John Minto:Drop GST – we need a financial transactions tax

By John Minto Stuff / Frontline It’s time to drop our goods and services tax and adopt a financial transactions tax. This was not an option proposed by the 13 comfortable men on the Government’s Tax Advisory Group but it’s an idea whose time has come. We all know GST disproportionately hurts those on low and middle incomes who work hard, live week to week and spend most of their income. An FTT, on the other hand, would impact most heavily on the likes of currency speculators and similar financial wheelers and dealers who gamble with wealth created by others. It’s an idea which is growing in popularity among developed countries in the northern hemisphere, with British Prime Minister Gordon Brown leading the charge. He hopes to progress the idea at the coming G20 meeting and a grassroots movement has begun to take shape to push the idea. The driving force in Europe has been the financial crisis whereby taxpayers spent thousands of billions bailing out their financial sectors. It’s not surprising that punishing corporate greed has been one driver popularising FTT in the north and there’s no reason New Zealand should be left behind. Some form of FTT already has support from the Alliance, the Maori Party and the Greens as well as support from some exporters. Two weeks ago the managing director of Sanford, Eric Barratt, told the company’s AGM the Government should start taxing those who speculate in New Zealand currency. He put it bluntly: “It is high time New Zealand as a country started earning some income from these currency traders that costs shareholders in Sanford and other trading companies many millions of dollars each year. “A tax on non-trade-related currency transactions could not only earn significant income for the Government it could also result in our exchange rate moving closer to its realistic value and thereby add significant value to the wealth of New Zealanders.” Barratt’s idea of a tax on currency transactions (without penalising trade in goods) is usually referred to as a Tobin tax. The Alliance, on the other hand, supports a broader financial transactions tax which would be simpler to administer and which would tax all financial transactions at a very low rate. In a media release last week Alliance Party spokesperson Victor Billot says the party supports such a tax on all withdrawals or purchases at a rate of just two cents per $100. He rightly says this would have no impact on ordinary people (2c or 3c on the grocery bill) but would raise large sums from financial transactions such as those associated with speculation on our dollar. It’s important to realise our dollar is consistently among the 10 most traded currencies in the world and each year it is swapped at volumes which dwarf our annual GDP. (Prime Minister John Key made his millions speculating against the value of currencies such as our dollar - I’m waiting for a reporter to ask him where he thinks his millions actually originated!) Exporters would benefit because speculative trade keeps the value of our dollar artificially high, which means less income from what we sell overseas. An FTT would lower the value of the dollar, increase returns from exports and increase the price of imports. Each of these brings value to our economy. There are those who say FTT will not be really effective unless it is applied internationally but such objections are red herrings from vested interests. FTT is not a panacea but its benefits would include: reducing the artificially high value of our dollar; helping exporters and local producers; taxing the parasitic activity of the unproductive financial sector as well as enabling a dramatic reduction in the iniquitous GST. FTT is a tax whose time has come.