What is happening on global bank taxes? Robin Hood reports from the frontline
Earlier this year, I posted a fair amount on the new Robin Hood Tax campaign for a financial transactions tax to fund aid and the fight against climate change (start here and follow the links). In a guest blog, Oxfam’s top RHT obsessive, Max Lawson, updates us on the subsequent behind-the-scenes progress
“In today’s aid-speak, Robin Hood was a pretty outcome-focussed kind of guy. He didn’t much care how he got the cash from the rich, as long as there was plenty to hand over to the poor. So it is with the fate of the tax that bears his name – a bunch of proposals are now in play, all of which could become ‘Robin Hood Taxes’ – compared to where we were even a year ago, the progress is astonishing. The key issues will be how big the eventual tax or taxes will be, and whether any of the revenues will be used to fight poverty and climate change.
So what’s the state of play? First the G20: in the face of another set of bumper bank profit announcements (see graph), in Canada the G20 failed to take action or agree a co-ordinated tax or taxes on the financial sector. The Canadian government actively opposed any tax on banks, and as chair of the summit ensured it was barely discussed.
But don’t despair – agreement on a tax or set of taxes on the financial sector in the coming months still looks likely, partly because the G20 kicked the can down the road by agreeing a set of principles that will enable those countries that wish to do so to press ahead with a tax. The leaders of four of the major G7 economies, the US, UK, France and Germany, have publicly backed a tax or taxes on the financial sector in the last two months. This is critical since the vast majority of financial transactions take place in London, New York and Frankfurt.
The IMF has quietly released its final report on taxing the financial sector, which puts numbers on its proposed (and wonderfully named) financial activities tax, or FAT. Set at 5%, it could raise $93 billion dollars annually. It also reiterates two powerful points from its draft report – that the financial sector is arguably ‘under taxed’ and ‘too big’. The IMF also confirms that government debt in advanced OECD nations will be 40% higher largely as a result of the financial crisis and new Oxfam research shows the poorest nations face a $65 billion dollar shortfall in their budgets due to the crisis.
Three types of tax are proposed and supported by different countries. The US, UK, France and Germany (along with most of the EU) want a levy on bank liabilities. The UK is pressing ahead with a small levy of £2.5 billion a year, and also has said publicly it is in favour of a further tax on profits and bonuses (i.e. a FAT). The German government has said it favours a further tax, and this could either be a FAT tax or a tax on financial transactions (FTT). The French support an FTT, which the Robin Hood Tax campaign still sees as the simplest, easiest and fairest way to raise sufficient cash.
A lot depends on whether or not the Obama administration succeeds in implementing its proposed bank levy before the new congress takes office in January. This will be tough as they are short on both time and political capital. Separate bills proposed by different congressmen for transaction taxes will help increase the pressure though. Whilst not huge ($10 billion a year), or linked to good causes, if implemented the US levy would still free up space for additional taxation in Europe without fear of undue US competitive advantage and an exodus of banks to New York.
Looking to the next few months, the G20 in Korea in November will definitely see further discussion and potential agreement between a ‘coalition of the willing’. The French have also indicated that this will be a central part of their G20 presidency in 2011. Parallel discussions at the EU level will also be important, pushed by the Belgians who hold the EU presidency and have called an emergency finance ministers meeting on September 7th to discuss financial sector taxes.
A potential compromise could be a tax on currency transactions only (rather than all transactions), which is hard to avoid, easy to collect and would not affect competitiveness. A tax on just the euro and pound of just 0.005% (half a basis point) could raise $17 billion annually. If the dollar and yen are included this rises to $40 billion. As the IMF would say, this kind of amount is ‘nontrivial’. This is the preferred option recommended by the Leading Group of experts, representing 12 governments including the UK, France and Japan.
Trapped between big promises and big deficits, the EU nations are also the most likely to push for using this revenue being used in part to pay for aid and climate change, and many have already made this link publicly (though notably not the new UK government as yet). A tax on the financial sector is being investigated by a UN-convened Advisory Group on Climate Finance including George Soros, charged with looking at ways to finance climate change adaptation and mitigation.
What is certain is the political climate will remain propitious, with profits, bonuses and champagne continuing to flow in the unrepentant financial sector (see video) whilst hundreds of thousands of people face cuts, tax rises and job losses to pay the bill for the bankers’ folly.
The Robin Hood Tax campaign in the UK has plenty of oomph with over 200,000 supporters on Facebook and dozens of high profile actions planned for the autumn, together with campaigns in Germany, France, the US and increasing numbers of other countries. The Sheriff of Nottingham should continue to watch his back.”