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7 November, 2011
If last week’s G20 summit in Cannes, France, accomplished anything, it accomplished this: it put the urgent need for a financial transaction tax (FTT) firmly on the global economic agenda. Even though G20 world leaders and economic ministers failed to come to consensus on a FTT, the debate was there and it promises to grow.
The FTT was formally made to the G20 through French President Nicolas Sarkozy, who commissioned a report by US philanthropist Bill Gates at the summit that specifies certain tax proposals on financial services that should be considered by G20 nations to aid development in poorer nations.
Sarkozy has become a keen supporter of a European Commission (EC) proposal for a FTT. France was joined by Germany and Spain in supporting enactment within the Eurozone, but UK Prime Minister David Cameron and Chancellor George Osborne stand as barriers.
In Cannes, Argentina, Brazil, South Africa all said the time was right that nations must consider a FTT. Russia and China are opposed. The US, where Treasury Secretary Tim Geithner has long held the view that a FTT is unworkable, is still fundamentally opposed.
But either through the occupy movements or other political tailwinds, there was some indication at Cannes that President Barack Obama might be slightly drawing back from the US’s longstanding opposition. Certainly it will take far more heat at home for Obama to endorse a FTT and reject Geither’s Wall Street belief that a tax on bond or derivative trading, or stock or currency trades, is not practical.
But the mainstream is beginning to believe various forms of FTTs have merit and provide workable solutions to the world’s economic woes. Gates of Microsoft fame said in Cannes a financial tax levy is “clearly technically feasible.” He also proposed that G20 nations impose legally-binding transparency measures on oil and mining extraction companies, as well as reducing fees on remittances sent home by migrant workers.
At the European level, a FTT could net some €57 billion per year. Considering that in a four-year span from 2007 to August 2011, public aid and guarantees to the financial sector amounted to €4.6 trillion, or 37% of total EU Gross Domestic Product, the political timing for a tiny tax on financial transactions would seem correct. And consider again that during the financial crisis, EU banks have raised as much additional capital as they have written down in lost asset values.
“It makes sense to have this kind of tax not only to ask the financial sector to give a fair contribution to the common good, but also to use part of this financial transaction tax as a way to support development,” said EC President Jose Manuel Barroso.
Besides the obvious is what a FTT could do in developed nations for investment in jobs, to prop up social programmes or to build new infrastructure, there is a reality those same nations are scaling back on foreign aid to poorer nations, either from austerity or rightward political swings. The UN Development Programme says that a currency trading tax of a mere 0.005% would raise US$40 billion per year and it suggests this would go far to help developing nations deal with the effects of climate change.
Growing global momentum for a FTT also comes at the precise time that funding for global health programmes is being reduced. Funding for HIV fell for the first time in 2009 and it fell again in 2010. The Global Fund to Fight AIDS, TB and Malaria missed awarding grants due to a monetary shortfall in this period as well.
The International Trade Union Confederation (ITUC) predicts that adopting a financial transaction tax would help to reduce market volatility, curb speculative activity and provide resources to fight poverty. The ICEM believes that greed and negligence caused the financial collapse, and it is the perpetrators of that greed and neglect that received the bail-outs. Placing a tiny levy on FTTs is a small price to pay for a sustainable and manageable world.
The financial transaction tax, incidentally, also called the “Robin Hood” or Tobin tax, was the brainchild of US Nobel prize winning economist James Tobin, who in 1972 proposed a small tax on foreign currency transactions to reduce global speculative risks. Learn more on the FTT here.