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The case for and against a financial transaction tax

Brief report from a meeting in Brussels, June 14, organized by IDS, CIDSE, Oxfam and Concord.

 

This was a kind of high-level meeting, with lots of important people, even from the financial sector and from the European Commission. And this clearly is evidence of the importance the topic of global taxes is taking. As Jean Saldanha from CIDSE said in her introduction, if you mentioned a Financial Transaction Tax five years ago, you were simply laughed at, but today, it is not a joke anymore.

 

 

The first speaker was Anni Podimata, MEP, who talked about the report she wrote for the European Parliament and which was adopted three months ago. The EP clearly plays a very important role in the promotion of an FTT, with a last reference to it in a report of last week on the multiannual financial framework. Ms Podimata stated that the new momentum comes from the consequences of the financial crisis which are now shifting the burden to normal taxpayers, whereas the financial sector should take its responsibility. An FTT can help to make financial institutions take a fair share of their responsibility, not out of revenge, but because of social justice.

The second speaker was Philip Kermode, Director of Direct Taxation at the European Commission. He was less positive and stated there was yet nothing to say on the impact assessment the Commission is writing. Out of the public consultation the Commission organized NGOs and trade unions clearly came out in favor of an FTT, whereas the financial sector is very skeptical. According to Mr Kermode, most arguments in favor of an FTT disappear as soon as you have a good regulatory environment. So it looks as if the Commission is going to opt for an FAT or Financial Activity Tax.

Neil McCulloch from IDS presented the report which was just published an which gives a systematic review of financial transaction taxes. It looks at the volatility of financial markets, at the feasibility of a tax, at what point the tax should be levied, what instruments will have to be taxed and how to avoid migration to untaxed locations. His results are rather positive in favor of an FTT and he concluded that revenues can be really substantial. He also clearly stated that an FTT has to be seen as a progressive tax on capital.

Ian Harrison from the Association for Financial Markets in Europe was more skeptical on the feasibility of an FTT. Banks do want to pay taxes, he repeatedly said, but only taxes that are predictable and fair and equal for all. Banks accept ‘taxes that work’, though he never explained what this could mean. But, yes, he concluded, ‘it is a good idea’. 

Nothing really new came out of this meeting, but that it was held with people from the financial sector, the European Commission, the European Parliament, embassies, trade unions, academia and the development world makes clear that the time has come to really push for a financial transaction tax. It is not laughed at anymore, but taken very seriously.

 

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