Max Lawson, Senior Policy Adviser at Oxfam, looks forward to an important year for taxing the financial sector.
With the French now in charge of the G20, all eyes are on President Sarkozy to see whether he will press for a Robin Hood Tax on the financial sector to fund development and tackling climate change. Meanwhile a series new of reports underline the possibility of such a tax and challenge some of the perennial arguments against it, not least who would end up paying.
Financial sector and the richest continue to bounce back whilst poor countries remain in trouble.
As third quarter results start to emerge, the financial sector continues to make significant profits. Bonuses in the US are set to break all records for the second year, at an estimated $144 billion according to the Wall Street Journal. In the UK bonuses in the City will top £7 billion. Recruitment in the City of London and Wall Street is up. Meanwhile the FT reports that the richest people in the world expanded their wealth by 22% in 2009.
Following Oxfam research that found a $65 billion dollar hole in the budgets of the poorest countries, further research by Unicef has made similar findings. Forty four percent of developing countries are expected to contract aggregate government spending in 2010-11.
Second IMF report clears up two key arguments against the FTT, IDS have a change of heart.
An IMF background working paper, which while not supportive (they prefer their idea of a Financial Activities Tax, or FAT tax), nevertheless tackles two of the main arguments against transaction taxes.
- Firstly they question the idea that an FTT would have to be global in order to work: ‘The fact that major financial centers such as the UK, Switzerland, Hong Kong, Singapore and South Africa (already) levy forms of STT indicates that such taxes do not automatically drive out financial activity to an unacceptable extent’.
- The IMF then explores the question of who would end up paying a transaction tax and concludes that an FTT ‘like any tax on capital income, the distribution of this effect would likely be highly progressive: High income individuals possess a disproportionate share of financial assets, and so would suffer from the initial fall in taxed securities prices’.
So there you have it: the tax will be passed on, but largely to the richest individuals and owners of capital (which does in fact include the banks themselves as they often trade with their own money).
Meanwhile the UN convened Advisory Group on Climate finance has also published its report where it identifies a FTT as one viable option for financing the fight against climate change.
Finally IDS has produced a report in support of an FTT to raise money for development. It concludes that a small tax on currency could raise over £7 billion annually in the UK alone. Laudably the author Neil McCulloch at his own admission has moved from initial scepticism to support, after thoroughly reviewing the evidence. Now that is not something you hear much in our business!
What happens next? All eyes on France
Now that Obama has lost the house, any movement on taxing the financial sector in the US looks very unlikely in the short term, although anger towards the banks still runs deep. Canada would also block full G20 agreement too. It is more likely that the EU move ahead with a tax on the financial sector in the first part of 2011 and then other willing countries join at the G8 and G20 summits in June and November. Whilst not as good as a global tax, this would set a major precedent and raise significant sums.
The EC issued a communication that recommended a further tax on the financial sector, and linked it to climate change and development. The key states (France, Germany, UK and Spain) are all supportive of a further tax in the EU in 2011. It is unclear whether this will be an FTT, or the FAT. It is also not clear whether a coalition of the willing will emerge within the EU rather than the EU as a whole given UK intransigence on the FTT, or whether France will push for a compromise which the UK can take part. Big risks remain: there might be no agreement or else a tax that directs nothing to development or climate change.
The campaign continues to grow and get significant coverage in the media.
Almost a quarter of a million people have now signed up to the Facebook site in the UK.
Successfully securing a Robin Hood Tax will need even more active campaigning across the world in the next 12 months to keep the pressure up – but the political door is ajar. This is a campaign waiting to be won. Following the Korea G20 President Sarkozy reiterated that achieving progress on an FTT to help finance development and climate change will be a pr