Europe, G20 and financial transactions taxes

Thanks mostly to the superb campaigning by international development, poverty and environmental activists, there’s been remarkable progress in getting Europe to introduce financial transactions taxes, aka the Robin Hood Tax.    Last month, the European Commission presented a proposal for a broad-based financial transactions tax in all 27 members states of the European Union.

At a rate of 0.1 percent tax on transactions of stocks and bonds and 0.01 percent on derivatives, they estimate it could raise 57 billion Euros (~$80 billion C$) a year.   In the press release, it is noted that the financial sector enjoys a major tax advantage because of exemption from value added taxes, a point highlighted in the Fair Shares report published last April by the CCPA about how banks and the financial sector can pay fairer taxes in Canada.

There are concerns with their proposal from proponents: some in terms of the initial proposed design and also for not dedicating funds to international development and climate change, but this endorsement from the largest economy in the world is still a major step forward.

At the same time, transactions taxes would be much more effective if they were agreed upon at a global level, which is why the European Commission and Germany announced ten days ago they would join France in trying to achieve agreement at next months’ G20 meeting in Cannes.    As soon as this was announced, Canada’s finance minister Flaherty told a Wall St audience he would once again marshall opposition to stonewall it.

It’s hypocritical of Flaherty and his ideological allies to oppose financial transactions taxes at the same time that they lecture European countries to reduce their deficits — unless of course they want this deficit reduction to come only through spending cuts and certainly not through taxes on business or finance.   It’s absolutely wrong of Flaherty to say a transactions tax makes no sense in economic terms and that a 0.1% and 0.01% tax on financial transactions would counteract financial stability reforms.

From Keynes on, many economists have advocated financial transactions taxes precisely because they would increase economic stability, including Nobel prize winners James Tobin, Joseph Stiglitz, Paul Krugman and over a thousand other economists who signed onto a letter last spring. 

In advance of the G20 Finance Ministers in Paris and spreading of the Occupy wall Street protests into Canada this weekend, the Toronto Star published an opinion piece I wrote criticizing Flaherty about this in their paper yesterday “Don’t just occupy Wall Street, tax it”.




  • Letter to Editor

    Re: Don’t just occupy Wall Street, tax it, Oct 12 2011, Toby Sanger–don-t-just-occupy-wall-street-tax-it

    Could it be any clearer? Canadian Finance Minister Jim Flaherty will challenge his G20 colleagues not to to lead in the fight against poverty, not to take action against climate change, but to protect the banks from a measly .1% transaction tax that could raise funds to restore government budgets, and dampen speculative activity.

    Canada definitely has a Conservative administration that demonstrates compassion. Unfortunately for most Canadians, the government’s deep concern is reserved for hedge funds, and not ordinary people.

  • “It’s hypocritical of Flaherty and his ideological allies to oppose financial transactions taxes at the same time that they lecture European countries to reduce their deficits”

    No its sound economic sense, the commissions own report states a massive reduction in GDP, the loss of hundreds of thousands of jobs and the fact that such a tax costs more in economic loss than it generates in revenue.

    James Tobin later on came out against the tax but from the absolute beginning he stated this tax was not about producing revenue and would not produce substantial a revenue – The country’s who reject it do so on sound economic grounds only after they have given the issue serious study.

    Its constantly stated the UK has a financial transaction tax already and this is given as evidence that such a tax is viable.

    I ask you to stop and think if that’s the case then why do the UK refuse a viable tax they already have???

    Why? Because they are not the same.

  • Larry: great letter.

    what: thanks for your comments.

    My point about Flaherty was that it is hypocritical of him to call for European countries to reduce their deficits while simultaneously undermining proposals they have that would do just that — and that is still the case.

    In terms of the estimated economic impact, the European Commission did analysis using a DSGE (dynamic stochastic general equilibrium) model. These are economic models that assume all markets clear, there is no unemployment and involve a host of other highly unrealistic assumptions. Their results favour supply side policies to increase capital and investment. Meanwhile in the real world, there is double digit unemployment in many countries, corporations have trillions of dollars of excess cash that they aren’t investing. Few sensible economists take the results of these models seriously.

    The report itself says “these (GDP) results should be interpreted with caution given certain limitations of the underlying models….” mentions it very likely overestimates the negative impacts, etc etc.: they don’t take these results seriously themselves.

    Even with that, the summary report states “In the modelled scenarios, securities transaction taxes at rates of 0.01% and 0.1% would have limited negative impacts on employment of respectively -0.03% and -0.20%.”

    I don’t think these conservative politicians would be advocating for the tax if they really believed these results.

    And yes, of course, from an economic perspective, the main objective isn’t to generate revenue from an FTT, just as this isn’t the main objective with tobacco, alcohol or other Pigovian “sin” taxes — but that doesn’t mean that they can’t generate substantial sums while dissuading certain activities.

    Finally, many countries including the UK, Switzerland and China, all have some form of financial transactions taxes. There are some differences between the UK Stamp Reserve Duty and the EC’s proposed tax. The UK’s tax has worked quite well, but it should also be broadened: the ECs one should adopt some of the provisions in the UK tax so ther eis less leakage. I expect that one reasons the current government doesn’t want to do so is because it is Conservative and more closely allied with the financial industry in the City.

  • In the Der Spiegel article in which Tobin claimed that the anti-globalization movement was abusing his name, he doesn’t seem to “[come] out against the tax.” He seems to reiterate its purpose and value while reaffirming his support for the IMF, free trade, and the economics profession generally. He does come out against the anti-globalization movement and its understanding of the tax. When asked whether the tax was likely ever to be implemented, he says “Keine chance, fürchte ich. (No chance at all, I’m afraid.)” This was the year before he died, so he could have changed his mind later, I guess.

  • Newsflash: Flaherty is a conservative lapdog, the current canadian conservative ideology is about the destruction of the state – to leave the state in a mess so as to force cuts to healthcare and social programs. Do you really think the prisons and jets were because harper is stupid? He is purposely doing this on purpose to get back at those nasty statists.

  • Really, who cares whether James later believed this or that about an FTT. The levy stands on its own merits. It will have some combination of the following two impcts: (i)raise a significant amount of money for public, social uses much superior to those to which high paid financial sector execs are currently supporting and/or (ii) reduce the level of trading activity to something closer to what approximates real economic activity. Either/both of these outcomes are postive.

    If fewer of our bright young people go into finance and more go into engineering, medicine or (horrors) teaching, would we be better or worse off?

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