Washington: Microsoft founder Bill Gates on Friday backed a controversial financial transactions tax to aid development in poor countries but France acknowledged that most G20 countries did not like the idea. (Agencies)
The Gates Foundation was tasked by French President Nicolas Sarkozy to examine ways the Group of 20 leading economies could raise new money for the world's poor, including plugging an estimated $80 billion to $100 billion funding gap to tackle climate change.
In a report presented to a meeting of G20 ministers in Washington on Friday, the billionaire philanthropist proposed taxing financial transactions, tobacco, and shipping and aviation fuels, according to details of the report obtained by Reuters.
With Western donors in Europe and the United States under pressure to cut their budgets, and a euro zone sovereign debt crisis escalating, developing nations are desperately seeking new ways to lift themselves out of poverty.
Gates' point, according to a draft technical note on the report, is that if African countries maintain current average growth rates, their economies will double by early next decade and GDP per capital will rise by more than 50 percent.
The Gates' report said a financial transaction tax could raise "substantial resources" for developing countries. By some estimates a financial transition tax could generate as much as USD 250 billion if derivatives contracts were included.
But the report suggests even a small tax of 10 basis points on equities and 2 basis points on bonds could bring in about USD 48 billion from G20 member states, or USD 9 billion if only adopted by larger European countries. A basis point is one one-hundredth of a percentage point.
The levy, commonly dubbed a "Tobin tax" after the U.S. economist who proposed the idea in the 1970s, has been mooted at regular intervals to raise funds, but has always struggled to get off the drawing board because it is easy to avoid unless all countries impose it.
"Tonight nobody can say that such a tax on financial transactions is not technically feasible," French Finance Minister Francois Baroin told a news conference after a G20 meeting on development issues. "We are making progress on the technical coherence of this project," he added.
The report will be presented to a G20 leaders' summit in Cannes, France, in early November.
Countries such as Canada, Britain, the United States, Australia and China oppose the tax because it puts more burden on banks, while France, Germany, Austria, Belgium, Norway and Spain support it, along with several African states.
"We are not oblivious to the debate and the doubts about this," said Baroin, adding that France and Germany were determined to push ahead with the tax despite opposition.
"We have the intention to implement this tax," he said.
Tackling climate costs
International development group Oxfam welcomed France's commitment and said the tax was on "the fast track to becoming a reality."
U.S.-based business groups on Friday voiced their concern at growing calls for a financial transaction tax, saying they had written to U.S. Treasury Secretary Timothy Geithner to reiterate their opposition.
"A transaction tax will cycle through the entire U.S. economy, harming both investors, and businesses," the group of trade associations, including the influential U.S. Chamber of Commerce, said in a statement.
The Gates report also said there was a "compelling case" for all governments to tax tobacco heavily to reduce consumption and generate revenue to meet health costs. It could raise about USD 170 billion a year in G20 countries, it said.
It also backed World Bank and International Monetary Fund proposals to tax shipping and aviation fuels, even though these are politically hard to agree on and tough to design.
The G20 is also considering financing for infrastructure projects in developing countries, which would boost growth in nations that are often constrained by power shortages, lack of roads and railways.
Friday's meeting of development and finance ministers agreed to create an emergency food reserve in West Africa to avert the risk of shortages in the world's poorest region.
French Cooperation Minister Henri de Raincourt said the project, which would cost some USD 45 million, was a pilot initiative and if successful would lead to the creation of similar stockpiles elsewhere in the developing world.
Washington: Microsoft founder Bill Gates on Friday backed a controversial financial transactions tax to aid development in poor countries but France acknowledged that most G20 countries did not like the idea.