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January 2011

 

 

 

Summary

 

The French, German and UK governments remain serious about securing some form of further tax on the financial sector in 2011.  The French are linking this clearly to financing development and climate change as the most important development priority for their G8 and G20 presidencies.  President Sarkozy is likely to reiterate this commitment at a press conference on January 24th, at Davos on the 27th, and in a speech to the AU on the 30th.  Although by no means a done deal, this remains the most important opportunity for financing for development in 2011 and the strongest chance we have to reverse declining aid levels.

 

 

 

The preferred option of the French and Germans is some form of tax on transactions (FTT), although both are open to compromise.  The British Government is under huge public pressure regarding banks, with 76% of Conservative voters supporting the use of further taxes to curb bonuses. They are open to a further tax, but on activities (profits and remuneration, or the FAT tax), and are to date  against a tax on transactions.

 

The German finance ministry is giving significant thought to how an FTT would be applied and at what rate, and has included the revenue in next year’s budget.   Both Germany and France are keen to move ahead with a coalition of the willing, which would include a group of European countries and some others, potentially Brazil and South Africa.  Both Germany and France are keen to secure UK involvement, and willing to pursue significant compromises, including possibly a FAT instead of an FTT.  However, both the Germans and French are also open to moving ahead without the UK if necessary. The French are linking the revenue of such a tax to development and climate change, and the Germans have indicated that they are open to using some of the revenue in this way. 

The latest from France

 

In a speech to the nation just before Christmas, President Sarkozy was clear that he supported a tax on transactions, pursued by a coalition of willing nations in 2011, that would raise valuable finance for development and climate change.  In meetings last week with Oxfam, his finance minister, Christine Lagarde, again reiterated the French commitment to such a tax, and outlined a coalition which would have the Germans and the French at its centre. They would love to get the UK involved but are prepared to go ahead without them. They are resigned to the US not moving on this issue in 2011. Mme Lagarde said she was confident a tax of some sort, at a low rate, would be agreed in 2011.

 

In a separate meeting the Sherpas, Levitte (G8) and Musca (G20) confirmed that a tax on the financial sector was a presidential priority.  However, they stressed how isolated they are in these discussions, how achieving agreement will be very difficult and that we should be prepared for an 'educative failure'. Musca highlighted key problems regarding competitiveness and securing support from the UK.  He stressed that the French Government needs some serious supporters as soon as possible, especially from developing countries. Musca was clearly on top of all the options and was actively trying to seek a compromise, including between the FAT and FTT.  This is in contrast to previous meetings where he did not appear to have a detailed plan.

 

The latest from Germany

 

The German Government’s official position is that they are open to an FAT or a FTT, but in recent months their support for the FTT has strengthened and they are seriously looking at how this could work.    The German economy is doing well and the Government has already planned for the revenue from this tax in the budget. However, Chancellor Merkel is facing a series of state level elections in 2011.  The tax department of the ministry of finance is now in charge of the process and is looking at detailed options.  A small FTT at a very low rate of 0.01% rate across a broad range of transactions is their preferred option.  This was reported in the FT Deutschland and reiterated privately.  The FAT tax would be collected at the state level, but the FTT would be collected at the federal level, which may be one reason for their preference.

 

Just before Christmas, the German finance minister, Schauble, said in an interview with the newspaper, Der Spiegel, that the German Government are open to some of the revenues being used for development if the French press for this.   Chancellor Merkel has previously said in closed door meetings with NGOs that she favours using some of the revenue for climate change. She has also said this once publicly before, following the Pittsburgh summit.

The latest from the UK

 

With 2011’s bonus season in full swing, the UK Government is under huge pressure to take stronger action on the banks.  This intense pressure will continue until end of February as all the major banks announce bumper profits and bonuses in the face of job losses and tax rises for ordinary people.  Their preferred option, to secure a deal whereby banks agree to lend more, has yet to bear fruit. A poll on the 13th January found 80% of the public believe that the government should be ‘much tougher in using the tax system to claw back bonuses’, including 76% of Conservative voters.

 

The UK Government has repeatedly said it is willing to look at a further tax on the financial sector.  They are willing to do this even in the absence of any further US movement on this issue in the next few years.  Their preferred option is a FAT tax, with a coalition of willing nations.  They are to date against an FTT. This is despite the UK being home to the 'stamp duty' on shares of 0.5%, the worlds biggest transaction tax. 

 

 The opposition parties support further taxation as well, with many of their members supporting an FTT.  Meanwhile the Robin Hood Tax Campaign has a quarter of a million supporters.

 

The UK Government has not said that they would be willing to use some of this money on development and climate change, but privately some government MPs have said that it would be politically helpful to link their 0.7% commitment to a tax on banks, and agree that additional finance must be found for climate change beyond 0.7.

The latest from the US

 

The US government has effectively dropped plans for its banking levy and in the face of its losses in the mid-term elections, any further moves remain unlikely for the time being. 

 

However, bonuses and Wall St remain immensely unpopular in the US.  Opinion polls show that with U.S. unemployment at 9.8 percent, a resentment of bonuses and banking profits unites Americans across political, gender, age and income groups. Among Republicans, who generally are sceptical of business regulation, 76 percent support a government ban on big bonuses to bailout recipients.  70% of Americans say it is Wall Street’s turn to help bail out the Government Treasury, supporting a tax on Wall Street profits as a way to reduce the $1.3 trillion deficit.

 

“I know that some of the tax I pay when I buy gas for my car, and on my income, was somewhere written into a check to keep these companies from imploding,” says poll respondent Steven Previll, 33, a maintenance worker from Harrisonburg, Virginia. “There’s an amazing amount of money being made on Wall Street. It would be cool if we could take some of that money and reinvest it in the country.”

 

The rest of the World

 

Ireland is implementing a 90% tax on bonuses.  The Spanish, Portuguese, Norwegians and Austrians are supporters of an FTT.  The Danish favour a Financial Activities Tax, and the Hungarians, who currently hold the European presidency, are also supportive of further bank taxation. The Dutch, Swedes and Polish are actively opposed to a further tax.  Outside of Europe, Canada remains opposed. Brazil and South Africa are interested, and Brazil has implemented its own transaction tax, largely to slow down the flood of capital into the country. Japan was supportive, but this has cooled with recent changes in the make-up of the government.  China, Australia and India oppose being told by anyone that they should tax their banks, which are already heavily regulated.  It is unlikely that any developing nation will oppose a tax levied in the rich world on rich world transactions to help raise funds for climate change and development, in contrast to being pushed into adopting taxation themselves.  The Canadians deliberately conflated these two issues in 2010 very successfully and separating these issues again remains a prority for success in 2011.

 

What happens next?

 

A concerted campaign is building globally to press for action on this issue in 2011.  The next ten days, finishing with the AU summit, are critical to ensuring that French plans receive support. Securing a tax is a definite possibility in 2011, with a coalition built around Germany and France being the likely route.  This is by no means a done deal, and will require significant pressure and co-ordinated campaigning in 2011, but remains a serious opportunity worth pushing for.

 

ENDS

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