Transaction Taxes » Tax Research UK

Europe backs a Robin Hood Tax

Banking, Economics, Transaction Taxes 17 Responses »

Mar 092011

As the Guardian reports, the European Parliament yesterday backed the introduction of a €200bn (£172bn) a year financial transactions tax on banks to discourage speculative trading.

As they also note:

Campaigners for the tax – who describe it as a “tiny tax that could make a big difference” – urged the UK chancellor to endorse the vote, which was passed by 529 to 127 in a vote in the European parliament. The vote, however, is non-binding.

David Hillman, a spokesman for the Robin Hood Tax campaign, said: “The pieces are now falling into place for a Europe-wide bank tax.

“The German and French governments are both pushing this; Austria and Spain are in support and today the European parliament threw its weight behind a tiny tax on financial transactions that could help us fulfil our commitments to tackling poverty and climate change, and help prevent such huge cuts in public spending.

“It’s time the UK stopped dragging its heels and joined the rest of Europe in ensuring the financial sector pays its fair share,” he said.

I agree.

And I welcome the change in the environment on these issues that is very rapidly developing in Europe. The European Union is backing country-by-country reporting three years after the EU parliament did. I think the same trend is developing on the Robin Hood Tax.

The fact is people want transaprency.

They want accountability.

And that incudes wanting those who caused our financial crisis to both be prevented from doing so again, and to pay for the harm they have caused.

And rightly so.

And let’s stop all that nonsense about incidence: before it is argued that the cost of this tax will fall on ordinary people think where the cost of the speculation and abuse, and bank bonuses, and excessive charges has fallen: all on ordinary people. The tax stops those excessive costs. That mean ordinary people gain from a reduction in the costs this new charge will put an end to. As a result they’re bound to gain from it.

It may not raise as much as noted as a result: I don’t care if that’s the case. I do want a stable economy – and banks seek to undermine that. Yes – you read that right – banks seek to undermine that because they know the upside gain is theirs and the downside risk is societies. That’s why this tax makes sense. As most MEPs noted yesterday.

The bank levy: surely this is targeting the wrong thing?

Banking, Transaction Taxes 21 Responses »

Oct 212010

The government has published legislation for the new thank you levy.

They say it will raise £2.5 billion a year – curiously, a figure lower than that raised by the bank bonus tax that Labour charged, although George Osborne said to the contrary in the House of Commons yesterday.

But of all,this is a pathetically small sum to levy upon the banks when they have £19 billion of tax losses to offset against their future tax bills, as I’ve shown.

Secondly, I am worried that this is an inappropriate tax. I know it is only targeted on certain parts of the balance sheet, but surely the risk is not within the balance sheet, it is within the trades that take place during the course of the year. Tackling the balance sheet will simply reduce a bank’s capacity to pay, how ever we look at it. Charging a tax on inappropriate trades discourages the specific trades. That has to be the right course of action. In that case we clearly need a financial transaction tax – or a Tobin tax or Robin Hood tax, whichever name you wish to apply to it.

As usual,this government has got things wrong.

PIGS, brought down irrationally

Banking, Economics, Transaction Taxes Comments Off

Oct 112010

As the FT notes:

Investors in eurozone bond markets stand accused of letting “animal spirits” affect their judgment on the risk of a European debt default, creating a situation where financial markets could force weaker countries into excessive budget cutting, the FT reports. A senior official at the Organisation for Economic Co-operation and Development criticised the behaviour of some investors that has led to sharp swings in the yields on government bonds issued by Greece, Ireland, Portugal and Spain. Hans Blommestein, head of bond markets and public debt management at the OECD, told the Financial Times: “The psychology of the markets is very negative and not necessarily based on facts, but rather on animal instincts and spirits that trigger far greater selling in bond markets than is often justified by the data.”

So much for Osborne’s claim that we must avoid becoming like Greece. He shows himself to be no better than a market trader.

But also not the implicit support this gives for the case for a Robin Hood Tax that would calm these irrational and unnecessary trades.

IMF agrees Robin Hood Tax works

Banking, Transaction Taxes 1 Response »

Oct 112010

As Owen Tudor has noted on the TUC blog:

Yesterday the IMF finally released its study on the financial transactions tax. The paper, a draft of which was leaked a month ago, admits that an FTT is possible, lists the 16 G20 countries who already have one in a limited form, and admits that the more transactions it covers the more effective it will be.

This grudging conversion – much more positive than just a few months ago (and of course a year ago it was dismissed out of hand by the IMF Director-General) – is marred by the IMF’s continued use of studies from 20 years ago – when the financial markets were totally different – which question the impact of FTTs on volatility. The only objection still standing in the way of a G20 decision to implement an FTT is lack of political will.

The IMF policy paper is one of the background papers included in a 200-page report on “Financial Sector Taxation” (pdf, pages 144-187). It acknowledges the feasibility of the FTT and its capacity to raise large amounts of revenue although the Fund favours taxation of financial activities which would raise far less.

So there’s just one thing missing: political will.

Note that: the lack of will to tackle bankers.

I was a banker and I want a financial transaction tax

Transaction Taxes Comments Off

Sep 242010

That’s not me. That US Congressman Pete Stark writing in the FT saying:

Before I came to the US Congress, I was a banker – a bank I started grew into a billion-dollar business. I know the power and importance of banks to local, national and global economies. Yet I also know that transformations in the financial sector have moved too much of the activity out of socially productive investments and into speculative, short-term bets on markets.

The idea of a financial speculation tax is getting consideration in many corners of the world, and not a moment too soon. When the UN Summit kicks off next week, an international financial speculation tax to fund the Millennium Development Goals should be at the top of the agenda. Tapping into some of the enormous wealth that international currency traders create for themselves to pay for pressing international needs is the right thing to do.

Let’s do it.

The IMF moves towards a Robin Hood Tax

Banking, Transaction Taxes 11 Responses »

Sep 052010

As the Observer notes today:

European Union finance ministers will step up talks on raising extra money from banks this week amid signs that the International Monetary Fund is softening its opposition to a "Robin Hood tax" on financial transactions.

Treasury sources said the chancellor, George Osborne, was prepared to back a financial activities tax on bank profits and pay at the Brussels meeting provided it was universally introduced, but was wary of a broader Robin Hood tax. Campaigners said last night, however, that a leaked IMF report showed growing international backing for a broader tax and urged Osborne to look at the revenue-raising potential of a levy of transactions.

An IMF paper, Taxing Financial Transactions: Issues and Evidence, said securities transactions taxes (STT) existed in many countries with little evidence that they distorted markets. It argued that a small levy on transactions might help to dampen the "herding behaviour" encouraged by computer-program trading. "Unilateral STTs, even if levied on fairly narrow bases, are certainly feasible as witnessed by their use in numerous developed countries. The fact that major financial centers such as the UK, Switzerland, Hong Kong, Singapore, and South Africa levy forms of STTs indicates that such taxes do not automatically drive out financial activity to an unacceptable extent," it said.

The paper added: "The impact on financial markets from a low-rate (less than 5 basis points), broad-based STT would likely be fairly modest, beyond its reduction of very short-term trading."

All of which says three things:

1) Those who have argued on this site and elsewhere that those of us who have argued for these taxes don’t know what we’re talking about are wrong – we clearly do – enough to convince he IMF and others;

2) Those who says these taxes won’t work are wrong.

3) Those who say these taxes will have serious impact outside banking are wrong.

I refer to my arguments in Taxing Banks on incidence. I suspect the IMF is now beginning to buy them – not least because it is becoming increasingly obvious that those who argued against such claims did so because a) the incidence of the change would actually fall ion them and b) their self interest was the sole basis of their argument.

Did the world fall apart?

Transaction Taxes 2 Responses »

Aug 162010

Do you remember all the doom and gloom merchants form the City (and more especially, the political right) who predicted that if the volume of trading in he City was reduced by a financial transaction tax then the world as we know it would fall apart? All that was being said at about the turn of the year.

Now I note this in today’s FT and I quote at length in the public interest:

A slump in UK share trading, where volumes are on track to reach an eight-year low, is set to hit government coffers by more than £1bn ($1.6bn) this year.

According to a study to be published on Monday by Equiniti, the share registrars, trading volumes in 2010 have fallen two-fifths from their pre-crisis peak as market turmoil scared off investors.

The drop will reduce the government’s tax take from the City. It should collect this year about £3bn in the stamp duty reserve tax paid on each share transaction, down from the record £4.2bn it received before the crisis.

The trading slump is also likely to affect trading profits at some of the City’s biggest banks.

Equiniti estimated that this year, adjusting for changes in market valuations, shares worth just 1.46 times the value of the UK market will change hands. That compares with trading worth twice the market value in 2007, or 2.5 times the value of the entire UK economy.

So volume and value have fallen, dramatically.

And has liquidity collapsed as some predicted? No, it hasn’t.

Has the supply of capital to UK large business failed? No, it hasn’t.

Has the world stopped revolving as it seemed some would suggest. No, definitely not.

Because the truth is that this volume of share dealing is simply not needed to create effective markets.

The truth is that effective markets might actually benefit from considerably less dealing. Keynes suggested two trading windows of ten minutes a day might be sufficient. There’s a lot of sense in that. Calm reflection is what is needed for effective markets. We don’t have time for that. A little less liquidity would help no end. And a financial transaction tax might just help create it.

Answering the man from the BBA

Transaction Taxes 4 Responses »

Aug 022010

My blog, posted whilst I was away, about a man from the British Bankers’ Association politely defacing a Robin Hood Tax poster in one of my friend’s holiday establishment has resulted in some comment, not least that I respond to the points he raises. So I will.

The comments were as follows:

The answers are (working anti-clockwise from top left):

1. Yes – users will end up paying, but as I argue in Taxing Banks (page 3) the impact will be tiny because:

a significant part of the incidence of any financial transaction tax will fall on those persons working for banks and other financial institutions working on the trades and investments subject to the new charges, and ‚Ä¶ this is where any part of the incidence, apart from that falling on bank profitability, is considered likely to arise. This is because the anticipated fall in volumes traded inherent in the calculation of potential revenues due will inevitably result in a fall in the number employed in these activities. This is unavoidable and likely to be consistent with the falls in volumes traded. In addition, those engaged in these particular activities are those most subject to criticism for the excess rewards paid to some bankers. The capacity for the recovery of the financial transaction tax charges arising from out of current remuneration considered excessive by policy makers and governments worldwide is sufficient to ensure that the combination of falls in the numbers employed and the pay of the remaining engaged in activities some have described as ‚Äòsocially useless’ will mean that the incidence of these financial transaction taxes will fall almost entirely on a relatively small group of bank employees in a fashion consistent with government economic, social and regulatory policy. This is the perverse paradox of the incidence of financial transaction taxes: the incidence is wholly policy reinforcing and consistent with government policy, popular sentiment and economic logic.

No wonder the man from the BBA is worried.

2. True. It is meant to be a stamp duty, but one which is paid by banks so impacting their profit.

3. No, not at all. The tax can be enforced wherever the bank is located because it is on currencies – and they all eventually pass through central banks. and, as the man from the BBA also well knows – there is no profit to be made elsewhere – trading requires clusters of activity – and that means London, New York, (maybe) Frankfurt and Tokyo. The rest are ‚Äòalso rans’. Time zones mean these are and will always be the only real places to trade. there is nowhere else to go.

4. Governments. It is called the democratic process, governed by the ballot box. Odd that you might need to be reminded hat this is how such decisions are made.

In other words – the objections are just holiday bluster. He’d have been better off out in the sun, on the beach, or having another cream tea.