The Financial Transactions Tax: an idea whose time has come
31 October 2011
The following article appeared in Tribune magazine on 28 October 2011.
Two years on from the supposed 'end' of the financial crisis, the economic outlook continues to worsen for the vast majority of ordinary people. Unemployment, particularly for young people, has reached record highs following government austerity programmes, while inflation continues to rocket. At the European level, the Eurozone itself is in crisis and is being propped up by further taxpayer-funded bailouts.
Many people find it scarcely believable is that the banks have paid no price for their mistakes. Corporate lobbyists, enjoying privileged access to government as recent scandals reveal, have gutted any attempts at policy reform while the bankers have returned to paying themselves multi-million pound bonuses. Or as a placard at the Occupy Wall Street protests put it: "socialism for the banks, capitalism for the rest of us".
In this situation, it is difficult to envisage long term solutions to the failures of the financial system. Certainly politicians seem to have no answers other than returning to business as usual by bailing out banks and it is all too tempting to believe that there is little that we, the 99% of people who are not super-rich beneficiaries of the current system, can do about it.
So it is even more remarkable that a fairly radical proposal for a European Financial Transaction Tax (FTT) has got as far as it has. The European Commission, hardly a hotbed of progressivism, has been cajoled into putting forward a proposal for an FTT: a tiny tax of fractions of a percent, levied by governments on all kinds of financial transactions including 'over the counter' ones i.e. outside official regulated markets. It is aimed at financial institutions, reining in millions of wild bets they place every day and raising some money for governments at the same time.
How did such an idea get past our self-styled 'masters of the universe'? Of course it hasn't been easy. War on Want launched the first UK campaign for a 'Tobin Tax' in 1998 following the Asian currency crisis and despite the huge destruction caused by currency speculators then, it has taken 13 years for the idea to become mainstream in Europe. Placing any kind of restrictions on the finance sector has been resisted by consecutive governments since Thatcher's reign.
Since the story that government overspending led us into crisis has been widely accepted, the argument for austerity cuts has also generally been swallowed. On the other hand, new ways to raise taxes in order to tackle the deficit – especially ones that don't directly hit the electorate – have suddenly come back into fashion and created space for a new push for an FTT.
We now have a chance finally to realise an idea that was first mooted in the 1970s. Despite its attractions in putting a brake on the high-frequency market trading that exacerbated the financial crisis, it is inevitably domestic political considerations that given us the breakthrough. Both French and German leaders, eying upcoming elections and struggling under reduced tax receipts have taken the initiative to push for an FTT at the European level. Previously they all agreed that it would only be possible if agreed globally – a virtual impossibility. The UK government, still in the pocket of the City of London, maintains this fiction, fighting fiercely against the Robin Hood Tax campaign for a UK FTT.
However, we shouldn't discount the very effective work of European FTT campaigners who succeeded in getting a hostile European Parliament committee to vote for the tax by mobilising voters across Europe to write to the MEPs. This clear signal from the Parliament obliged the European Commission at least to put their proposal forward, but it can't override the European Council which is composed of member state ministers. Continued pressure from below, from ordinary people, is essential if we are to see this through to the end.
We do have an opportunity for reform as the FTT drags through the European legislative process. We also have an opportunity in the shape of the upcoming G20 meeting in Nice next week. It nominally has a global FTT on its agenda since promising action in 2008, yet its only action so far has been to repeat the mistakes of 1980s, punishing Greece and Ireland as odious-debt-ridden African countries were punished and setting them back decades.
And that's where we come to the bigger issue of tax justice in general. Attempting to persuade illegitimate institutions like the G20 or IMF or the error of their ways will only ever go so far. Likewise, tempting though it is to make banks pay for their greed through an FTT, we risk repeating the mistake of the Brown era: skimming tax off the top to pay for welfare measures whilst leaving the foundations of a rotten system intact.
Rather, we need a fundamental retooling of our tax system. Measures such as closing down UK tax havens would be a good start. Many suggestions for the necessary changes at UK, European, global and industry level can be found in War on Want and PCS' joint report on tax havens (available on our website). More widely, we need to move away from seeing tax as an unfair burden to be avoided where possible, to seeing it as an essential tool for redistributing wealth and paying for essential service, along with holding the government to account for actually doing this.
Tax justice has been identified as key to solving the economic crisis by groups as diverse as the Occupy London movement and the International Trade Union Confederation and with good reason. On the way to a new financial system, tax justice is where we can begin to reverse 30 years' wealth grabbing by the 1% and return democratic power over our economies to the 99%.
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