G20 offers opportunity for "Robin Hood Tax"
"Canadians want to do our fair share. Why shouldn't banks and brokerages pay too?" say advocates.
Speaking notes by Marc Fried of Oxfam - Canada and Toby Sanger of the Canadian Union of Public Employees for a news conference on April 20, 2010 in Ottawa on the Financial Transactions Tax
Mark Fried: Oxfam is an international development agency. We don't usually get involved in tax policy. But we regularly call on the federal government to spend additional money on development assistance, humanitarian response and climate change adaptation.
Now the economic recession and accompanying fiscal deficit have limited the government's capacity. This obliges us to look head-on at innovative ways the government could raise money for fighting poverty and climate change without worsening the deficit.
The most promising is a new global tax on transactions between large financial institutions, what we call the Robin Hood Tax.
Why the most promising? First, because there is political momentum. Germany, France and the UK are already calling for the FTT, and it is on the agenda of the G20. It has the support of academics and former financiers, including Paul Krugman, Joseph Stiglitz, Warren Buffett and George Soros.
Second, because the FTT would generate significant revenue. At a rate of just 0.05% (that is fifty cents on every thousand dollars), it would bring in nearly $700 billion per year. That is six times the current global level of development assistance.
In Canada, it would raise over $700 million a year from the TXS alone. That's enough to pay for our share of rebuilding Haiti and our initial contribution to helping communities adapt to climate change.
Third, because the revenue from this tiny tax would come from one of the most profitable and under-taxed sectors of economy: banks and brokerage firms, who, let's be frank, can afford it.
We have five years left to achieve the Millennium Development Goals for reducing extreme poverty and suffering which the entire world agreed to in 2000.
What's more, Canada has just made new commitments in the hundreds of millions to help rebuild Haiti and to help the vulnerable communities adapt to climate change.
The government is suggesting we simply set back our expectations. That in a recession Canadians are not up to the challenge of doing our part to help women and men in poor countries survive and prosper.
We disagree. Canadians want to do our fair share. And in fact we pay our taxes. Why shouldn't banks and brokerages pay too?
Toby Sanger: I'm the senior economist for the Canadian Union of Public Employees.
Unlike another economist in this building, I don't believe all taxes are bad. There are good taxes as well as bad taxes.
The Financial Transactions Tax, or "Robin Hood" Tax is definitely an example of a good tax. I'm certainly not the only economist with this view.
Supporters include hundreds of economists around the world who have urged G20 leaders to introduce a financial transactions tax. They include at least four Nobel laureates in economics, James Tobin, Joseph Stiglitz, Paul Krugman and Daniel McFaddenas well as many world leaders.
Economists strongly support a financial transactions tax mostly because it would curb the excessive speculation that resulted in the recent financial and economic crisis. There has been an incredible growth in the financial sector and in the volume and number of all manner of unregulated derivatives.
The link between financial sector profits and benefits to society is broken. Yes, the financial sector should pay for the costs of the crisis, and yes, we should have better insurance for banks. But we also need to prevent another yet asset boom and financial crisis from developing again. And that's what financial transactions tax would help do.
A financial transfer tax is not a substitute for regulation. Instead, it is an excellent complement to the stronger regulation of the financial industry that is required.
A modest transactions tax of a fraction of a per cent would not only dampen financial speculation and promote greater stability; it would also free up capital for more productive investments in the economy. Lastly, it could also raise hundreds of billions worldwide for more important human needs such reducing poverty and fighting climate change.
It is not a new or highly complicated idea. John Maynard Keynes wrote in favour of a financial transfer tax 74 years ago. Many countries levy some sort of financial transfer tax.
It may not be a new idea, but it is an idea whose time has come. And it deals with a global problem that requires a global solution.
This is why Gordon Brown, Nicolas Sarkozy, Angela Merkel, the European Parliament, Nancy Pelosi and even Lawrence Summers (Director of the White House National Economic Council) among others, have all supported a global financial transactions tax or levy. On Sunday the British Prime Minister just renewed his call for an international financial levy in the wake of the Goldman-Sachs scandal.
This will be a major issue when G20 finance ministers meet this Friday in Washington and the IMF delivers its study on this issue. The main political obstruction to any sort of global tax on banks or financial transactions is coming from Canadian Prime Minister Stephen Harper and Finance Minister Jim Flaherty.
In a letter sent to G20 Finance Ministers last week, Flaherty instead proposed a market-based solution using "contingent capital securities". This is clearly a diversionary tactic.
Contingent capital securities, or "CoCos" are bonds that turn into equity when a bank is in trouble. These have been roundly criticized in the international financial press as even more dangerous and destabilizing. This type of financial innovation "cure" could be worse than the underlying disease.
We believe that most Canadians, if presented with the facts, would strongly support an international financial transactions tax.
Canadians deserve to know why their federal leaders are standing in the way of international progress on this sensible idea.
Posted: April 21, 2010
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