Tuesday, 3 April 2001
Dáil Eireann Debate
70. Mr. Sargent asked the Minister for Finance if he will advocate the merits of the "Tobin Tax" on global currency transactions, in view of the fact that 98% of currency transfers are purely speculative and operate against poor countries with weak currencies. [9717/01]
Minister for Finance (Mr. McCreevy): The “Tobin Tax” seeks to impose a world wide tax on all foreign exchange transactions to reduce exchange rate volatility and to raise revenue to support international development.
While the motives of those seeking to impose such a tax are understandable there is some debate on the theoretical merits of the tax. However, as I have stated in replies to previous parliamentary questions on the matter, leaving aside the issues of theory associated with the proposal, there are still substantial practical difficulties in relation to the tax. These stem largely from enforcement problems. Global co-operation would be required for the tax to become workable. Otherwise, foreign exchange business would gravitate quickly to any country that did not enforce the tax. In this light, the probability of every country in the world applying such a tax, or of one country applying it unilaterally, must be open to question.
The issue was discussed by the Oireachtas Joint Committee on Foreign Affairs on 12 January 2000. Officials of my Department attended the meeting. The chairman of the committee acknowledged that Ireland could not act unilaterally in the matter. He also pointed to the practical difficulties that would be caused at EU level by such a tax given that not all EU members are participating in the euro. In the case of this country we also have to be mindful that we have a much higher level of trade and capital flows with currencies outside the euro zone compared to other euro countries. Therefore, the tax would be likely to have a disproportionate impact on Irish business and consumers. Were Ireland to take this matter up at EU level it could be perceived as amounting to a proposal for tax harmonisation, albeit in a discrete area. This might have implications for our overall policy position with  respect to the role of the EU regarding such taxation matters.
In November 2000, a report commissioned by the Finnish Ministry of Finance examined the feasibility of the “Tobin Tax”. This report reiterates many of the points which I have outlined above and concluded that introducing a currency transfer tax seems unlikely to further the objectives appealed to by those who argue for it. It would not provide protection against speculative capital movements, it would not make for monetary policy autonomy, and it would not reduce the exchange rate uncertainty. Because the tax base would decrease, the return on the tax would probably be extremely moderate.
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