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Rodney Schmidt of the North-South Institute in Ottawa is a key proponent of a financial services tax. (Dave Chan for The Globe and mail/Dave Chan for The Globe and Mail)
Rodney Schmidt of the North-South Institute in Ottawa is a key proponent of a financial services tax. (Dave Chan for The Globe and mail/Dave Chan for The Globe and Mail)

The Canadian behind the new Robin Hood tax Add to ...

Rodney Schmidt seems an unlikely Robin Hood. He started his career at the federal Finance department, and his big contribution to the current global debate was fuelled by studies of the micro-structure of financial markets.

But the new version of what some call the Robin Hood tax, pushed by aid activists and now others, stems in no small part from Mr. Schmidt’s economics and his argument that a technology revolution in financial markets, which has allowed currency trading to boom, now makes it feasible to tax that trading, one tiny tranche each time.

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At last week's Cannes G20 summit, gripped with crisis in Greece, Microsoft founder Bill Gates backed a financial transactions tax. French President Nicolas Sarkozy and German Chancellor Angela Merkel both support the idea, arguing it can raise revenues and slow hyper-ventilating speculation. The Archbishop of Canterbury, Rowan Williams, also threw in his support in an editorial.

“We used to be a voice in the wilderness,” Mr. Schmidt, director of research at the North-South Institute, an Ottawa development think tank, said in an interview. “Now it’s become a legitimate debate.”

The tax won’t come tomorrow. The G20 didn’t accept it because of opposition from countries including the U.S., and the push for it in Europe faces a fight from Britain, home to the financial capital of London.

Mr. Schmidt, a Canadian, is cited as one of the leading experts behind the transactions tax, but it also faces a chilly environment in his homeland – Stephen Harper’s government has led international opposition.

But Mr. Schmidt, 54, has toiled on the idea for more than a decade and is getting a response overseas. Raised partly in the Congo by missionary parents, he took a PhD in economics and started his career at Finance; he said he likes taking problems from “morally laden” approaches to technical ones. He’s one of the five experts behind France’s report to the G20 and his work is highlighted in the UN’s 2011 Human Development Report. Germany’s parliament has also asked for his views.

The Robin Hood tax is a simple idea – a levy on each trade in currency or financial instruments which would go to fund development in poorer countries. It’s a version of the tax proposed 40 years ago by economist James Tobin. But the Tobin Tax, floated when currency was exchanged in scattered trades, has long been blasted as impossible to apply, and prone to curtailing and distorting commerce – an impractical idea favoured, according to its detractors, by the loony left. Mr. Schmidt’s work argues there is a way now.

A technology leap sparked a $4-trillion (U.S.)-a-day trade in currency, with computers pinging vast sums back and forth within seconds, and also the advent of two main systems for settling trades, so buyer and seller get paid. Now that trading mostly goes through those systems, Mr. Schmidt argues it would be simple to add a tax into the spreads between buying and selling prices. It wouldn’t be a good idea if it killed markets, he said, but it won’t: It can now be applied at a tiny 0.005 per cent, raising an estimated $40-billion. Using economic models, he concluded that it wouldn’t kill currency trading, but would slow it, by 19 per cent, largely by discouraging rapid-fire computer-driven trades in and out of an asset.

For Mr. Schmidt, that’s one of the virtues, curbing “non-productive” speculation in the hope it moderates big swings, thereby reducing trading without unduly distorting markets. But opposition remains legion, in the financial world and among economists, who argue it would curb valid business, and encourage banks to move trading elsewhere and set up new settlement systems to avoid tax. Mr. Schmidt argues the stock-trade tax imposed by one opponent, Britain, shows it can work, even unilaterally.

It is, right now, an idea enjoying a golden moment. The 2008 financial crisis brought new support, with activists and aid agencies campaigning for it as a way to fund development at a time when banking and financial stability is dominating global talks. It hasn’t convinced the financial industry, or countries who argue it would be a damaging drag on the economy. More economists, like Paul Krugman, the Nobel prize-winner and New York Times columnist, now support it, but a great many are opposed. Some development economists are unsure it can be applied and believe other policies should be tried first.

But Mr. Schmidt, who thinks it's an alternative revenue-raiser and one part of a toolbox to prevent recession, predicts its time will come. “One more recession,” he said, “and everyone will have a financial transactions tax.”

Follow on Twitter: @camrclark

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