Yesterday, I discussed the IMF’s fascinating new proposals for two international taxes on the financial sector – a ‘financial stability contribution’ (FSC) and a ‘financial activities tax’ (FAT). But the leaked interim report to the G20 also discussed the financial transactions tax (FTT), better known as the Robin Hood Tax. What did it say?
First the good news: ‘The FTT should not be dismissed on grounds of administrative practicality. Most G-20 countries already tax some financial transactions’. So could all those people who argue that the FTT is unworkable please shut up now?
But the IMF does not endorse the FTT for the purpose of the mandate set out by the G20, namely exploring ‘how the financial sector could make a fair and substantial contribution toward paying for any burden associated with government interventions to repair the banking system’.
“We don’t think this is the best way of meeting the two key objectives set out above. An FTT is not focused on reducing systemic risk and it isn’t effective at taxing rents in the financial sector—much of the burden may well fall on ordinary consumers. [So the IMF disagrees with the recent finding in a paper by Sony Kapoor of Re-define that the Robin Hood Tax would be highly progressive].
Moreover, the financial services industry is very good at devising schemes to get around such a tax and (this is also true, to be fair, of the FSC and FAT, but we suspect to a lesser extent).
One way to think about the comparison is that just as a FAT is like a VAT, an FTT is like a turnover tax—and most countries have long found that the VAT is better at raising revenue: in the jargon, more efficient. All this doesn’t mean we rule out an FTT in other contexts—but it is not the most effective way to address the task at hand.”
That last sentence is important – the IMF is saying the FTT is workable, and could be applied in other contexts, like raising the hundreds of billions of dollars desperately needed to combat climate change and poverty. It just doesn’t think it’s the best way to tackle financial sector volatility (which is a view I share).
Oh, and the Robin Hood Tax campaign has clearly had an impact on the Fund – Carlo’s blog notes ‘the last few months have left us in no doubt as to the seriousness of the public support this enjoys.’
Stand back a bit, and I think the Robin Hood Tax campaign can allow itself several pats on the back. We now have the IMF feeling the heat and pushing international bank taxes, establishing important precedents on the financial and social responsibilities of a sector that has been allowed to get away with murder for far too long (and is now back to mega-profitability, leaving the rest of us to clear up the mess). The Fund is also acknowledging the practicability of FTTs for other purposes like financing for development (although we need to nail the issue of incidence). In the end, the acronym – FSC, FAT, FTT or whatever – matters little if it raises the cash for development and climate change. As Deng Xiaoping once remarked “It doesn’t matter whether a cat is white or black, as long as it catches mice.” I’m sure Robin Hood would echo the sentiment.