Financial Transactions Tax: the time has come

Robin Hood Tax campaign signs.
(Photo: Oxfam)

The idea of taxing international financial transactions is gaining ground. The European Union is promoting it internationally and studying the possibility of imposing it throughout the bloc, or at least in the euro area.

But it is still not clear what the scope of the tax would be or what the funds generated would be used for. They could go to mitigate the effects of the crisis in the industrialised North or, as was originally proposed, to help the countries of the South develop and fight poverty.

The initiative to create a Financial Transactions Tax (FTT) has resurfaced today, forty years after the United States economist James Tobin suggested levying a very small tax on currency transactions with the aim of stabilising exchange rates, and fifteen years after civil society organizations took up the idea with some variations, such as to use the money to eradicate poverty worldwide.  

A more recent expression in support of the idea came from the joint meeting of the World Bank and the International Monetary Fund (IMF), held from the 23 to 25 of September in Washington. There was a statement in favour of creating such a tax and using the proceeds to foster the development of the World Francophone Organization, which is made up of 49 countries that between them have one tenth of the world’s population, including many developing countries from all the continents. Germany, France and other members of the EU reaffirmed their support for the initiative.

But the newspaper headlines were monopolized by the businessman Bill Gates, who during the meeting in Washington leaked a preview of a report that the President of France, Nicolás Sarkozy, in the name of the Group of 20 countries (G20), had asked him to make about financing the fight against poverty and climate change. In the draft version, Mr. Gates pronounced in favour of a FTT. Experts at the Gates Foundation calculate the tax would yield 48,000 million dollars in the G20 countries if it is levied at a rate of 0.01% on transactions involving company shares, and 0.02% on transactions involving government bonds. If it is only implemented in the main European economies the yield would be 9,000 million dollars. The study also proposes taxing sales of tobacco and fuel for ships and aeroplanes.

Last Wednesday the European Commission announced its plan. Starting in 2014 it will: tax transactions involving buyers and sellers from the bloc; exclude currency purchases; as well as levy 0.1% on the value of transactions involving shares and bonds, and 0.01% on those involving derivatives.

According to the draft of the initiative, the aims are that financial institutions should make a “…fair contribution to cover the costs of the crisis”, “… to create appropriate disincentives for overly risky transactions and to complement regulatory measures aimed at avoiding future crises”, and “to prevent the fragmentation of the internal market for financial services”. The funds generated will be shared among national and community organizations so as to reduce the actual contribution of the governments from the bloc.

Last year the European Parliament asked the Commission to consider the possibility of using this kind of tax to finance “…developing countries’ efforts to adapt to climate change and to mitigate” its effects, and to finance “development cooperation”. Wednesday’s proposal considers this course of action if the G20 countries agree to this kind of tax at the international level.  

According to Max Lawson, an expert from Oxfam UK, in the British organization’s blog, “Securing vocal support from Brazil, South Africa and other developing countries will be key to helping shame the Europeans into not spending all the revenues on themselves”.

Great Britain and Sweden are reticent about supporting the initiative at the EU level (which would reduce its scope in the euro area), but the main obstacle to imposing the tax globally is opposition from the United States.  

France currently has the presidency of the G20, and President Sarkozy, as he and the German Chancellor Angela Merkel agreed in August, will take the matter to the group’s summit in Cannes in November and will have Bill Gates’s report for support.

At the beginning of September, the joint UN-NGO conference in Bonn issued a call to establish a FTT “to help construct social protection systems in the most vulnerable countries … and contribute to adapting to climate change, strengthen civil society throughout the world and support more sustainable and equitable economies”.

This month saw the publication of the results of an Eurobarometer survey, which showed that 61 percent of those interviewed in Europe are in favour of an international FTT. For example, support for the FTT in Britain was no less than 65 percent.

In April one thousand world-renowned economists, all with at least one doctorate, declared in favour of setting up a FTT to finance the fight against poverty.  

This tax has long been among the goals of civil society organizations all over the world. It was consolidated into a definite programme when it was taken up by international networks like the Tax Justice Network (TJN) and the Association for the Taxation of Financial Transactions for the Aid of Citizens (ATTAC), and the Robin Hood Tax Campaign.

According to its proponents, the tax would operate as a mechanism to discourage financial speculation and to create a world fund of resources to eradicate poverty.

In September the build up of support led the Robin Hood Campaign to congratulate itself for its efforts. A spokesperson said, “We have never been closer”. It remains to be seen whether the road will get steeper in the coming months or years.

For further information
Civil society organizations call for FTT (in Spanish):
The time has come for a global financial transactions tax:
The millionaires’ revolution (in Spanish):
One step forward (in Spanish):

This information is based on data from the following sources:
Bretton Woods Project:
Touch Stone (British unions blog):
Oxfam Blogs: