By Neville Bennett I want to propose discussion of a new tax, the Kiwi Dollar Stamp Duty. It would be a tax on the Kiwi dollar trades wherever it were transacted in the world. It would reduce speculation in the Kiwi which is causing its over-pricing. This is not a pipedream; it is entirely feasible, could be only 0.01 cent per $ and can be unilaterally implemented by Government. A major benefit is not only a lower dollar but a new source of revenue. I am anxious to spread our revenue base, especially away from income and saving. Moreover, I do not favour an increase in the regressive GST tax as it is too easy a target and does not increase productivity.
These columns lead the way in proposing for consideration the then outlandish notion of a land and other property taxes. While I received some hostile emails, the principle has been widely discussed and not dismissed out of hand. I know land tax increased equity in Hong Kong (where I worked for 8 years) and was significant in raising Japanese productivity. The idea of a financial transaction tax has been raised strongly by Gordon Brown but received no support in G20. Brown wants to use the proceeds on a day-by-day transaction tax to build funds to sue in future bailouts. His proposal is dead in the water. His proposal, however, jogged my memory, so I will discuss my proposed Kiwi Stamp duty. First, a little background: Tobin Tax A tax on foreign exchange transactions across borders was proposed in 1971 by James Tobin, a Yale professor and Nobel Laureate. His purpose was to penalize short-term speculation in currencies and thereby increase international currency stability. The idea was revived in the 1990's, especially in England (where it was favoured by War on Want) and France. Belgium and Austria pushed the idea in Europe but it was rejected by the European Commission. Nicolas Sarkozy suggested in 2009 that G20 adopt it, and Gordon Brown has just revised it. Several lobby groups have favoured it as a new source of revenue for the UN or the poor. Financiers detest the idea and plead that it would hurt banking. A currency transaction tax was studied by London's Intelligence Capital which reported that a tax on sterling wherever it was traded was feasible and could be unilaterally implemented. It would raise vast sums as US$3,200 billion was traded daily in 2007. Gordon Brown joined France and Germany in saying that that the banks should give something back as governments had poured billions of dollars into their support. The US Treasurer Timothy Geithner said the US would not support it, but his explanation was unconvincing as he said "I think the experiences are mixed". Perhaps someone should ask Mr. Geithner if he could explain when it was experienced...at all"¦ever. The Global Forex Market This market was discussed in an excellent RBNZ paper by Nick Smyth in 2007 using detailed data from Reuters. The evidence is that the Kiwi has been much traded, especially in London and New York. Traders are attracted by New Zealand's relatively high interest rates, which sometimes is the basis of carry trade transactions. Historically, investors borrowed yen and invested in higher yielding currency like the Kiwi. These days the US$ is often used as its interest rates are low and the dollar has declined considerably this year; about 20% against the Euro. Trading in the Kiwi in 2006 was $5.5bn on an average day, but sometimes reached $9bn. The volumes are massive at the London "fix" at 4 p.m. when both London and New York are open. The value of the forex trades is much higher than value of exports and imports. A stamp duty would have negligible cost effect on NZ producers and importers. Nor would it deter forex traders but it would raise huge revenue in a painless way for NZ Government, and bring some relief for existing taxpayers. But it would increase trading costs slightly, so speculators might prefer other currencies. A stamp duty might therefore contribute to greater stability in the value of the Kiwi dollar. Feasibility Adair Turner, the chairman of Britain's Financial Services Authority, has provoked the ire of bankers by saying in August 2008 that he was willing to look at a "Tobin tax" on banking transactions. Financial transaction taxes are commonplace and have become easier to enforce, said Avinash Persaud, who heads Intelligence Capital Ltd., a research firm. Persaud wrote in the Financial Times that the consolidation of clearing and settlement systems means that a Tobin tax was feasible and would be costly to avoid. Financial institutions naturally concentrate on the most lucrative activities, and those are ones that involve extensive trading; consequently, the financial system is biased toward heavy trading and churning and has less interest in developing products that are fit for a long-term purpose but aren't traded so often, Persaud said. That's why great attention is devoted to hedge funds involved in high-frequency trading and less to buy-and-hold pension funds, he added. Setting the right level of a transaction tax will be difficult, but probably not as difficult as it was for Adair Turner to be one of the first regulators to discuss the matter openly, Persaud concluded. Lord Turner, who is the City's watchdog, received a vicious backlash from bankers for saying that Britain's swollen financial industry was too big for the good of society and should be cut down to size, possibly by a Tobin tax on transactions. Mayor Boris Johnson said Turner was "crackers". Other spokesmen said Turner was playing into the hands of rival centres such as Frankfurt. The UK Treasury was stonily silent other than saying it is the Government, not the FSA, which sets tax policy. Summing up James Tobin proposed his tax in 1971 to put "sand in the wheels of the foreign exchange market. The stock response has been that it is impractical but that is no longer the case. Avinash Persaud has argued that a stamp duty is practical and enforceable. The time has come for Government to explore an idea which could raise revenue and dampen speculation. * Neville Bennett was a long-time Senior Lecturer in History at the University of Canterbury, where he taught since 1971. His focus is economic history and markets. He is also a columnist for the NBR where a version of this item first appeared. firstname.lastname@example.org www.bennetteconomics.com