Global taxes for health

A tax on the international financial markets could raise billions of pounds, helping to plug the enormous funding gap facing health systems in poor countries.

As the world wakes up to the scale of the bank bail-outs of the past couple of years, huge funding challenges to tackle poverty and climate change remain. Could there be a way to cut the national debt of countries like the UK, while raising money to address poor health and other global needs, by getting the banks to redress some of the damage they have caused? Campaigners believe the answer is yes – and it could be done by taxing the financial markets.

What is the need?

Many of the communities we work with have little or no access to state healthcare, and where they do, they often have to pay fees and meet other costs. The international community has recognised the need to tackle this challenge, for example through the Millennium Development Goals which were agreed in 2000 to cut maternal and child deaths, tackle certain diseases, and deal with some of the causes of poor health like water, sanitation and nutrition.

However, there is a huge financing gap to meeting the health MDGs and, looking beyond 2015, to providing long-term, sustainable finance for health and wider development. Even if rich countries stick to their commitment to provide 0.7% of national income as aid, the huge amounts of extra finance are just not going to be forthcoming – especially in the current global economic downturn. We urgently need new sources of finance, and ones that are based on justice rather than the old charity idea.

What is the solution?

Trillions of dollars, pounds, yen and euros, as well as stocks, shares, and a whole range of other financial products, are traded around the world to the tune of billions every day. A tiny tax – as little as 0.05% – on this trade could raise around $400 billion every year. The money raised by such a tax could be split between domestic and international spending needs, including helping poor countries provide decent healthcare for their people, as well as meeting the other Millennium Development Goals, and tackling the effects of climate change. The tax would take money from super-rich speculators and banks and plough it into meeting the needs of the poorest – a just and effective way of raising large amounts of money to tackle poverty.

At $400 billion, the tax would take just 1 minute and 48 seconds to raise enough money to provide basic health services for 100,000 people.

History of an idea

The Tobin Tax – a small but significant tax on currency transactions – was first proposed by James Tobin in the 1970s as a way of ‘throwing sand in the wheels’ of currency markets that were causing widespread instability for national economies. Over the years there have been various forms of Currency Transaction Levy, aiming either to reduce the instability caused by ‘hot money’ racing around the system, or to raise money for public goods – or both. More recently the idea of a wider Financial Transactions Tax, which would cover the alphabet soup of products traded in the financial markets, has gained ground. This could raise large amounts of money at a very low rate, because it would cover such a wide range of products.

How would it work?

With mass computerisation and widespread measures post 9/11 to make transactions traceable, any technical barriers are no longer a problem. In the wake of the financial crisis there are further measures to regulate the sector and make it more transparent, so such a tax would definitely be practically feasible.

A Financial Transactions Tax (FTT), for example at 0.05%, could be implemented by a group of governments deciding to introduce it at the same time, or through the creation of a new multilateral body which would manage it. It could be implemented at least in part by one or more governments on its own: there are already such taxes for example a stamp duty on UK shares, which the UK introduced unilaterally. How the money gets spent must also be managed in a fair and transparent way that gives voice to poor countries in deciding their own priorities.

The tax would include a levy on the major currencies (such as sterling, euro, dollar, yen) as well as stocks, bonds and derivatives. The currency levy in particular could easily be introduced by the UK Government alone, at a very low rate like 0.005%, and would be quick to implement and still raise significant funds. The UK should introduce at least a levy on the pound straight away, while pursuing agreement with other governments for a wider Financial Transactions Tax.

Why now?

People are angry with the banks – at the cost of bailing them out and the world crisis that has followed. At the same time, the deadline of 2015 for the MDGs is fast approaching, requiring a serious investment if they are to stand any chance of being met. Aid budgets are nowhere near the levels of money needed and look like being cut by some countries facing recession, so alternative sources of funding are desperately needed.

Support for the FTT has started to come from surprising quarters – most recently and importantly Prime Minister Gordon Brown has taken a u-turn from his historic opposition to the idea, backing it in a speech at the G20 finance ministers meeting in Scotland in early November and since. Earlier in the summer Lord Turner, chairman of the Financial Services Authority, gave his backing. This British support comes after pressure building up from long-term backers France and Germany.

We now need to see agreement from the international community, particularly the G20 group of rich and emerging countries, to introduce a financial transactions tax, and set out how it would work. In the short-term, we are calling on Gordon Brown to introduce a duty on the UK’s currency straight away.

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