Thinking Uncategorized

Who’s afraid of the financial transactions tax? Why trialling the tax won’t lead to the end of the world

Following the G20 summit, there have been lots of ‘where next‘ briefs on the financial transactions tax. Sarkozy had talked it up before Cannes, but failed to deliver any movement towards it at the global level. It’s in the press again following the last EU Summit – the one where Cameron upset everybody – as the UK is standing in the way of the tax. The House of Lords is already complaining about it, despite being only days into their inquiry about it.

I’ve spent some time reading pretty much everything I can find on the FTT – economic and political stuff, and the EC’s proposal, and it seems to me like it can’t be dismissed as easily as Osborne, Boris Johnson, The Economist, the FT and surprise, surprise, the banking lobby suggest.

My favourite paper is this essay from James Matheson at the IMF. He essentially reviews all the economic modelling arguments about what happens when you introduce a tax – does liquidity dry up and destory the markets? do the transactions all move elsewhere, thus meaning you raise no money anyway? are the costs of the transactions all just passed on to pensioners anyway (my favourite argument by the banks – great work guys)? – to find that there is no conclusive answer.

The UK’s version of the Robin Hood Tax website is extremely good on this stuff too, making the ecconomics readable and in some places pretty entertaining:

“Talk to a banker or hedge fund master of the universe about financial sector taxes and they’ll apparently have to call you back from their Blackberry en-route to the airport, the rest of the company in tow, quite prepared to never set foot in the country again to avoid your unnecessary meddling…”

The UK already has a transaction tax on shares: stamp duty. It raises several billion pounds a year. It doesn’t seem like it adversely affects market behaviour, or penalises any particular sector of society. In Hong Kong and Taiwan the income from these taxes represents between 1 and 2% of their GDP. We don’t hear them complaining terribly.

So if it’s not going to be the end of the world, let’s trial it (as HMT did with the bankers bonus tax) and see what happens. I don’t know if this is possible. It doesn’t seem crazy.

At some point I’ll post up my full essay, about how the FTT represents a good example of regulatory capture by private interests. Mmm..private interest.

Flickr credit: Torcello Trio


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