Transaction Tax: The Times posts a weak leading article
The Times has a hostile (but weak) leader today on what looks certain to be a point of major controversy in 2010 – the calls for a global tax on financial transactions. The article makes a number of points. 1. The Times says the tax won’t work because financial bodies will simply book transactions in other locations; only a global version will be effective. Leaving aside whether this is true or not, The Times might not have noticed that the current moves to introduce a transaction tax are focused on the G20 and currently have the support of the UK, France and Germany. Japan is lukewarm on the idea and the US is not keen. But if enough momentum could be built up to bring the US and Japan on board, then the biggest financial centres will be covered making it very difficult for financial companies to avoid the tax by shifting transactions or operations elsewhere.
2. The Times claims that even if all these financial centres sign up, companies can still make use of tax havens. Again The Times is ignoring the fact that there is a growing international momentum through the G20 and through domestic governments to end tax haven activity. This momentum may not be strong enough currently but the successful operation of a transaction tax makes it all the more imperative to blow open the secrecy of the offshore centres. (It is also good of The Times to officially acknowledge that these centres are used for purposes of avoiding democratically approved taxes).
3. The Times says that traders will simply shift operations into other markets to avoid the tax. But this is why it is important to tax all forms of transactions.
4. The Times says that the tax proposed would be too small to deter “panic trading” but also says that governments would raise the level of the tax and hence destroy the financial system. I admit that I am sceptical about the capacity of such a tax to prevent the growth of bubbles although it may make some of the highly speculative, high volume-low margin trades less attractive which is no bad thing. But I don’t believe that a transaction tax of 0.005% (the rate currently being widely debated in international circles) would cause any damage. We have had a tax on share transactions for many years (at 0.5%) without any damage being done to that market.
I think if the bankers, and their fans in the press, want to fend off what will be a concerted push for this tax next year, they will have to do better than this.