Keeping it visual and campaign-y today. First a nice 10 minute video on the role of civil society organizations in lobbying for better education (see previous education wonkwar debate if you want more analysis)
They certainly know a thing or two about campaigning in Germany, recently getting major German banks to drop commodity funds and (contrary to the stereotype) they even use humour, albeit in a rather disturbing way. Check out this new Robin Hood Tax video for a taster
But if you think campaigning is just about ’speaking truth to power’, it’s probably worth pondering this Dilbert cartoon.
Update on substantial progress (and the risk the money raised won’t go to development and climate change) from Oxfam head of advocacy (and generally merry man) Max Lawson
This week sees a Global Week of Action for the campaign for the Robin Hood Tax (aka the Financial Transactions Tax, or FTT). The FTT rose to prominence as a result of the financial crisis, which continues to keep it in the spotlight as Greece stumbles towards the euro exit, not least because journalists are desperate for fresh ways to report a crisis that is simultaneously huge news and desperately dull. So from Cape Town to Paris, campaigners are pulling on their green tights and fat cat costumes, starting with a wedding in Berlin for Francois Hollande and Angela Merkel (right).
In policy land, a revised impact assessment of the FTT by the European Commission was obtained by the Guardian. The new assessment shows that the EC got its numbers wrong in a previous study that was seized upon by the FTT’s opponents. Recognizing that the majority of small and medium size firms do not rely on financial markets for investment (and so their access to capital would be unaffected by an FTT) reduces the cost to growth of an FTT to a tiny 0.2% reduction on a total predicted growth of about 80% between now and 2050. Moreover, if the revenues from an FTT (€57 billion a year according to the EC) are invested in creating jobs, then this tiny negative then becomes positive so that an FTT would actually boost growth in Europe. Got that? An FTT is pro-growth. Alas, such positive conclusions are unlikely to make it into any speeches by David Cameron or the front page of the Financial Times.
The pressure on EU leaders is extreme. The political debate is shifting from austerity to growth, with Angela Merkel faring poorly in some major state elections, and the victory of the socialist party in France. Monsieur Hollande has highlighted the FTT as one of the three main ways to boost growth in Europe. The FTT is going to figure highly in the EU leaders’ ‘Growth Summit’ on 22nd May. The Wall Street Journal made the link last week, saying that ‘even if they are calling for an FTT, at least the left are talking growth’.
With millions across Europe facing unemployment and serious suffering, especially in Greece, it is great to finally hear leaders speaking out against the death spiral of austerity and recession. It is also great that the FTT is one of the key things being cited to help with this. The Robin Hood Tax has always been about helping the poorest in developed nations as well as helping finance the fight against climate change and poverty in developing countries. If the proceeds of a tax on the unproductive and destabilising casino behaviour of the financial markets is used in part to create jobs and protect public services in Europe this would be a great redistribution and a great thing.
But this is also the biggest threat. With global aid levels falling, and the Green Climate Fund sitting empty, revenues from the FTT are vital for global, as well as domestic causes. Before the election, Francois Hollande said publicly he would favour up to 30% being used in this way, but he has been ominously silent since. Just last week in a closed door meeting with the heads of major NGOs, Chancellor Merkel reiterated her support for doing this. But the exigencies of austerity and the European crisis make this far from certain. Green groups in particular need to pile the pressure on France and Germany, ahead of next month’s Mexico G20 and Rio Earth Summit.
I was in South Africa last week for meetings with civil society and government G20 negotiators. South Africa has a strong interest in a successful Green Climate Fund. They agreed to speak to Brazil and Argentina as the three countries outside Europe that joined the FTT ‘coalition of the willing’ at the G20 in Cannes, focusing on supporting an FTT for funding development and climate change. Pressure on France and Germany from these governments will be critical.
In the US, the G8 is taking place today, and President Hollande has promised to raise the FTT in discussions with fellow G8 leaders. The Robin Hood Tax USA campaign is also being launched, by thousands of nurses dressed as Robin Hood, marching in Chicago. Interviewed on US news recently, the head of the US National Nurses Union was asked by the presenter whether she was serious; she replied ‘we are as serious as a heart attack’.
The RHT campaign continues to show the remarkable ‘how change happens’ potential of a response to shocks (in this case, financial crash + austerity = governments desperate for new sources of revenue + impending collapse of aid flows from many donors + massive public antipathy towards the banking sector = perfect time to campaign for a new tax on banks). Here’s a summary of the latest briefing from Sherwood foresters Max Lawson and Jasmine Burnley. Full briefing here.
• Despite fierce opposition and lobbying by the financial sector, there is a good chance that a coalition of 9 countries (Austria, Belgium, Finland, France, Germany, Greece, Italy, Portugal and Spain), representing 90% of Eurozone GDP, could push ahead and implement an Financial Transactions Tax (FTT, the official name for the Robin Hood Tax) in 2012. This could raise 38 billion euros. All of the nine finance ministers wrote to the Danish Presidency to ask them for the FTT to be fast tracked and bypass EU27 blockers such as the UK.
• France has passed legislation to implement an FTT of 0.1% on shares at national level, which will come into force in August. This is explicitly proposed by President Sarkozy as a first step towards a broader FTT at EU level. There is nothing in the legislation to link the revenues to development and climate change. The French Socialist candidate Francois Hollande, who is front runner to win the election, has said publicly to spend he would spend a third of an FTT on development and climate change and there was a public commitment from the French Minister for Cooperation to give increasing levels of the FTT to development and climate change from the start of 2013.
• German finance minister Wolfgang Schauble has said clearly that it is unlikely to reach agreement in the Eurozone, and is open to a stamp duty like tax, which includes derivatives as a possible compromise. This would be an FTT by any other name and would raise significant revenue, but it would of course be better if it covered all transactions not just equities. Schauble is now speaking publicly about going ahead this year with the coalition of 9 countries, although there is not a unified German government agreement, as the junior partner, the FDP, remains opposed.
• Support for an FTT grows in the US against backdrop of increasing resentment over unemployment, lower than needed growth and the costs of the financial crisis – US Robin Hood Tax campaign to be launched at G8 with Chicago rally of unions and CSOs
• Fast-track to end June: There is a strong likelihood of a European FTT although opposition is fierce– the major challenge is to get a portion allocated to development and climate change.
It’s any campaigner’s nightmare – you work for months to get movement on a big issue at a summit, and then an international crisis blows up and threatens to wreck both the agenda and your plans. But Max Lawson, Oxfam’s head of Policy and Advocacy, reckons that the Robin Hood Tax made significant progress last week at a G20 summit dominated by the Greek debt crisis. Here’s his last day wrap-up from Friday:
It is all over. The diminutive Frenchman has spoken (at length). So what happened?
We heard in the morning from South Africa that the French attempt to have a separate communique on the Financial Transaction Tax (FTT) had run out of time. Which basically confirmed what has been the theme of the last few days – the ingredients for further movement on the FTT have been there all along but there was simply not enough time or diplomatic head space. Frustrating, but not surprising. We also heard that the Brazilians had won support from France on a global minimum for social protection in return for their backing on the FTT, which was interesting and impressive diplomacy by Dilma.
All morning rumours circulated about possible agreements on various things that never came to fruition, mostly about boosting the resources of the IMF. The emerging powers don’t want to fund the European bailout directly as it is too politically contentious, but they are interested in channelling money through the IMF, in return for a bigger share in the governance of the institution. For nerds like me this remains fascinating, as the financial crisis continues to accelerate the shift of global power to the major emerging markets. This is a febrile moment in history, and whilst shrouded in deadly dull financial speak, we are witnessing some major shifts that will shape the next century.
Mid-morning and NGOs had a briefing from the Gates Foundation staff on the G20 discussion yesterday of development, which took up about 45 minutes. It seems there was some pretty good discussion and definitely having Bill and his report there meant the FTT got a lot more profile than it would have otherwise. They confirmed that Germany was saying that they are open to potentially using some of the revenues from an FTT to finance climate change and development, which was good to hear.
The press conference finally started around 2pm. Just when I thought sitting in this lurid bunker of a press centre could not get any more surreal, it emerged that all of the many men’s toilets you go to in this huge complex have the Star Wars music on a permanent loop.
Sarkozy spoke first about the euro of course and the commitments of the G20 to boost growth, but announced nothing new. He spoke at length about the action they have taken in naming 11 tax havens, which is of course good but not nearly enough, as it is only beating up on some small island states and ignoring the major companies creaming off profits through these havens and the fact that the biggest tax havens are in the G8, in London especially. Still, it’s good that this crucial issue is getting profile and some progress. It is similar to the FTT in many ways – a popular cause that taps into anger in rich and poor countries alike that companies and the richest individuals are avoiding their responsibilities and failing to contribute, meaning that ordinary people are faced with cuts in services and bankrupt governments.
Anyhow, then he moved onto the FTT. He underlined that the FTT was now a mainstream issue, and had made it into the communique. That there were big fights on this issue in the G20 with many against, but that plucky little France continues to push for it. That in addition to France, Germany, Spain, Brazil and Argentina, they now had support from South Africa, the African Union, Ethiopia (Meles, the Ethiopian president attends the G20 representing NEPAD) and Ban Ki Moon.
He underlined that the process at the EU is the main one, and that this will be on the agenda at the EU heads of state meeting in January. He said that whilst not in favour of the FTT, President Obama agreed that the financial sector should contribute more to the cost of the crisis. He confirmed that he believes that the majority of the revenue should be spent on development. Later, in questions, he name-checked the Robin Hood Tax campaign, and reiterated that the banks must be made to pay back for the impact of the financial crisis they have caused.
What does this mean? Well it is definitely progress. During his brief flirtation with the FTT before he lost the election, Gordon Brown compared taxing transactions to debt cancellation for poor countries. Debt cancellation was initially the preserve of the radicals, ridiculed and dismissed by economists, but which then over a period of ten years and with a fantastic global campaign made the journey into the mainstream and into actual policy. Sarkozy made a similar case for the FTT, and I think he is right in many ways, although the time-frame is a lot quicker.
I had a long debate with one of [UK finance minister] George Osborne’s advisers yesterday about all this, and he conceded that he felt the eurozone FTT was almost certain to go ahead now, and that they are scenario-planning to see whether the UK will benefit from it or not. Germany are really serious about doing this, as are France, and at the moment what Merkel and Sarkozy want to do in the eurozone is very likely to happen. In fact there are no major opponents of the tax in the eurozone, with the Dutch having changed their position recently. All that would have been completely unthinkable two years ago.
The key question is whether all the fuss this week, and the involvement now of South Africa, Brazil and the other developing countries, is enough to ensure that not just the French, but the Germans and the rest of the eurozone countries agree to spend some of the money on fighting poverty and climate change. I hope so. Either way the FTT took a big step in that direction today. We need to keep the pressure up in the coming few months on Germany and France on the issue of how the revenues are used, and not stop campaigning until they stop talking big about this tax and actually go ahead and do it. In France especially the pressure should be on Sarkozy to implement the FTT nationally too and stop hiding behind other countries.
Lots to do, but for now I am hanging up the bow and arrow and heading off for some vin, pain and the usual Gallic shrug when I ask whether they have a vegetarian option.
I’m in Cambodia for a few days, (more on that to follow), which means that I will miss the the last minute lobby briefings etc for this week’s G20 summit in Cannes. But in lieu of a curtain raiser, here’s something altogether more fun – MC Moneypenney provides an international finance 101 rap from Occupy Wall Street, and covers (among other things) quantitative easing, Weimar inflation, Tobin/Robin Hood Tax, and Paul Krugman (who has morphed into K-rug… excellent). Finally, Bill Nighy’s got some competition.
This piece by Ha-Joon Chang and me appeared in various places last week, including South Africa’s Business Day (under the title ‘Financial tax not the death knell of capitalism’ ). It was pegged to the G20 finance ministers meeting, which turned out inconclusive on the FTT – the Robin Hood caravan now rolls on to the G20 summit in Cannes in early November.
With European Commission president Jose Manuel Barroso putting his weight behind it, a generalised financial transaction tax (FTT) — once a pipe dream of the radical fringe — has become an imminent reality. Several of the most influential countries are expected to endorse the idea at the Group of 20 (G-20) finance ministers’ meeting today and tomorrow and at the G-20 summit next month. The Republic of Korea, South Africa, Brazil and India should be among them.
The critics are howling that this will hurt all of us, by reducing our ability to generate wealth and employment. They say we cannot afford this at a time when we are suffering from one of capitalism’s biggest crises. We say these people should have more faith in capitalism.
Despite all its faults, capitalism has proved the most resilient economic system humanity has invented. It has survived numerous changes, many of which people believed would destroy it. It has disappointed its left-wing critics by surviving the rise of the dispossessed working class and three centuries of cyclical economic crises, which Karl Marx predicted would grow bigger until they finally destroyed the system.
But, more interestingly, it has also baffled its supposed defenders by its capacity to survive threats they thought would be terminal. They include the eight- hour day, minimum wage, regulation of child labour, progressive income tax, the welfare state, mass nationalisation of industries, trading standards, environmental standards, and even the introduction of the limited liability company (which many early free-market economists, including Adam Smith, denounced as a dangerous licence to take excessive risk).
In fact, capitalism has not only survived these changes but often improved itself by upwardly adjusting to them. So, for example, while many people warned that the abolition of child labour would, by eliminating nearly half the labour force, spell doom, it has actually made capitalism more dynamic by generating a healthier and better educated workforce.
The FTT is not some arbitrary tax on, say, white asparagus or Henning Mankell novels, which has no compensating benefits. Yes, there will be some immediate costs of the FTT, in terms of particular trading activities “migrating” to other jurisdictions with no FTT and thereby reducing tax revenue and employment. However, in the long run, the compensating benefits will be far greater.
The FTT is meant to clamp down on the most speculative elements of the global financial system, which has become the proverbial tail wagging the dog of the global economy. The tax will reduce the systemic instability created by big finance, thereby encouraging long-term investment and more stable consumer demands, not to speak of reducing unnecessary economic dislocation. It will make capitalism better.
Of course, the introduction of the FTT is only the beginning. First, we need to decide how to use the money. The European Commission’s initial effort to grab the lot to fund its own operations raised howls of protest, and the latest proposal backs down somewhat, leaving the matter open. Bill Gates argues for “a substantial allocation for development”, as well as pushing G-20 governments not to backtrack on their aid promises. “Rich countries’ fiscal books cannot be balanced off the backs of the poor,” he says. Emerging powers should be making these arguments even more forcefully. The FTT should not be seen as just an easy way to collect more taxes, exploiting the public sentiment against the financial sector.
Moreover, the introduction of the FTT, even if it can be done globally, should not be the end of attempts to regulate global finance in a way that encourages economic dynamism and stability. We have made progress raising capital requirements for banks but we still need to properly regulate derivative products, change rules on corporate takeovers, better supervise rating agencies and accounting firms, and clamp down on tax havens.
The FTT’s time has come. Those who try to argue against it on the grounds that it will do more harm than good, or even cripple the capitalist system, are either ignorant or self-serving. If capitalism has survived, and often flourished, with the help of all the changes listed above, it will shrug off the FTT with ease. In fact, it is most likely to use the FTT as an incentive to improve itself. The defenders of capitalism should have more faith in it.
Some delightful writing from my colleague Richard Gower on the weird (and destructive) world of ‘high frequency traders’ and the need for a Robin Hood Tax to calm them down:
“Welcome to the future. Machines, trading hundreds or even thousands of times a second, now dominate stock trading on both sides of the Atlantic. They buy and sell according to pre-programmed algorithms that range from simple ‘if this happens, then sell’ commands to more sinister programs that attempt to deceive other machines for their own benefit. Other malevolent algorithms flood exchange servers with information, slowing down their systems to ensure that they get their trade in before others can. Meanwhile ‘The Disruptor’ algorithm manipulates markets to disadvantage the regular traders who don’t use high frequency technology. This isn’t science fiction: this is how markets operate now.
On today’s stock exchanges speed is everything, and the human mind cannot compete with modern computing; nor can it control it. Expert opinion suggests that the tangled web of automated trades and feedback loops that now dominates share trading is far from stable. And experience bears this out. Every so often several algorithms unite in a spiral of selling (or buying), throwing stock prices into chaos: witness the flash crash of May 2010. This is simply the most devastating example yet of an increasingly regular phenomenon: The Financial Times found evidence of algorithms running amok at least three times in a six month period in 2010; and the financial press regularly report the use of malevolent algorithms which damage the market for short-term gain. Computer driven trading is turning the stock market into a 21st Century Wild West where hold-ups occur at lightning speed, and the regulatory sheriffs have only just woken up to the new bandits in town.”
Firstly, it’s not actually the final report, but a 7 page ‘technical note’ on the key financing proposals. The report itself is going to talk much more about innovation systems. But the financial content in the technical note is fascinating. Some highlights:
A big focus on ‘domestic resource mobilization’ – poor countries raising their own revenues by improving their tax systems and getting more from extractive industries (oil, gas, mining). Gates argues for an extension of the Extractive Industries Transparency Initiative both to include more developing countries, and to introduce disclosure requirements in extractive companies’ home countries (along the lines of the US Dodd-Frank legislation).
As you’d expect, Gates argues that rich countries have to stick to their aid promises and that their ‘fiscal books cannot be balanced off the backs of the poor’.
On new sources of revenue, he puts potential cash from an FTT at $48bn a year (if introduced across the G20) or $9bn (major European economies only) and argues for ‘a substantial allocation for development’, presumably in response to the European Commission’s desire to grab all the income to fund its own operations.
But he also advocates two other cash cows: expanding the tax on tobacco to the WHO target of 70% of the pack price, which he reckons would raise a colossal $170bn a year (not clear from the text if this is the additional revenue, or includes the tax already being raised on tobacco). A ‘Solidarity Tobacco Contribution’, which he puts at $9bn a year, would then be allocated to global health initiatives.
His third revenue proposal is on climate change, where he supports World Bank and IMF (and Oxfam) proposals to fund adaptation costs with new taxes on shipping and aviation fuels , which he says could raise $30bn a year from shipping and a bit less from aviation.
Another sensible suggestion is tapping into the estimated $350bn a year in remittances from migrant workers, by driving down transaction costs and encouraging pro-poor investments through things like ‘diaspora bonds’ aimed at overseas workers and entrepreneurs.
Finally, he puts the amount of money now held by ‘Sovereign Wealth Funds’ built up by China, Abu Dhabi and others at an eye-popping $4 trillion and rising, and wonders how that could be harnessed for infrastructure or other essential investments (perhaps using conventional aid to make such investments more attractive to the SWFs).
Comprehensive, and very interesting, not least because of the identity of the author. Does Bill Gates’ protagonism mark a further shift of the big philanthropreneurs (and their foundations) from an insistence on sticking to the relatively straightforward world of ‘stuff’ (vaccines, infrastructure, seeds, microfinance) to the more complex business of influencing systems and policies, which are every bit as crucial to development? Hope so.
Crisis as opportunity, continued: Oxfam’s head of advocacy, Max Lawson updates us on some rapid progress on a European Financial Transactions Tax (aka Robin Hood Tax) and the need for concerted lobbying over the next two months.
In a surprise turnaround, Jose Manuel Barroso, the European Commission President, announced on 31 August that the Commission now supports an EU-wide FTT, and will release a detailed proposal on how to achieve this in October, together with draft legislation. The Commission cites the fact that the UK and other countries already have large FTTs (known as Stamp Duty in the UK) as evidence that the tax can be designed to avoid driving banks overseas and that it need not be introduced globally for it to work.
Commission officials also cite the huge popularity of implementing an FTT. A recent Eurobarometer poll of more than 27,000 people found that Europeans are strongly in favour of a financial transaction tax by a margin of 61 to 26 per cent. Of those, more than 80 per cent agree that if global agreement cannot be reached, an FTT should, initially, be implemented by the EU. Support for an FTT in the UK is running at 65 per cent.
Press reports suggest the Commission wants a broad-based FTT, including as many transactions as possible, with a rate of 0.1% for basic transactions and 0.01% for derivatives. This is closer to German proposals than the French, who have focussed on a tax on currency transactions only.
The Commission’s U-turn came in response to Chancellor Merkel and President Sarkozy’s announcement on 16th August that they will press for a European FTT this autumn, in advance of the G20 summit in Cannes on 3-4th November. Their finance ministers have sent a detailed letter to the EC outlining the parameters of such a tax. Whilst they are officially proposing an EU-wide tax, the German finance minister has made it clear that he expects that agreement will only be possible at eurozone level or below, given likely UK opposition. Even a very limited FTT in France, Germany and Spain could raise 18 billion euro.
Controversially, the Commission wants to use the FTT to finance the EC budget, none of the revenue raised would be used for climate change or development. Given the unpopularity of EU bureaucrats, this has won no support from France or Germany. Instead President Sarkozy, in a speech the week after the joint Franco-German announcement, again reiterated his belief that the revenue should help fight poverty and climate change.
‘Faced with the difficulties of the developed countries to increase aid, everyone knows that innovative financing is a necessity. With Angela Merkel, we defend the idea of a tax on financial transactions. Our goal is for Europe to set an example of what can be done, and for others to align themselves with this initiative at the G20 summit in Cannes.’
Whether the FTT ends up funding the EC or poverty reduction will depend on what happens over the next few months, including the level of public pressure. Germany officially remains open to channelling the revenue to development and climate change, and is anyway less interested in the revenue than in using the FTT to tackle speculation. The position of Bill Gates in his report to the G20 summit on financing development will be absolutely critical. 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.
The World Bank is also preparing its report on financing climate change adaptation, including the FTT. It is also advocating taxes on aviation and shipping fuel, which may also be supported by Bill Gates. Both reports will be discussed by G20 finance ministers in Washington on 23rd September.
Intense lobbying and campaigning are needed in the coming weeks. In this volatile economic climate, there are no guarantees, but this looks like a major opportunity to secure significant financing for development and climate change, and arguably the biggest potential victory since debt cancellation in 2005. We have two months to secure a Robin Hood Tax.
What would an ideal process look like?
• The EC concludes that an FTT at EU level is feasible in late September and this is welcomed strongly by proponents – France, Germany and others.
• Calls to use the revenues for the EC budget are resisted, but pressure to implement the tax continues from France and Germany.
• The Gates report endorses the feasibility of an FTT as a strong option for raising finance for development.
• Key global figures line up to support the Gates call.
• At the Annual Meetings of the World Bank and IMF, other G20 countries come out in greater support, including South Africa and Brazil.
• Eurozone Ministers agree to press ahead with an FTT at Eurozone level during October.
• The final G20 finance ministers meeting in mid-October propose a wider FTT, building on the full report from Bill Gates.
• At the G20 in France heads of state from the coalition of willing nations agrees to the implementation of their FTTs and the use of the revenues to help fight climate change and development along with a clear timetable for its introduction.
• At the UN climate change summit in Durban in South Africa in December, the contribution of the FTT to climate finance helps unlock negotiations.
And just because it’s so good, and in case you missed it, here (again) is the Bill Nighy shifty banker video plugging the tax. Wonderful.
Stop Press: This just in (22 September) from Peter Wahl at WEED
Dear friends,
the first details of the EU-directive (EU legislation) on the FTT have been leaked.
According to the news agency Reuters (article in French), which has a copy of the draft, the directive would have the following main points:
Tax base: shares, bonds, derivatives.
Currency transactions at the spot market would be exempted, while derivatives of currency transactions would be taxed.
This would narrow the tax basis. The total turnover on the currency market is approx. four trillion USD per year, out of which 1,5 trillion are spot market transactions.
Tax rate: 0,1% for shares and bonds, 0,01 for derivatives.
Expected revenues: 50 bn. Euro (68,5 bn. USD)
Imposition: Via electronic platforms (which one is not yet known). However, the so called accrual rule should be used. This means that each single transaction is taxed in real time, as soon as it starts (Gross Real Time Settlement). This procedure has the advantage that the tax is not levied at the point of netting at the end of a trading day. The accrual rule will hit particularly high frequency trade. If the computer makes one thousand transactions during a day, the tax will have to be paid one thousand times.
Avoidance: The home country rule will be used. This means that each transaction in which a EU based seller or buyer is involved, will be charged. Even if the partner is based in Barbados, New York or Tokyo the tax will be levied. This means, that it does not help to transfer a deal outside Europe. One would have to leave the EU to avoid the tax.
Use of revenues: At last a part of the revenues should go to the EU. Nothing is said on use for global public goods.
Implementation: 2014
Area: The FTT should be implemented in the EU as a whole. However, if the UK (and Sweden et al.) continue to refuse, the Euro-zone is considered, or the area of so called enhanced cooperation (this is a procedure, where at last nine member states can agree something in a kind of coalition of the willing. This model is for instance used for the infamous Schengen Agreement on migration).
Peter’s general assessment: The draft is a break through and a big succes for civil society. In some points the agreement goes further than expected. However, there are still weak points. The most important is the issue of use of the revenues. If we want get at least a share of the money for development and environment a lot of pressure is still needed.
This appeared in today’s Guardian and on its Comment is Free site yesterday. CiF is notable for the number and vehemence of comments, many of them slightly unhinged. 100 comments in the first two hours is about par for the course, evoking images of lots of angry people in bedsits and offices bashing away at their keyboards. Keeps them off the streets, I suppose.
Robin Hood: a tax whose time has come
Ha-Joon Chang and Duncan Green
The benefits of a tax on financial transactions are now so widely accepted that future generations will ask what took us so long
“In 1816, the British parliament repealed the temporary income tax that William Pitt the Younger had introduced in 1789 to finance the Napoleonic war. The MPs hated the tax so much that they even agreed that all documents connected with it should be collected, cut into pieces and pulped.
When the income tax was reintroduced in Britain in 1842 by Robert Peel, everyone considered it a temporary measure to replenish the depleted exchequer. But despite generations of politicians after Peel promising to abolish it, the tax never went away.
It proved impossible to abandon a tax whose time had come.
By the time Benjamin Disraeli and William Gladstone kept breaking their promises to abolish the income tax (one of the few things they agreed on), the homespun capitalism of the 18th century had already given way to a more organised form of capitalism.
With economic development, the social division of labour was becoming more and more sophisticated, increasing the importance of collective inputs such as infrastructure and education. A more effective provision of collective goods required a well-financed state, for which an income tax was seen as a new vital ingredient.
As they too developed, countries such as the US and Sweden followed suit. Today, the income tax is the biggest source of government revenue in most rich countries.
The same destiny may now await the Financial Transactions Tax (FTT) – or Robin Hood tax, as it is widely known. Although the French government, which chaired meetings of the G20 finance ministers and the IMF/World Bank member states last weekend, supports a global FTT, American opposition means that initial progress is more likely within a smaller “coalition of the willing”, including France, Germany, and South Africa. French and German support may ensure that the eurozone is the first international forum that agrees an FTT.
Even a decade ago, when it was doing the rounds under the alias of “Tobin tax” (named after James Tobin, the Nobel laureate economist who first raised the idea), the levy was an absolute taboo in polite society. But after the great financial crash of 2008, the case for it is looking “obvious” to many, as indeed the income tax did in the late 19th century. Its time, too, has come.
This levy on financial transactions, even at the very low level that is currently proposed (0.05%), is expected to slow down the most speculative elements of international capital flows and raise the significant sums needed to provide the newly required global collective goods – especially green technologies and development aid.
Of course, the FTT alone will not achieve much in terms of stabilising our financial system. It needs to be implemented as a part of a comprehensive package.
First, countries that cannot issue “hard currencies” should be allowed to use capital controls. The significant change of position by the IMF in this regard following the 2008 crisis is encouraging, but capital controls should be seen as normal policy tools – rather than a measure of last resort, as the IMF still suggests.
Second, we have to reform the rating agencies. Despite their incompetence and even cynicism, revealed both in the 1997 Asian crisis and in the 2008 crisis, these agencies are still deciding what is a good financial asset and dictating how governments should conduct their policies – not just fiscal policies but also monetary and social welfare policies. They need to be regulated more heavily, and a non-profit public agency should be set up to provide a credible alternative to their ratings.
Third, if we are serious about the revenue implications of our financial policy, tax havens need to be reined in, if not totally abolished. That single act would generate sums on a par with a global FTT.
Last but not least, overly complex financial instruments should simply be banned, unless they can be shown by their inventors to bring significant net benefits in the long run, in a manner similar to the drugs approval procedure. Otherwise our ability to manage the system will be outstripped and we will repeat the crisis of 2008.
What finally emerges from this new round of post-crisis tax invention may differ somewhat from the FTT, but the general principle – taxing international financial flows for the public good – looks here to stay.
Thirty, 50 years on, our children and grandchildren may be wondering how we ever thought to run the world without such tax – just as few of us can imagine how our grandparents and great-grandparents used to manage without the income tax.”
This blog is written and maintained by Duncan Green, strategic adviser for Oxfam GB and author of 'From Poverty to Power'. More information on Duncan and the book is available on the From Poverty to Power official website.
It is a personal reflection by the author. It is intended to provoke debate and conversations about development, not as a comprehensive statement of Oxfam's agreed policies - for those, please take a deep breath and read the Oxfam International strategic plan or consult policy papers on a range of development issues.
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