Europe takes a little and uncertain step to the financial transactions tax
Published on Fri, 2012-10-19 07:30
The agreement reached by 11 of the 17 governments of the Eurozone to create a financial transactions tax (FTT) was received with mixed feelings. Members of European and global civil society organizations deemed it as a needed step in the right direction, but insufficient, as they fear that the incomes would be used to redress the fiscal imbalances, not to deal with global poverty and climate change. Experts forecast flights of capitals to countries reluctant to impose the FTT, notably the United Kingdom. In the meantime, 58 relevant groups called on the president of the World Bank Jim Yong Kim to advocate for the tax at the global level.
The European FTT will be designed based on the proposal made last year by the European Commission: a minimum tax rate for the trading of bonds and shares of 0.1 percent and 0.01 percent for the much larger market of derivative products, according to Algirdas Šemeta, the European Union (EU) Commissioner for taxation.
The 11 concurrent EU finance ministers, headed by Germany and France, agreed last week to press ahead with the FTT, as the European Commision suggested. Šemeta is willing “to do everything possible to deliver a draft decision” in November to the Economic and Financial Affairs Council to the November ECOFIN, “in order to facilitate very quick progress on this file,” said the Commissioner
But the six countries opposed to the tax, especially the UK and Poland, have warned about the possible effects of the FTT on the internal market of the bloc, and will not anticipate their position without a concrete proposal. The 11 countries that agreed to go on with the tax are Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain. The details have not been worked out yet, although the finance ministers agreed to impose the FTT as part of a set of measures aimed to curb risky speculative trading practices. Other countries are expected to join the process later.
Many years ago, civil society organizations proposed the FTT as a means to support development policy objectives, and also to control and prevent the destabilizing impacts of speculative transactions.
But since 2008, some governments found the proposal attractive to reduce the fiscal deficits provoked by the current crisis. For the European Commission it provides potential sources of additional funding for the bloc’s budget. Notwithstanding, these decisions must be taken on the framework of the budget, not with the creation of a new tax.
The European Network on Debt and Development (Eurodad), a network of non-governmental organizations in 16 countries, warned that “while the European Commission had discussed the proposed FTT,” the European Council, that comprises the heads of government of the bloc, “pointedly ignores the issue, saying only that ‘the EU seriously considers proposals for innovative financing with significant revenue generation potential’.”
Arnaud Zacharie, secretary general of the Belgian NGO Centre national de coopération au développement (CNCD-11.11.11), forecasted that the international civil society will continue upholding the ambitious scope of the original FTT proposal. “The objective is to tax all international financial transactions world wide,” he said. “Such a tax will put a grain of sand in the wheels of the international finance system,” with the aim to “control” it, adding “other measures of banking and financial regulation.”
Nevertheless, Zacharie added, the TTF agreed by 11 countries “is necessary, because it seems impossible to reach an agreement at the EU level, and globally it has been blocked for years. This mechanism of enhanced cooperation is needed as a first step. But it is insufficient.”
“Talking of capital flights is an alarmist fantasy. The fact is that there are taxes on stock exchange and financial transactions all over the world. The United Kingdom uses this argument, but has imposed a 0.5 percent tax (five times mor than the proposed European FTT) on stock exchange transactions of national companies in recent years. The tax on stock exchange transactions in Belgium increased from 0.17 to 0.22 percent. Brazil imposes a 6 percent tax on capital inflows since the beginning of the crisis in 2008. If you believe that a tax of 0.1 percent in large countries as Germany or France would lead to capital flights, you don’t understand how the international financial system works,” explained Zacharie.
According to the representative of CNCD-11.11.11, Germany and France, the main FTT advocates, have not agreed yet on what to do with the revenues. “We have always said that the tax should be a mean to finance global challenges as the climate change, because the international organizations in charge of those issues are dependent of the contributions of the member states,” he said.
In Spain, Campaña ITF Ya (Campaign FTT Now) welcomed the European ministers’ decision on the tax, but warned that “the allocation of the revenues […] should not go to the bankrupted banks” and “must be decided through a broad citizen debate”.
The 11 European finance ministers took the decision the same day that 58 relevant civil society organizations from all regions demanded Jim Yong Kim, President of the World Bank, to use his position to promote the FTT. In an open letter, the groups said that given “the budget constraints facing many of the largest donor countries, it is widely accepted that new sources of financing are needed.”
The groups welcomed the European decision, and stated that the revenues of a FTT should be used to reduce poverty. “Wwith the exception of France,” the governments “have made no clear commitment yet on how the resources would be allocated. Your support could help ensure that a substantial portion of the revenue goes to meet the needs of the world’s poorest people, rather than simply paying down deficits.”
“Our organizations are part of a growing international campaign to promote one of the most promising forms of innovative finance – small taxes on trades of stock, derivatives, currencies, and other financial instruments,” added the groups, among them big labor unions as the International Trade Union Confederation, Public Services International, AFL-CIO (US), National Union of Public and General Employees (Canada), Trades Union Congress (UK), Comisiones Obreras (Spain), Confederazione Generale Italiana del Lavoro (Italy) and IG Bauen-Agrar-Umwelt (Germany); environmental groups as Friends of the Earth US, Greenpeace and WWF International, and the Institute for Policy Studies-Global Economy Project (US), Oxfam International and the Robin Hood Tax Campaign (UK).
The signatories called on Kim “to become a vocal champion of innovative ways to ensure sufficient resources are available to tackle the most pressing problems faced by the world’s poorest and most vulnerable people.” “We have long advocated that such financial transaction taxes (FTTs) are a practical way to generate revenue to fill domestic and international financing gaps, discourage the type of shortterm financial speculation that has little social value but poses high risks to the economy, and serve as a predictable and sustainable source financing for health, climate, development, education, and job creation,” adds the open letter.
In a meeting headed by Kim with 600 civil society organizations representatives from more than 50 countries in Tokio last week, within the framework of the Annual Meetings of the World Bank and the International Monetary Fund (IMF), Christine Lagarde, managing director of the IMF, said that “the financial sector must contribute more”.
Inquired by Saman Kelegama, of the Institute of Policy Studies in Sri Lanka, Lagarde stated: “Eleven members of the Eurozone have decided to approve the financial transactions tax, which is something that many of you are keen on […]. We at the Fund […] endorse the principle that the financial sector must contribute more.”