The publication on Valentine’s Day of the European Commission’s proposals for a financial transactions tax (FTT) across 11 EU economies representing two thirds of European GDP was a massive victory for the Robin Hood Tax campaign, and a historic step forward in the development of multilateral taxation. So it’s not surprising that people who see it as their task to defend the indefensible (in this case, the bloated finance sector) are scrambling to attack the proposal. This week we’ve seen the Economist and the Association of Chartered Certified Accountants (ACCA) rise to the challenge, the latter in City AM, the mouthpiece of City financiers (so committed to open debate on the issue that they failed to print the Robin Hood Tax campaign’s response.)
And they’re throwing the kitchen sink at the FTT. The Economist even ran with the ‘Swedish example’ – an FTT from the 1980s so poorly designed that even the IMF has made clear it can’t be used as an argument against FTTs in general. Indeed, the main fault of the Swedish FTT was that it was so easily avoidable simply by moving trading activity to another exchnage (Copenhagen and London were the main beneficiaries, I recall.) The European FTT has some in-built defences against such avoidance (called the ‘residence’ and ‘issuance’ principles in the jargon), but far from placate the critics of the Economist and the ACCA, these merely stoke up more anger, because they represent an ‘unacceptable’ infringement of capital’s right to go wherever it wants around the world to avoid tax. Er… that’s the point! It often seems that globalisation’s fine by the opponents of an FTT as long as it means that big business and the elite can move their money around to wherever taxes are lowest, but it’s not on when the people get hold of it and use it against them.
EU Tax Commissioner Algirdas Semeta has written an excellent rebuttal of many of the attacks being launched in the Guardian (I never thought I’d write those words about Commissioner Semeta, but he’s in the perfect position of being a convert to the FTT cause, so he can’t be accused of not having considered the possible problems!) But here are some further reflections…
Chas Roy-Chowdhury’s attack on behalf of the ACCA in City AM was ever so slightly tendentious. For example, he said that ACCA believed that “in order to be successful, a FTT should only be implemented if adopted globally.” But strangely he failed to mention the organisation’s lobbying to get the UK and US governments to sign up, so that it was global. In reality, this line that ‘it must be global to work’ is just a smokescreen for opposing the idea out of hand, without admitting it. And his subsequent opposition to the ‘issuance principle’ is doubly strange because it’s precisely what makes a global deal unnecessary, by making avoidance so difficult. The ‘issuance principle’ underpins the Stamp Duty on transactions involving UK-listed shares which successfully delivers about £3bn to HM Treasury every year and taxes such transactions wherever they happen in the world, and whoever the buyer and seller. It’s the ultimate in globalised taxation, and I assume the ACCA isn’t against globalisation.
He also claimed that the tax would harm the financial sector while, simultaneously, arguing that it would have no effect at all, because his chums in the City would simply pass all the costs on to ordinary consumers. Again, I think he protests too much: an FTT would only do damage to the overblown wages and sky-high bonuses of City financiers and the high net worth individuals who are the main funders of high frequency trading – that’s why it’s called a Robin Hood Tax: take from the rich and give to the poor. Finally, Roy-Chowdhury suggested that an FTT would be complex to administer, when it would actually be one of the simplest taxes to collect (not least becuse the tax can be tied to the registration of the sale). Don’t take my word for that, it’s what the IMF themselves said when they took a serious look two years ago (full disclosure – the IMF would prefer a Financial Activities Tax on bank balance sheets, but they have agreed FTTs would be easy, unavoidable if well-designed, and progressive.)
The Economist repeated many of these criticisms, but added in that despite the small rate of the tax, it could mount up if instruments are traded more frequently (again, that’s the point – the tax would create an incentive to buy and hold, by penalising the high frequency trading that often amounts to little more than financial gambling and adds nothing to the real economy.) It also made the rather hackneyed points that the tax might increase volatility (this is based on research two decades old when the financial markets were very different, and contradicted by later research) and could reduce liquidity (although all the evidence suggests that the liquidity provided by high frequency traders is usually withdrawn from the market at precisely the point at which liquidity becomes vital!) Such uncertainties are one reason why it’s important to introduce the tax at such a small starting rate, to test the impact: but the experience of the 300-year old Stamp Duty in the UK, and the 16 partial financial transaction taxes that the IMF identified around the G20, suggests that the apocalyptical warnings are ill-founded.
The Economist did, at least, admit that the Robin Hood Tax is hugely popular, which is generally considered in democracies to be an important point in its favour!