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Financial transactions tax update october 2014


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Financial transactions tax update october 2014

  1. 1. Robin Hood Tax/ Financial Transactions Tax (FTT) Update – October 2014 1 Max Lawson and David Hillman Summary of the summary • Ten countries in Europe, representing 88% of GDP finalising design and legislation for FTT by end 2014 • France has implemented a unilateral FTT, and 20% of the revenues going to support health in West Africa • Opposition Labour party in UK has said if elected in May 2015 it will close loopholes in the UK stamp duty (an existing FTT on share transactions), to boost funding to the National Health Service. • All eyes on German presidency of G7 in 2015 to see clear announcements on allocation of revenues from FTT to development and climate change, ahead of Addis Financing Conference, SDG announcements and the Paris Climate Summit. FTT moving forward in Europe At the European Finance Ministers’ meeting on 6 May, 10 countries representing 88% of Eurozone GDP, including Germany, France, Italy and Spain, committed themselves to introducing FTTs in stages starting with “shares and some derivatives” with revenue beginning to flow by January 2016. The timetable of next steps has become clearer: 1) The 10 countries are in negotiations to finalise ‘stage 1 FTT legislation’ by the end of this year under Italy's EU presidency. 2) During 2015, the 10 countries would announce the taxation of the assets agreed under stage 1 in ‘Budgets’ in each of their respective Parliaments. 3) FTT revenue would start to be generated by the start of 2016. Initial discussions re the derivatives to be covered under stage 1 are: equity derivatives, credit derivatives and long-term interest rate derivatives. It should be noted that for assets not covered under stage 1 (such as bonds) ‘if individual Member States would like to impose taxation for other products that are not included from the beginning, they would be allowed to do so.’i As well, that, notwithstanding introduction in stages, taxation of shares, bonds and derivatives transactions would raise, according to EC estimates, €34bn each year.ii The UK Government’s opposition The UK’s attempt to challenge the validity of the FTT on the basis that it is extra-territorial and thereby undermines the European free market was rejected on 30 April by the European Court of Justice and the UK ordered to bear the European Commission’s legal costs.iii The UK may seek a new challenge when further details of the FTT emerge, but the fact that Austria, Germany, France, Italy, and Portugal have offered legal and financial support to the EC’s case indicates that the member states behind the FTT are not likely to back down. The extra-territorial nature of the UK’s own stamp duty on shares – HMRC’s website stating that ‘if you buy shares in a UK company while you're abroad, you still have to pay Stamp Duty and get the transfer documents stamped’ – illustrates the contradictions that make UK opposition unlikely to be successful.iv As Alex Barker noted in the Financial Times, ‘Mr Cameron will doubtless be aware that [the EU FTT] represents a twist on one of the oldest taxes in existence: stamp duty. Introduced in Britain more than 300 years ago, it has long been applied to share purchases.’v Paradoxically, until the EU initiative progresses the UK will still have Europe’s most lucrative FTT at £2.5bn a year. Already sometime FTT sceptical nations such as Ireland have already toned down their previous opposition. Irish Finance
  2. 2. Minister Michael Noonan has remarked that ‘from the information we have we are quite happy to let the group who want to implement the tax go ahead and implement it for their countries.’vi The UK government’s position is isolated from their electorate too. Opinion polling in the UK indicates that a majority of voters, including in the South of England – a likely key battleground ahead of the 2015 General Election – blame the banks for causing the financial crisis of 2008.vii Previous polling indicated strong support for the FTT amongst voters for all three major political parties in the UK.viii The political benefits from opposing the FTT in an election year are fast receding. UK opposition party Labour supports extension of UK Stamp Duty In his recent conference speech, the leader of the UK Labour Party, Ed Miliband said he would raise money to support the National Health Service by clamping down on loopholes that enable hedge funds to avoid paying the UK Stamp Duty on the sale of shares. This is a breakthrough as the Labour party leadership has so far refused to publicly back any expansion or support for transaction taxes, despite widespread support from the grass roots of the party and many MPs. An amazing 63 local councils across the UK have passed motions in support of the Robin Hood Tax. Finance voices speaking in favour of the FTT George Osborne has argued that the EU FTT is ‘a tax on jobs, it's a tax on investment, it's a tax on people's pensions and pensioners.’ix Here the UK Chancellor is broadly echoing similar pronouncements from the financial lobby. And yet leading financiers have lined up to condemn these arguments. Jack Gray – formerly Chief Investment Officer at one of Australia’s pension funds – has written that an FTT, which nudges funds further in the direction of longer-term strategies and which reduces de-stabilising elements such as high frequency traders while not significantly harming liquidity, is of real benefit to the sector.’x Lord Myners, former Chief Executive of pension fund manager the Gartmore Group, has also argued that ‘a sensibly constructed FTT would actually be of benefit to pension funds. That is to say, it would calm down the excessive trading and deal-making that represents a significant cost to pension funds. In an environment in which trading was significantly diminished by a sensibly constructed tax, the net cost of the tax would be lower than the net gain of excessive trading.’xi John Fullerton, former Managing Director at JP Morgan has noted that ‘the FTT is a proven revenue raiser and a laser-sharp policy intervention that helps combat the negative effect on the wider economy by a financial sector ridden by corrosive speculation.’xii Here he echoes over 50 leading financiers and executives formerly of Goldman Sachs, Lehman Brothers, the Chicago Stock Exchange and other leading institutions who have argued that ‘a modest transaction tax will actually improve the functioning of markets.’xiii Avinash Persaud, former Head of Currency at JP Morgan, has also written in the Financial Times that ‘believers in the true purpose of finance – the funding of genuine economic activity – should embrace the FTT…The impact of a tax of [EU FTT] levels would be no more pernicious than if the spread between the buying and selling prices given by market makers for many stocks returned to where they were about a decade ago.’xiv Thus whilst elements of the media express the line given by the financial lobby, there are significant voices in the financial sector arguing precisely the opposite. Many endorse the New York Times 4 April claim that the FTT ‘would raise much needed revenue from an undertaxed sector and foster greater income equality. It would also curb speculation, making the banking system more stable.’xv Allocation of FTT revenues to Development and Climate Change Campaigners continue to push for a significant percentage of FTT revenues to be allocated to international development and climate change, pressing countries to match, or preferably go beyond, the 2
  3. 3. 20% France contributes through the unilateral FTT they introduced in 2012. Oxfam argue that “the money raised with this tax should go to fighting poverty".xvi The former French Foreign Minister and current Deputy Secretary General of the UN Philippe Douste-Blazy has likewise called on states to ‘confirm their commitment to devote a significant portion of revenue…to improve the lives of people worldwide.’xvii Pointing to the UNITAID levy on airline tickets which has raised $2bn to fight HIV/AIDs and malaria, he argues such contributions form ‘a small contribution paid by the winners of globalization [in] solidarity with those who are the losers.’ Others have highlighted the potential use of revenues in the EU itself. In arguing that proceeds from the FTT should be put towards child poverty reduction, Kate Pickett and Richard Wilkinson – authors of The Spirit Level – have written that ‘a financial transactions tax would be very progressive [and] the Robin Hood tax is an appropriate name.’xviii The progressive UK think tank IPPR have argued that revenues from any UK FTT should be put towards job creation in the form of capitalising a British Investment Bank to lend to small business.xix Looking forward to 2015- a big year with big opportunities. In respect of allocation of revenue for development, 2015 is a propitious year. The UN ‘Financing for Development’ Conference (following Monterrey in 2002 and Doha in 2008) will take place in July in Ethiopia. It is timed to be in the final year of the Millennium Development Goals (MDGs). In December, France will host a massive conference on Climate Change in Paris that will focus on financing. All of these occasions and circumstances will focus countries on their responsibilities to the developing world and give civil society opportunities to press governments to make financial commitments in the very year that FTT revenues will start to flow. ENDS i ii iii iv v vi vii viii ix x xi xii xiii xiv xv xvi xvii xviii xix 3