Financial Transactions Taxes Feasible Desirable Powerful David Hillman

Financial Transactions Taxes: Feasible, Desirable, Powerful David Hillman Director

Innovative Financing Pathways p Voluntary: such as lotteries, Product Red p Borrowing/debt-based mechanisms: specialised bonds International Finance Facility for Immunisation (IFFim) GAVI p State subsidy: such as Advanced Market Commitments (AMCs) p Solidarity levies: micro-taxes on globalised activities such as aviation/maritime transport, finance p Example: Air passenger duties UNITAID Pilot project: proof of concept for larger initiative: FTTs

FTT - characteristics p Taxing financial transactions, such as: stocks, bonds, derivatives – trades carried out in volume by finance firms, rather than individuals (tax does not fall on ordinary people) p Simple/inexpensive to collect – markets automated, very difficult to avoid – tax deducted at point of settlement p Avoiding AVOIDANCE: employ capturing principles such as ‘Ownership’: if you don’t pay the tax, you don’t own what you bought – this makes not paying the tax simply not worth the risk p Low rates/substantial revenue: example = 10 European countries progressing now – FTTs on various assets at fractions of 1% (0. 01% - 0. 1%) – up to 30 billion euro can be raised a year p Spending: we propose 50% spent domestically to protect/create jobs; 50% internationally: development/health (25%) + combatting climate change (25%)

History and practice p Heritage and provenance – Stamp Duty (early version of FTT) pre-dates income tax (1690 ies). FTTs appear in John Maynard Keynes (General Theory) + James Tobin (US Nobel prize-winning economist) p Not radical but mainstream – many FTTs exist already: more than 40 countries have implemented FTTs in the past decades either permanently or temporarily Examples include: UK raises $4. 7 bn. a year from 0. 5% tax on share transactions(£ 3. 1 bn. ) US raises $1 bn. a year – section 31 fees pays for SEC Brazil raises $10 bn. a year from a variety of FTTs p

Myth-busting p MYTH: it won’t work because all countries need to implement FTTs at the same time, or they will be avoided by moving trading to a country that does not have FTTs – this is a favourite scare-monger tactic of the financial sector REPLY: This flies in the face of the evidence – many, many FTTs (as stated) already exist – they are successful and raise considerable revenue for governments. Every single one has been introduced unilaterally. The key point is ‘design’ – if FTTs are designed properly then companies cannot avoid them by re-locating their financial trading p

Desirability of FTT - 3 motivations p 1) Transparency – greater taxation of the sector will lead to greater oversight for financial authorities – of great benefit in this current climate of clamping down on tax avoidance p 2) Stability – the FTT will ‘throw sand in the wheels’ of financial trading. This will benefit more traditional ‘buy and hold’ strategies of investment and mitigate against the ‘get-richquick’ casino approach – particularly reducing the destabilising practice of High Frequency Trading. The FTT is viewed by many economists as good for incentivising long-term investment over short-term p 3) Revenue – it is a proven way to raise substantial revenue from a sector that clearly afford it: witness the levels of remuneration/bonus they pay

Progress p European progress – Germany, France, Italy and Spain + 7 other countries are in final stages of negotiations for FTTs on shares and derivatives. ECOFIN last week produced details of deal expected in June 2016. p Urgent need for climate finance, ‘additional’ to development finance – new money needed to pay for ‘adaptation’ and ‘mitigation’. This needs to be ‘in addition’ to Official Development Assistance (ODA) or it will effectively lead to a reduction of traditional aid. p Predictable and substantial: FTTs can generate substantial, revenue on a predictable basis – France leading on allocation of significant part of their forthcoming FTT revenue to finance to combat climate change Sapin statement

Potential p Modern campaigning work on the FTT to bridge the funding gap to meet Development Goals started with potential of micro-tax on currency transactions p Important logic that a business that is by its very nature international – foreign exchange – should be harnessed so that funds can be generated to pay for people’s needs p Size of today’s foreign exchange market: $5. 3 trillion pd: $5, 300, 000, 000 p Per year: $1, 325, 000, 000

Conclusion p Critics accuse FTT of being an unworkable, radical idea, when it is the opposite: proven and effective – in fact, mainstream – Bill Gates, for instance, is in favour of it p The substantial money it would raise can make an enormous difference protecting livelihoods at home and saving lives abroad – for instance, contributing to the end of AIDS p At the end of the day, what’s not to like!