Wrong Tax, Wrong Disease

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 dollars last year from 7.7 billion dollars 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 of it, 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 United Nations (UN) 1.3 billion dollars since 2006.

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

Wrong. The very rich will not 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.

In addition to 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, and textiles that poor countries need to sell to survive

The proposed tax will directly harm trade. It will hit transactions like insurance cover for trade deals - make that more expensive and the result is less trade. If capital becomes 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 the government, bureaucracy, and 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 25pc of all health aid but causes around three per cent 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 but these others are true a result of paucity - 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, corruption, high and arbitrary taxes, 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 hurt the countries and businesses that most need investment while 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 (EU) and the United States (US) 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, an independent economic think-tank in London