A Robin Hood Tax - a financial transaction tax - is back on the agenda thanks to the EU, and rightly so.
I wrote about this in 2010 in a joint publication called 'Taxing Banks'. In it I set out the data supporting such a tax, estimated how much it would raise and suggested - contrary to the claim of bankers - that the charge would not end up falling on bank customers but on the banks themselves.
Nothing much has changed in the meantime - except the extent of regret at not acting sooner - so I offer the publication again now.
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The BBC are quoting a rate of 0.1%, which seems a little large compared to previous discussions.
I can’t find in your report your thoughts on how it won’t be passed on to the customer, but I can assure you that for most trades it will be. If I currently take 0.5% on a trade, I will now just take 0.6% as will every other market participant. So the end user ends up paying, not the banks.
Look at the discussion on incidence
This will fall back into the banks by saving costs – the bankers will bear the cost, largely by massive falls in salary. That was my argument
But it’s a possibility ignored by those in banks who think we’re all price takers and you have monopoly power to set them
That’s wrong
I’m not convinced that the incidence will fall as you believe, but there is only one way for that to be proved.
Let’s do it – I’ll agree to that
What does this mean “…the charge would not end up falling on bank customers but on the banks themselves”?
Banks are only legal corporate constructs. They don’t pay taxes, one or more of of their stakeholders do(es): customers, shareholders, suppliers, workers….
So who would pay this tax?
This argument works on a blackboard and is utter fiction
PLCs are not agents for their owners
They clearly have existence all of their own
And can and do bear costs
In this case though the incidence would fall on bankers – and their pay. That’s my argument
Having read pages 42 – 44 of the report, you have not provided any evidence, based on either theory or past experience, that bankers would bear the cost of the tax.
In fact, it would be easy to argue the opposite: many countries have some form of stamp duty for shares, yet this has not led to a significant compression of compensation for equity bankers.
If you have a more detialed anaysis in support of your position, please provide it.
I have not presented evidence as data as such does not exist
I have presented a thesis
And I think it’s a viable one
You may disagree
But you can’t prove it wrong
Ok, but will you not agree that there is no historical precedent of a slective (or national) securities transaction tax leading to lower compensation for the workers specialising in the targeted securities?
In the absence of such evidence, your porsition seems to be based largely on faith.
We have almost no such taxes
So sure I agree
But that does not make me wrong
Oh – and that faith thing – at least mine is grounded. Neoliberalism requires leaps of faith that make the virgin birth look positively tame – and yes, for the record, I’m a Christian
But we do have one such financial transaction tax – stamp duty. It is a cost on share transactions and most of those that I know who work in finance say that it is a cost that is taken into account in share transactions and has resulted in the evolution and take up of other financial transactions that do not attract the tax. The burden of the duty falls on investors – not the banks or other institutions that facilitate the investments. And I rather doubt it has had any impact on the remuneration of stockbrokers.
The EU guesses that their proposed FTT will have a significant impact on growth. Do you agree with them? To what extent? If you do; how do you propose to ameliorate that impact when all agree that growth will be part of the solution to the current risks affecting, predominantly, the US and EU?
But the problem with it is that it does not apply to derivatives etc and the new tax will so that obstacle is overcome
And it is also expensive – despite which it works
Sure it may have been passed on
That will be harder with a universal tax on speculation I suggest – something quite different – and to which stamp duty did not apply
Richard, one problem is that the proposed FFT will really struggle to capture derivatives unless it is applied globally. That applies to both listed and OTC derivatives.
For instance, you can very easily trade interest rate futures (incl. on European governent bonds) in chicago or Singapore, neither of which will be subjet to an EU-wide tax.
Also, it would be easy to book all your OTC transactions through a US based conterparty, and to make all settlemnt payments in Dollars.
Isn’t the truth here that unless the US, which by far the deepest and most sophisticated capital markets, agreee to participate, this project appears impossible to implement.
BBC News last night extraordinarily and blatantly biased about this, not even a pretence of balance.
An EU tax on UK government owned banks to pay for the spending excesses of the Greeks, Italians and Spaniards?
What did the UK tax payers do to deserve this?
We get a big slug of the proceeds
And if the banks in these places stand up we win massively
Selfishness does not pay
That still doesn’t make sense. We get back a lot less than we pay in taxes. Objecting to that is not selfishness, but simply a rejection of the idea that we should blindly pay over billions to a bureaucrat in Brussels (on a non-returnable basis) simply because other countries’ governments have overspent.
And this would apply to HFT too? Apologies if this is a dumb question but I’ve never seen it asked anywhere yet.
BB
Oh yes
Under your argument that the cost will not be passed on to customers but borne by the bankers pay, then how will it have any affect on stopping HFT by hedge funds?
Personally I think the entire cost will be passed on to customers and the only impact on salaries may be from lower volumes. If this means that HFT is no longer viable, then that is a good thing. If it encouraged a more buy and hold menatlity to share and bond investment, then that too would be a good thing. But what might be an issue would be the impact of the cost of hedging all the way through the bill of materials of a product, that might well add to its cost, especially for products with inpuits from multiple countries and currencies.
Since I counter all these points in the report let me just say I disagree with you on incidence here
There’s an important point here that isn’t getting much coverage. The FTT will replace and abolish stamp duty. At the moment, a hedge fund in the Caymans selling UK equities to another hedge fund in the Caymans pays stamp duty. But such a transaction will fall outside the FTT. So high frequency trading will actually get easier, provided it’s conducted outside the EU (where most hedge funds are anyway).
And, even within the UK, the reduction in rate from 0.5% to 0.1% is going to increase speculation and reduce costs for private equity funds.
This is a surprising result, but fairly fundamental to the way the FTT has been designed – so not easy to change. Makes one wonder about the competence of the people who came up with the proposal.
Around how much would this “Tobin Tax” actually raise? £20 billion was bandied about for some time, though this seems to have been dropped to £12-£15 billion.
What would be the likely average sum raised?
My estimate is more cautious – but then I positively want it to stop trades and do not see it just as a source of revenue
This proposal has been around for a long time Richard, even in Australia. I’m certainly all in favour of it, although I see it as another source of revenue, which perhaps can replace other taxes and really simplify our system. However the fact that most of our politicians (Aust) turned a deaf ear and that the banks don’t want it makes it seem doubtful to me that it will ever get off the ground. Our politicians take their orders from the banks – just look at what happened in the GFC.
Anthony