During the summer, progress towards securing a Financial Transaction Tax (FTT) in Europe accelerated with the politics and policy finally beginning to match the level of public support. With the G20 in November shaping up to be a crunch moment, here's a quick roundup of global support for a Robin Hood Tax. We face some clear hurdles, but this is undoubtedly the closest we have been to an FTT becoming a reality.
Progress towards FTT accelerates at EU level
The idea of support for an FTT has found its way from Sherwood to the corridors of the European Commission. In a surprise turnaround, the EC, who were formerly looking at a Financial Activities Tax, now support an EU-wide FTT.
Politicians are responding to public pressure. 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 in just the EU. Support for an FTT in the UK is 65 per cent.
A detailed proposal will be released by The Commission in October showing how to design an FTT to avoid migration of transactions moving abroad, and how an EU level FTT would work even if other financial centres do not join in. The Commission cites the fact that the UK already has an FTT on share transactions (Stamp Duty) and that other countries also have large FTTs as evidence they can work. Critics of an FTT often claim that it is not possible on theoretical grounds, yet the South Africans, Koreans, Indians and Chinese among others already have some sort of FTT in place! Even the US has a small FTT in place to fund the Securities Exchange Commission, which raises around $1 billion a year.
This shows we are winning the fight over the feasibility of the FTT. The EC will also release draft legislation in October, showing that we are making unprecedented political headway towards an FTT becoming a reality. There have been calls from some quarters to use this money for the central European Union budget, though fortunately this has received little support from Governments. There is, however, a real risk that proceeds go only towards reducing national deficits. We must now raise our voices to ensure that the revenue raised goes to those hit hardest by the economic crisis both here in Europe and around the world. Without this, it would not be worthy of the name Robin Hood.
France and Germany Take the Lead
In late summer, in the shadow of the on-going euro crisis, Chancellor Merkel and President Sarkozy announced that they will be pressing for a European FTT this Autumn, in advance of the G20 in Cannes on 3-4 November. Their Finance Ministers have sent a detailed letter to the European Commission outlining their proposal. President Sarkozy recently stressed once again that proceeds from an FTT should be used to tackle global poverty and climate change.
Other EU countries vary in their support
Beyond France and Germany, Spain, Austria, Greece, Belgium, Portugal and Norway all support some form of FTT. Opposition remains from Poland, Denmark (though upcoming elections may change this), the UK (more below), and Sweden - who had their hands burnt implementing a very badly designed FTT a few years back. It is worth noting that FTT critics such as the Adam Smith Institute often cite the Swedish example as evidence it will not work - but that is like saying that a bad experience with a two-wheeled car shows that all cars are fundamentally flawed. No one would advocate for a badly designed tax and we must instead look to the many successful examples such as the UK's own Stamp Duty. Speaking of which...
UK remains opposed but Stamp Duty compromise is an option
Whilst the UK government is open to the idea of an FTT, it remains wedded to the argument that it must be global to work. This argument undermines progress that can quite clearly be made at the European level. It anyway does not stand up to scrutiny. The best example of successful unilateral taxes is the UK's own Stamp Duty, arguably the best FTT in the world raising just over £5 billion a year, implemented by the UK Government alone and without significantly impacting on our financial sector.
As France, Germany and others press ahead with an FTT, the UK risks looking isolated, its position bearing little to resemblance reality or that of their counterparts in Europe. It will be open to the charge that it is unable to bring the financial sector to heel and ensure they pay their fair share for the damage they caused.
Since the UK already has a Stamp Duty, one opportunity for compromise could emerge where Europe introduces an FTT on shares similar to the UK's Stamp Duty, perhaps agreeing an extension to also capture derivatives. This could raise around £3billion a year in the UK alone.
The G20 and beyond
Beyond the EU, within the G20, the country most supportive of a transaction tax is still Brazil, who have had various different taxes in place over the years, and whose parliament is very supportive passing a resolution in support.
There is real international interest in using FTT proceeds for climate finance, with Mexico and South Africans both seeing how an FTT provides a workable and stable solution to plugging the huge gap in climate finance.
Unfortunately, the US, Canada and others will oppose a global FTT making global agreement at this stage difficult.
We are working hard to ensure more developing countries are behind the FTT - they have felt the effects of the financial markets when things go wrong, and it is now time that they are also able to enjoy some of the benefits.
Everything to play for in the next two months
The next two months are absolutely critical to securing an FTT and in ensuring the revenues are at least in part used to help finance development and climate change. We have never been closer.
Popular support for this tax remains very high, demonstrated for example by 10,000 nurses marching in the US in support just two weeks ago. We need to see this level of action replicated across Europe, we need to see action that matches public sentiment in polling, and we need to see action that can transform this crisis into an opportunity.