866.283.0134 - Email: franintl@FranciscansInternational.org.)
VIVAT International is a network of the Sisters Servants of the Holy Spirit and of the Society of the Divine Word present in 61 countries, who work on issues of social justice, development, peace and ecology. (http://www.vivatinternational.org - 211 East, 43rd Street, Suite 706,7th Floor, New York, NY 10017-4707, USA, Tel. 646-487-0003 - Fax 646-487-0004 - Email:viny@vivatinternational.org.)
Pax Romana ICMICA is a network of Catholic professionals and intellectuals committed to human rights, social justice and human development issues. (http://www.paxromana.org - International secretariat CP 315, 15 Rue du Grand-Bureau, CH-1211, Geneva 24, Switzerland, Tel. 41.22.823-0707 - Fax 41.22.823-0708 - Email miicmica@paxromana.int.ch
The Preparatory Committee for the International Conference on Financing for Development, New York, 15 - 19 October 2001.
A statement submitted by the following Non-governmental Organizations in Consultative Status with the UN Economic and Social Council: CIDSE Caritas Internationalis; Franciscans International, with its associate VIVAT International and Pax Romana
Footnote:
1. PLS RAMBØLL Management, a Danish consultancy firm
2. «IMF may look again at Tobin Tax», Financial Times, 11 September 2001
