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Contributions from
the Column
Studies and reports
Poor outlook for transatlantic policy
Forced labour: the underside of globalisation
Military budgets: ploughshares into swords
The legitimacy of international taxation
Food aid: local purchases more cost efficient
06/2005 |
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[ Development financing ]
The legitimacy of international taxation
Only a few years ago, the topic of international taxation was still to a large extent a taboo in official politics. It was only on the agenda of globalisation critics and non-governmental development organisations. The proponents primarily expressed themselves in favour of a levy on international transactions, the so-called Tobin tax. Until recently, it was hardly conceivable that high-level political fora would discuss whether and how international taxes might help to curb undesirable consequences of globalisation and simultaneously raise additional funds for development.
This has changed considerably over the past two years. Jacques Chirac, President of France, has for some time been known to appreciate the idea of international taxation. Together with Brazil’s President Lula da Silva and Chile’s President Ricardo Lagos, he started the so-called “Lula Group” in January 2004. This working group has been told to identify innovative financing mechanisms. Its initial recommendations were presented to the UN General Assembly in autumn 2004. To considerable surprise, Germany’s Chancellor Gerhard Schröder made a statement cautiously in favour of an international tax on speculative currency transfers at the World Economic Forum in Davos in January this year. The Tobin tax has since disappeared from the official agenda, but the EU is seriously discussing alternatives. In May, EU finance ministers agreed in principle to introduce a tax on airplane fares. Details still have to be worked out. Moreover, Germany joined the Lula Group in February.
For Peter Wahl of the Bonn-based NGO World Economy, Ecology and Development (WEED), there are other indications of a “new quality” in the discussion on international taxes. He emphasises the fact that Belgium, last year, was the first country to decide to introduce a tax on foreign currency transactions under the condition that other European countries follow its lead. In Wahl’s view, it is similarly “little short of sensational” that international taxation is now on the official agenda of the World Bank and the International Monetary Fund. Representatives of both institutions presented a working paper to the joint development committee at the recent Spring Meetings.
The recent discussion is primarily about technical aspects and the political viability of international taxes. In a WEED study published last month, Wahl, however, also asks whether such levies would be legitimate. Taxes, he argues, have always been instruments to shape society, but globalisation increasingly takes the edge off this instrument. It is becoming more and more difficult to tax companies effectively at the national level, because capital can move quite freely across borders bypassing tax authorities. This fact also weakens citizen’s sovereignty, according to Wahl, since the financial means to shape society are also an element of such sovereignty. In his view, society in general has become global a long time ago, but there are no fiscal instruments to shape it. In this respect, he sees international taxes as means of returning some sovereignty as well as scope to shape living conditions to the sovereigns of democracy – the citizens.
This line of thinking, however, does not resolve the problem of legitimacy. After all, citizens have no representation in world society the way they do in national parliaments. Therefore, they would hardly have a say in how international taxes are used. Wahl is aware of this and admits that, were the principle “no taxation without representation” to be strictly obeyed, the debate would stop at this point. He does, however, see a solution in the concept of Global Governance, the idea of governing without government through international agreements and multilateral institutions.
This notion serves as a compromise between true representation and pure inter-governmental coordination. Wahl says that international taxes could be levied and invested in global public goods through political cooperation between states, through democratic multilateralism, through a network of international conventions, flanked by national legislation, and institutional arrangements. The question of whether international taxation is possible, in other words, not only involves technical and political feasibility. It must also be embedded in decision-making structures, which minimise the democratic deficit of international politics and thus provide legitimate international taxation. (ell)
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