Wrong Tax, Wrong Disease

Thursday, August 05, 2010

By Eamonn Butler

Officials and activists at the recent world AIDS conference in Vienna want a "Robin Hood" tax on financial transactions to fund HIV/AIDS relief. This well-published analyst explains why this is a bad and counter-productive idea.

Officials and activists at the recent world AIDS conference in Vienna demanded a tax on financial transactions to fund HIV/AIDS relief in poor countries. HIV/AIDS is terrible, and so is poverty, but this is a bad idea.

Money from rich countries for HIV/AIDS has fallen slightly in the recession, to $7.6 billion last year from $7.7 billion in 2008, so this Robin Hood Tax (named after the mythical English outlaw who stole from the rich to give to the poor)–would plug the gap.

Former US president Bill Clinton avoided mentioning Robin Hood, as President Barack Obama is not in favour, but said the best way is to "raise small amounts of money from a massive number of people," citing an air-travel "solidarity" tax in 11 countries that has netted the UN US$1.3 billion since 2006.

An architect of that levy, Philippe Douste-Blazy, Chairman of UNITAID, said: "Knowing that 97% of transactions are of a speculative nature, there will be no consequence on the real economy" from this Robin Hood Tax.

Wrong. The very rich won’t be the ones who pay it. Nor will it help the very poor. Indeed, it will choke the only things that might help poor countries in the long term–trade and enterprise.

On top of the tax itself, there is the immensely complicated administration, IT, compliance and payment systems required for many millions of transactions a day, plus the cost of policing it. These costs would not be borne by rich bankers but would be passed on to their customers–mostly people of modest means. Those consumers would have less money to spend on the coffee, tea, fruit, textiles and so on that poor countries need to sell to survive.

And the proposed tax will directly harm trade. It will hit transactions like insurance cover for trade deals: make that more expensive and you get less trade. If you make capital harder to get, poorer countries in particular will be unable to raise the funds they need.

When Sweden tried to raise taxes this way in 1984, it proved a disaster. Financial markets collapsed and capital became unobtainable.

Robin Hood supposedly robbed the rich to give to the poor–but taxes do not go to the poor, they go to government, to bureaucracy and to projects that politicians want, not what is needed.

Worse, HIV/AIDS is the wrong thing to spend it on: far more people in poor countries die from other, preventable, diseases. HIV gets 25% of all health aid but causes around 3% of deaths globally (although double or more in many African countries).

Many more, entirely preventable, deaths come from respiratory illnesses, diarrhoea, malaria and tuberculosis. Campaigners say HIV justifies more spending because it is a disease of poverty. In fact, these others are the true diseases of poverty: they have been largely wiped out in countries that have been allowed to make themselves richer through trade and enterprise.

The big enemy of the poorest countries is not the lack of Western aid. It is the lack of property rights and the rule of law, the corruption, the high and arbitrary taxes, the regulations and the local trade barriers that make it pointless for people to invest in the businesses that would bring prosperity. Western trade barriers exacerbate the misery.

The–mostly Western–campaigners who call for more taxes to spend on HIV/AIDS are therefore wrong on all fronts. It will not be the rich who pay the Robin Hood Tax. Any drop in consumer demand will hit the poor. Making capital more expensive will hit the countries and businesses that most need investment. Spending more on HIV/AIDS will ignore the most urgent, and preventable, health threats to the poor.

Instead of more taxes amid austerity, the campaigners should be demanding that the European Union and the USA set an example by freeing trade completely. That is the way to end world poverty and the diseases that go with it.

Eamonn Butler is a Director of the Adam Smith Institute, London, an independent economic think-tank.