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.
You can even make your own video with Bill and send it to your friends, but (typically) I can’t make it work……
Stop Press: This just in (22 September) from Peter Wahl at WEED
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.
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.