French President Nicolas Sarkozy and German Chancellor Angela Merkel have announced a plan to impose a financial transactions tax (FTT) for the Eurozone, as part of an effort stem the bloc’s worsening debt crisis.
The policy would introduce a tiny tax on wholesale financial transactions – something long supported by European Union members Austria and Belgium. EU heads of state are expected to discuss the proposal at a meeting in October, ahead of the G20 summit in France in November.
The European Commission threw its support behind this tax in June, saying it could raise up to 50 billion euros a year by imposing 0.1% tax on stocks and bonds and 0.01% on derivatives.
The commission has even included potential funds raised by such a tax in its long-term budget forecasts for 2014-2020.
The tide is clearly turning in Europe and leaders are getting behind this idea.
I spoke at a forum on the tax at the European Parliament in March last year. Every seat was taken – and this most certainly was not people wanting to listen to me.
Meanwhile, the debate in Australia is basically non-existent. On one hand, this is fair enough – as Australia most certainly could not impose a FTT all by itself.
The risk of stock, bond and derivative trading moving offshore, if we were to go it alone, makes the idea a political impossibility.
Despite this fear, it is clear that Australia needs to pull its head out of the sand. We have a seat at the G20, and the deliberations on this tax at that forum will be important.
We have so far opposed the tax simply because the Americans have, which has become our default position on most foreign policy matters over the past 15 years.
Australia needs to examine the evidence and take a more informed view in the G20 forum.
Because of the scale of modern financial market activity, a tiny FTT would raise somewhere between $75 billion and $500 billion annually, if applied globally.
Civil society is campaigning vigorously for this tax around the world, because it sees in it a source of revenue to address global poverty and fund the climate change adaption that is much needed in poor countries. These civil society campaigns have had considerable impact in Europe, but very little here.
The great attraction of this idea is that it’s clearly rarest form of tax – a tax you should want irrespective of the revenue it might raise.
Keynes recommended such an impost in his seminal work, and 40 years ago the Nobel Laureate in economics, James Tobin, proposed the tax as a way to make markets more effective.
The idea is that an FTT would dissuade purely speculative short-term transactions and shift the balance of trading towards investors who are more focussed on the underlying value of the asset being bought and sold.
Since Tobin promoted the idea, there has been a sea change in market trading that makes the need for it much greater. In 2009, computer-driven trading accounted for at least 60% of equity market trading, 40% of futures trading in the US and 30% to 40% of European and Japanese equity trading.
This high-frequency trading is driven and executed by computer programs aimed at exploiting minor price fluctuations. The assets are often bought, held and sold in less than a second. No human mind is brought to bear on these individual trades, and the underlying real economic value of the asset being traded rarely influences the trade.
There is considerable evidence that the proliferation of this sort of trading has made markets less effective at their core function – setting prices.
Markets these days deviate for sustained periods from the prices that would be indicated by economic fundamentals. They are now driven by a tsunami of ultra-short-term trades.
An FTT would make such trades uneconomic, and the resulting markets would be able to perform their real functions of setting prices and allocating capital more effectively.
The United States has not supported an FTT, which is evidence of the power of that country’s banking lobby. Barack Obama supported an FTT as a presidential candidate, but the oval-office perspective is obviously different.
Could the introduction of a tax in Europe prompt US policymakers to reconsider their position? Once foreign exchange transactions between euros and US dollars are taxed in Europe, with none of the revenue going to the US, the incentive for the US to follow Europe’s lead will be massive.
But the pivotal nation in this debate today is not the US, for Europe can impose such a tax with little fear of any significant amount of trading moving to the US. The pivotal nation is the UK.
While continental Europe could impose this tax on foreign exchange transactions in euros, which clear and settle in Europe, applying the tax more broadly would risk trading in other asset classes moving to London.
Britain under Gordon Brown supported the tax, but not under the current government. So the scene is set for some interesting horse trading as Sarkozy and Merkel try to persuade David Cameron of the merits of, and need for, this crucial tax.
Byron Smith
PhD candidate in Christian Ethics at University of Edinburgh
"Civil society is campaigning vigorously for this tax around the world"
You can join the campaign for this tax here:
http://robinhoodtax.org/
Paul Richards
Paul Richards is a Friend of The Conversation.
Thank you Byron.
Andrew Hack
IT Project Manager
Robin Hood was a crook.
Craig S Wright
PhD; Adjunct Lecturer in Computer Science at Charles Sturt University
Worse, Robin the Hood was a made up crook.
Let's also see, he robbed from those with money, did not have a distribution network, and lived in a forest where he never moved more than 100 Km from.
The villagers stayed poor. He did not distribute grain and stole gold (which as not a common currency for the poor of the time.
Sounds like he was also a self-aggrandizing crook...
But likely a rich one in the end...
Troy Barry
Postgraduate student
It's a brave person who suggests the Eurozone as a model of intelligent financial policy worthy of emulation.
I think the political prospects for a Tobin tax would be better if it was promoted (like carbon tax) as a revenue-neutral dampener on speculative trading. It's the rob-from-the-rich-to-fund-the-bureaucrats (no surprise that Belgium is a long term supporter :) framing which leaves many of us sceptical.
Paul Richards
Paul Richards is a Friend of The Conversation.
Troy,
this type of 'black box' trading targeted drives amoral behaviour and rewards it, regardless if it's Forex or any heavily traded commodity. I agree we need reforms, many. This is the first positive attempt in the current climate by government to address what is global imbalance.
It isn't just the Forex market that is subject to this issue. It's literally every heavily traded commodity, and that varies because of shifting trends. If focus is just on Forex, trading will shift to other heavily traded commodities.
As for who ends up with the proceeds of the 'tax', it is really an electorate or public awareness issue. Awareness of the amoral quantitative analyst and the use of algorithmic trading with massive computer power at high speed to affect trading trends in heavily traded commodities.
Craig S Wright
PhD; Adjunct Lecturer in Computer Science at Charles Sturt University
Troy,
"It's the rob-from-the-rich-to-fund-the-bureaucrats"
Actually, it is rob-from-everybody. Most shares are held in western countries for super-funds, retirement, offsets for bank deposits etc.
All too easy to blame the nameless rich forgetting that in our society it is the average person who suffers most in these schemes.
As for Paul's idea that FOREX and commodities are terrible, fine, use a real gold standard (and not a government managed gold exchange standard) and there is one currency. Will people be happy? No, they will still not have more.
Andrew Hack
IT Project Manager
I must agree. My motto is that if the European Commission likes it then it must be a bad idea.
Europe is up poo creek with out of control government spending both nationally as well as supra-nationally (EU). The euro is in deep trouble and this is seen as an easy way to remedy the problem. A new tax.
I'm surprised they are so blatant about it as well! "Nicolas Sarkozy and Angela Merkel believe an FTT can help solve Europe’s debt woes"
The solution kills two birds with one stone. The anti-British…
Read morePaul Richards
Paul Richards is a Friend of The Conversation.
"As for Paul's idea that FOREX and commodities are terrible" Troy.
Why are you assuming I think that a trading mechanism or commodity trading is terrible? The overarching point of Ross's article is about developing a civil society, and dampening the mechanism that allows amoral corporate behavior, or bad corporate culture.
Why do you feel the need to defend that level of thought?
Why would a checking mechanism for bad behavior be an issue for you? These are rhetorical questions.
Craig S Wright
PhD; Adjunct Lecturer in Computer Science at Charles Sturt University
Paul, amoral is NOT immoral.
Amoral means it is not here to promote a particular aspect of though. Many people of many cultures benefit.
Business benefits society as it is amoral.
"Developing a society", yes more planned engineering - whose engineered society? That is the question. It comes to who pulls the strings and it is never the majority.
Paul Richards
Paul Richards is a Friend of The Conversation.
“Paul, amoral is NOT immoral.” - Craig.
Sorry Craig, I missed your comments.
I hadn’t checked 'notify' in the article. Just to clarify meaning.
The - amoral corporate mechanism - can be controlled, be manipulated by unethical or - immoral - behaviour.
In context - individuals - act knowingly outside the law for financial gain.
Is this - amoral? No.
Is the mechanism - amoral - that allows this? Yes.
Do individuals hide behind - amoral - corporate entities? Yes
Read moreDo they engage in - amoral…
Ross Buckley
Professor, Faculty of Law at University of New South Wales
Craig
You could not be more wrong in believing this tax would mostly fall on individuals. it will mostly fall on the investment banks and hedge funds who do the great majority of the algorithmic trading.
This argument that we all have super so we all suffer if corporations are taxed is so flawed it makes me angry. This was one of the arguments that sunk the mining super profits tax in Australia -- and the flaw in it is massive and obvious -- it ignores how much better off society will be with higher taxation revenues to government, small things like better schools, hospitals and universities.
Ross
Craig S Wright
PhD; Adjunct Lecturer in Computer Science at Charles Sturt University
No, the argument is that it is businesses that create. You have this idea that taxing more will make more, that is a fallacy.
Andrew Hack
IT Project Manager
"schools, hospitals and universities"
are all things that would be better off if run by the free market...
Paul Richards
Paul Richards is a Friend of The Conversation.
Andrew show me a free market, capitalism and corporatism don't work together.
The free market needs to be just that free, corporatism is about advantage and existing above law where it can. While corporations work hand in glove with government, demonstrate how the market can run free?
Any economy with decreasing returns to scale; economies with imperfect competition where the government does not either fully tax monopoly profits or set the tax equal to the labour income tax is not promoting capitalism, but corporatism.
I suggest studying Milton Friedman's body of work, he believed the global markets should run free. But Friedman's work has been cherry picked by governments on both right and left wing sides of politics to suit populist agenda.
Andrew Hack
IT Project Manager
Paul, I am familiar with Milton Friedman and have actually quoted him in several of my comments on theconversation.
I'm not sure you are making yourself clear in your comment. Austrians make the distinction between free-market capitalism and corporatism. Corporatism is the infiltration of the government by big business. In free-market capitalism the system should not allow this to happen. This is done by setting the scope of government clearly in a constitution. If the government does not have the power to control these things then business cannot influence the government to do so.
Of course though, governments will generally do what the people let them get away with.
I don't think an income tax at all is a good idea.
Paul Richards
Paul Richards is a Friend of The Conversation.
Andrew, capitalism is often held as the ideal, but it is utopian.
Realistically we are dealing with corporatism.
As I said show me where capitalism is functioning?
"I don't think an income tax at all is a good idea."
Neither does any corporation on the planet.
One of the greatest spin jobs in history, selling the belief we will be better off without tax.
Andrew Hack
IT Project Manager
History shows that the closer to free-market capitalism the more the society flourishes. History shows that the poor are most worse off in socialized countries.
No there is nowhere and has never been pure free-market capitalism. There needs to be a pragmatic approach. But the history is clear, that the closer, the better. I am actually paraphrasing Milton Friedman here by the way.
Personal income taxes were introduced during WWII as a means of raising more money to fund the war effort. They were…
Read morePaul Richards
Paul Richards is a Friend of The Conversation.
Andrew, answering my question of where is capitalism?
With home work for me is interesting.
I read the document from those supporters of the status quo, and understand where you are coming from and respect it, as I once held perspective.
I suggest you give yourself permission to watch a video on the subject and see if you can't examine the worth of a different perspective. This could alter your awareness and let you see with different eyes. I will be happy to discuss anything you find is contradictory to reality.
http://youtu.be/lu_VqX6J93k
Andrew Hack
IT Project Manager
Paul, you obviously trolling me here with your deliberate attempts at being cryptic.
On one hand you are advocating bigger government and higher taxes and then you are referencing libertarian sources.
I've seen the video a few times before (I've watched a number of talks by G. Edward Griffin including his stuff on laetrile and big pharma) but I've not read the actual book.
Are you going to spell out out your ratio clearly or will you continue to play games?
Paul Richards
Paul Richards is a Friend of The Conversation.
Andrew, My ratio? I apologise, if you are confused by the context.
Awareness of others levels of thought is difficult at times.
Where did I project bigger government onto you or others?
Where did I recommend we should have higher taxes?
Given you grasp the Fiat monetary system.
The undeniable fact is we have banking cartel operating worldwide with tacit government approval. Because of this, we can't have anything remotely pointing toward capitalism. But we certainly do have a Potemkin version of capitalism.
As I asked before where is the capitalism you speak of?
In the recent movie "Inside Job" 2010 we saw how corporatism dressed up as capitalism behaved, I see no resemblance to the ideals of capitalism anywhere. Pockets of business behaviour yes.
Andrew Hack
IT Project Manager
Yes, we do not have pure capitalism. I want the scale shifted away from socialism and corporatism, toward capitalism.
"One of the greatest spin jobs in history, selling the belief we will be better off without tax."
You are also advocating this tax.
My understanding is that hedgies are even being blamed for the GFC, along with the greedy banks and whatnot. I trust that you understand the role central banks have played in the GFC by blowing the bubble up with cheap credit monetary policy. Austrians…
Read morePaul Richards
Paul Richards is a Friend of The Conversation.
Andrew, of course the GFC was a banking issue.
It was with the Basel Accord instigated in 1975, that the agenda of July 1 2008 was set for Basel II Accord and the increased security required for loans on all US banks books. The trigger for the GFC.
Yes, I support this type of transactions tax talked about is this article, as is a regulating mechanism directly aimed at unfair trades.
Furthermore, history shows at this juncture in the cycle, re-regulation occurs. Our opinions will not matter…
Read moreAndrew Hack
IT Project Manager
Paul,
Is it bad behaviour that you are trying to eliminate? Or is it just a means of raising more revenue? You cannot have it both ways, as Ross seems to believe.
I think eugenics was pretty horrible. But with your logic, as long as my race is not being targeted for genocide then I should not care.
Since you have done some research into monetary systems, are you familiar at all with the European Union? If you have then you will understand that proponents of this measure in Europe are jealous of the power of the city of London and would rejoice in its destruction. The EU is just as sinister as the banking cartels if not more.
Paul Richards
Paul Richards is a Friend of The Conversation.
Andrew, I am trader and yes it's bad behaviour. Eliminate it? No, Tax it!
At the risk of alienating you, I will use an analogy.
Tax would be like a weight penalty to a F1 car.
Not a speed gun and cop stoping cars and writing tickets for speeding on a F1 circuit.
The targeted traders-corporations, only respond to pain in the bottom line. The tax Ross is promoting would hit them right where it hurts, a weight penalty that would not slow them down appreciably.
"Since you have done research into…
Read moreAndrew Hack
IT Project Manager
test
Andrew Hack
IT Project Manager
won't let me expand your full comment :<
Andrew Hack
IT Project Manager
Read from the email...
I'll start with my eugenics analogy. You asked why I cared if I am not one of those hedge traders myself. My analogy is to explain the reasons for caring when I am not personally affected. "First they came..."
Would you be able to explain for me exactly why you think this is bad behaviour? Neither yourself nor Ross has actually explained it. The best I have so far is Ross' comment "There is considerable evidence that the proliferation of this sort of trading has made markets…
Read morePaul Richards
Paul Richards is a Friend of The Conversation.
Andrew that wouldn't open in Chrome for me, but firefox and safari worked. Go figure : \
Thanks for the reply, best delt with in bullet points.
☠ "Do you really understand the minds of these politicians?" Yes.
✔ Search this PDF keyword hedge
✔ www.sonyclassics.com/awards-information/insidejob_screenplay.pdf
☠ "They follow the public's centre of gravity. In the EU they are pretty hardcore socialists."
Read more✔ By your definition, not by histories, in political terms they are close to the centre.
✔ In…
Andrew Hack
IT Project Manager
Yeah running an old version of FF and in IE it's completely broken!
The socialism vs capitalism paradigm has indeed been around for many years since the idea of personal liberty reared its head and old feudal systems disappeared.
I quite enjoy Daniel Hannan's thought experiment he illustrates in this speech (on the topic of European Integration):
http://www.youtube.com/watch?v=o2j4oCDBbts
Your words about 'thought processes' come across as being like a strange cultish mysticism. I've heard similar words about 'progress' and 'change' spouted by Fabian Socialists as they believe the new era of a fusion of socialism and capitalism is coming but it is fluff and nonsense and the words are but meaningless.
You spoke earlier about respecting the views of others. If you truly respect the views of others you will understand why freedom and liberty are necessary. Government achieves its purposes through force. The minority individual has no choice and is forced into participation.
Paul Richards
Paul Richards is a Friend of The Conversation.
Andrew, that was some debate By Daniel. A little to much to the right for my liking, but it could have come from the left.
" Daniel Hannan's thought experiment..... " still scapegoats European Governments.
But then again how can anyone attack the banking cartel?
The closer you are to the cheap money, the more you make as it loses value or inflates. Governments and corporations need to be close to pay the least interest.
The losers are those who pay the most interest, the pyramid means those…
Read more