Tobin tax update: how momentum is building for a Financial Transactions Tax

December 17, 2009

     By Duncan Green     

dollarsThe momentum behind the Financial Transactions Tax (a tiny levy of 0.005% on all financial trades would raise about $30bn a year for climate change, development and/or filling fiscal holes) continues to grow since my last post (Why has the Tobin Tax gone mainstream?).

The French government, which as far back as 2003 was the first to seriously propose the tax, portrays it as one of the innovative financial instruments needed to finance development and climate change response. See for example the recent op-ed by the Finance and Foreign Ministers, Lagarde and Kouchner, in Le Monde saying they support an FTT to finance development.

In advance of its recent pre budget report, the UK government issued a report supporting exploring the FTT as one of a number of options. On 10 December, President Sarkozy and Gordon Brown wrote a joint op-ed in the Wall Street Journal calling for ‘examination’ of an FTT, among other measures, to contribute to climate change response and achieving the MDGs. The European Commission President Jose Manuel Barroso has also weighed in in support.

In the US House Speaker Nancy Pelosi expressed qualified support on the FTT on the 7th December, while various heavyweight economists have come out in favour, including Paul Krugman in the New York Times. A democratic congressman, Peter Di Fazio has introduced a bill in Congress calling for a tax on financial transactions, to help pay for job creation in the US. This is supported by 25 other congressmen, and calls for a 0.25 percent tax on every applicable transaction, which its proponent believe would generate nearly $150 billion a year. In response Treasury Secretary Tim Geitner moderated his initial opposition to an FTT, saying merely that ‘he has not seen a version of this tax that would work for the US’.

The worry in all this is the role of the IMF, tasked by the G20 in Pittsburgh to look at ‘ways in which the financial sector could be made to contribute to the cost of the bailouts’ and report back to the G20 meeting in April 2010 (a draft report will also be presented to the G7 finance ministers in February). At the IMF meetings in Istanbul, Dominique Strauss Kahn, the Managing Director of the World Bank, appeared to say that the IMF would not be looking at transaction taxes, or ‘simplistic tobin taxes’, but pressure from the Europeans has made him adopt a more open-minded position. At least in public. But there has to be doubt over whether the Fund has made up its mind before conducting the analysis – watch out for some ‘policy-based evidence making’ over the next few months. A lot will depend on the calibre of the external inputs to the IMF from technical experts outside of the fund.

Movement at the political level is being pushed by a nascent global campaign by NGOs, campaigners and economists:
· Health groups around the world are already very organised and working together on campaigning for a currency transaction levy (CTL) for health
· In Germany a major campaign has been launched to press for the FTT that has already gained the 50,000 signatures required to ensure hearings on the tax in the Bundestag.
· French campaigners have already met with government and are working on next steps.
· In the UK a broad coalition is forming to support a campaign, running intensely from January to April 2010, to the G20 finance ministers meeting in Washington. Their joint campaign will launch in January just before Davos.
· Richard Curtis (Film director and creative energy behind the Make Poverty History Campaign) is very interested in a short FTT campaign. He was behind the idea of the white band in 2005.

The next few months could be crucial if the FTT is to become the Fast Track Tax. If the momentum builds, then the G20 discussion in April could be a turning point. My one query is that I still haven’t heard anything from developing country governments, economists or civil society organizations – any news?