FT agrees with Robin Hood: global bank levy “looks pathetically inadequate”
The Financial Times (FT) reports this morning (Monday) that Gordon Brown says support for a global bank levy is growing, with the British, French and German governments signed up, and the US already on course for its own version. It’s good that governments seem committed to “making the banks pay for the crisis” as one IMF official put it.
But as the FT’s John Plender says, a global bank levy won’t raise anywhere near enough to pay for the full costs of the crisis. As Pierre Habbard of the Trade Union Advisory Committee to the OECD has calculated, Governments need at least $624 billion a year to fund public sector deficits, action on climate change and achieve the Millennium Development Goals (MDGs). That’s precisely why we need the Robin Hood Tax: unlike a global bank levy, that would get us much further towards paying for those costs of the crisis which have been borne by ordinary taxpayers (or could still be borne in public sector cuts).
A bank levy on its own is not a bad idea. In the US, President Obama is planning to use it to pay off the costs of bailing out the banks – about $10 billion a year for the next decade. It will certainly manage that, so it’s worth doing. In Europe, bank bailouts were achieved through other means (the UK, for example, took shares in the banks – assuming they recover, as the Chancellor has pointed out, those shares could eventually be sold at a profit.)
But a bank levy would probably raise no more than about $30 billion a year globally. And as Pierre Habbard’s paper “The Parameters of a Financial Transaction Tax and the OECD global public good resource gap 2010-2010” points out, OECD governments need far more than that. His definition of the “resource gap” is based on the size of government deficits, plus the costs of paying for a climate change deal as set out in Copenhagen, and meeting the MDGs by 2015. He calculates the annual resource gap as being about $300-$370 billion a year to pay for deficits, $156 billion for climate change, and $168-$180 billion for the MDGs. That comes to $624-$706 billion a year – at least 20 times the sums likely to be raised from a global bank levy.
Some of that gap will be bridged by returning economic growth, which will raise tax revenues significantly. But not enough to bridge the gap, even with a global bank levy. That’s why a financial transactions tax (what campaigners now call the Robin Hood Tax) is needed, providing up to $400 billion a year. John Plender’s column in the companies section of the FT refers to a speech by Andrew Haldane of the Bank of England (Executive Director, Financial Stability) last week in Hong Kong. He identified the loss of output caused by the crisis as between $60 and $200 trillion, and John Plender says that set against that figure (or Pierre Habbard’s public sector gap), the product of a global bank levy “looks pathetically inadequate”.
I should also say that John Plender also says that making the banks pay for the loss of output would “risk putting banks on the same trajectory as the dinosaurs”. The Robin Hood Tax would not pay for the loss of output caused by the crisis, only the vast bulk of the public sector resource gap, and it would be a tax not just on the banks, but on all institutions which trade in financial instruments (hedge funds are likely to bear a significant brunt, for instance – and new figures show they can pay – the top 25 hedge fund managers last year earned an average of $1 billion each, but paid on average just 15% in tax.)