Financial transactions tax: No surrogates, please
09.02.12 @ 16:49
BRUSSELS - Since economist James Tobin launched the idea in 1972, we have never been closer to the implementation of a financial transaction tax (FTT). However, we risk getting a tax with its name, but only few of the characteristics which make it a tool for equity and sustainable development. Only the original can help to cure an ailing financial system, not a stripped down surrogate.
The FTT debate is rather technical and complex. Instead of one tax, we are actually talking about a variety of possible taxes depending on variables like tax rate, introduction on primary and/or secondary markets, measures to counter tax evasion, and the number of countries participating.
Opponents make good use of this complexity to depict horror scenarios of slower growth, capital flight from European markets and ordinary citizens shouldering the burden of the tax. Last week, EU tax commissioner Semeta rebutted a range of false claims about the European Commission’s FTT proposal in an op-ed published in various European newspapers.
But these myths are not the only threat to the realisation of a tax which, if well designed and implemented, could help stabilizing the financial markets and raise large sums of urgently needed money.
In fact, the tax could be killed by friendly fire too.
Parts of the French and German governments seem to be giving in to the stead-fast opposition of the UK and other sceptical governments, reducing their efforts for a comprehensive EU FTT.
It is clear to see what this means: surrendering to vested interests of a strong financial sector that governments claim to monitor and regulate, while the political will is lacking to do so appropriately.
At the end of January, in what could be seen as a pre-electoral move, President Sarkozy announced France would unilaterally introduce an FTT in the autumn. The mini tax proposed with no clear commitments on what its revenues will be used for is a far cry from the original FTT proposal.
Watering down the FTT to a stock tax with many loopholes doesn’t do the job of curing an ailing system and raising sufficient money to tackle poverty and climate change.
Only an FTT that integrally covers all spot and derivative trading would impact short-term trading which has no added value for the real economy.
By having the most impact on highly speculative trading, an FTT is one of several measures to reduce excessive and uncontrolled risk taking and unsustainable virtual growth linked to this kind of unproductive activities. Through an FTT, countries can build up a more resilient financial system.
A weak FTT in France would also set a dangerous precedent, especially now that a group of nine EU member states have collectively demonstrated the political will to pursue negotiations on a full EU FTT. France, Germany, Italy, Austria, Belgium, Spain, Finland, Greece and Portugal asked the Danish EU presidency to accelerate ongoing work on the tax.
According to the European Commission’s proposal, an FTT could generate € 57 billion annually. Such revenues, if properly channelled to tackle poverty and climate change, could have a major positive impact on people’s well-being and that of the planet.
The creation of the Green Climate Fund was a small breakthrough at the Durban climate talks last December. It would be a missed opportunity, in times of austerity, if Europe fails to adopt a sufficiently broad tax which could generate the revenue it needs for climate finance and to honour pressing commitments to eradicate poverty at home and internationally.
The Danish EU Presidency should recognise the will is there within the EU to push forward and build consensus on the speedy adoption of a comprehensive tax on financial transactions. We must move forward, overcoming misinformed scepticism and steering clear of FTT surrogates sold as the real deal.
Bernd Nilles is secretary general of the international alliance of Catholic development agencies CIDSE.