Given who’s opposed to a Robin Hood Tax, is it any wonder we’re in favour?
Opponents of the Robin Hood Tax are busy unplumbing the kitchen sink in order to throw it at the European Union’s proposals for a financial transactions tax (FTT). You only have to look through the hyperbole, cant and hypocrisy to see why its opponents are so opposed to it. The main charges currently being thrown at the FTT (there will be more to come) are that it will hit growth, see financial trading move out of Europe, and even that pensioners will end up paying. There are some who say we should be concentrating instead on raising income tax, closing down tax havens and creating jobs (oddly, they never said that when we called for those things, but now they’re much better options!)
But the people arguing this case are often paid by precisely the financial bigwigs who will end up paying the FTT, so it’s not surprising that – as the FTT becomes ever more likely to be implemented – they are beginning to fling every argument they can get their hands on against the tax. And interestingly, they offer no suggestions for reforming the EU proposals to mitigate the shortcomings they identify in the draft Directive, because they don’t want a tax that would work, they want it scrapped altogether.
Right-wing conservative politicians have never been very happy about the tax (unlike centre-right politicians like Merkel and Sarkozy who have been among its strongest champions), because it restricts the freedom of financiers to invest however and whenever they feel they can make the most money: hands up, an FTT would restrict the freedom of very rich people to enrich themselves by engaging in what Lord Adair Turner, Chair of the Financial Services Authority, called “socially useless” activities. More recently, it has become clear that one of the things these rich financiers spend their money on is … right-wing conservative politicians! Hence David Cameron’s futile attempt to deploy the British Government veto in the service of his paymasters in the City of London.
It is politicians like this who have seized on the flawed European Commission impact assessment, which indicated that the proposed FTT might reduce economic activity in the EU by 0.5% to 1.76% over a twenty-year period, without quantifying the growth benefits that would come from using the extra tax revenues it would raise, or the potential benefits to be had from creating an incentive to invest long-term rather than gamble on the derivatives market. Even the European Commission accepts that its impact assessment is misleading. But to hear the opponents of an FTT complain about the reduction in growth that might, in the worst case analysis (they only ever use the upper figure, of course!), result over the next generation, you would not realise they are the same politicians who have discounted the impact on growth of the VAT increase or the slashing of public sector expenditure, currently doing such a wonderful job (where’s that heavy irony typeface when you need it?) for growth in Greece and Ireland – and the UK for that matter!
When it comes to the argument that an FTT would see financial markets leave the EU, or that it would hit pension funds and their pensioner beneficiaries, the naked self-interest of the FTT deniers becomes rather clearer. Most of the reports arguing this are from institutions run by or financed by the financial industry itself. They are the people who would actually end up paying the FTT, but as with any progressive tax reform, they oppose it because they say it would fall on the deserving instead (and again, they make no attempt to suggest how such a tax could be designed better to hit themselves in the pocket – what a surprise!)
But never fear – the arguments of FTT supporters seem to be bearing fruit with Commission officials, who have listened to our arguments against the way the current proposal is designed, and seem to be working up amendments that would address this problem – for example, making the EU FTT look more like the UK stamp duty, which does not allow evasion by moving to a different country. Adding that sort of provision to their already planned ‘residence principle’ would make it virtually impossible for anyone to evade the tax by moving country – unless they also gave up trading in products like currency, derivatives and shares that are themselves derived from European economic and financial activity, and also trading with anyone based in the EU or working for an organisation based in the EU. And that would be extremely difficult.
Finally, the allegation that pensions and pensioners would suffer is based almost entirely on the twin ideas that pension funds currently engage in substantial amounts of high frequency trading and share portfolio turnover (they do a bit, but not to the extent that FTT deniers claim), and that the middlemen who currently make such a lot of money out of their activities would pass on all the costs of the FTT that they are asked to pay to the pension funds. The argument assumes that pension funds would blithely continue to operate as they do now, even if an FTT came in that made that less remunerative – and of course they wouldn’t. They would switch investment strategies to minimise the FTT they paid, and thus switch from short-term investment to long-term investment, which might be marginally less remunerative in the short-run, but would boost the economy long-term and thus produce bigger returns that would more than make up for the losses incurred. And as for the middlemen, well, I think pension funds might gently suggest that they bear the cost of the FTT out of their own deep pockets rather than insist on raiding pensioners’ pockets, or they might even find that these are people they can do without.
These are the very brief – and therefore not detailed – reasons why European politicians should not listen to the FTT deniers, but should spend time getting the EU FTT proposal right – just as we and the IMF have been arguing for months.