Robin Hood Tax Political Update March 2012
On the way to a European FTT by mid 2012
Jasmine Burnley and Max Lawson
Summary
· Despite fierce opposition and lobbying by the financial sector, there is a good chance that a coalition of 9 countries, led by Germany and France and representing 90% of Eurozone GDP, could push ahead and implement an FTT in 2012. This could raise 38 billion euros. All of the nine finance ministers wrote to the Danish Presidency to ask them for the FTT to be fast tracked bypass EU27 blockers such as the UK.
· France has passed legislation to implement an FTT of 0.1% on shares at national level, which will come into force in August. This is explicitly proposed by Sarkozy as a first step towards a broader FTT at EU level. There is nothing in the legislation to link the revenues to development and climate change. The French Socialist candidate Hollande, who is front runner to win the election, has said publicly to spend he would spend a third of an FTT on development and climate change and there was a public commitment from the French Minister for Cooperation to give increasing levels of the FTT to development and climate change from the start of 2013.
· German finance minister Schauble has said clearly that it is unlikely to reach agreement in the Eurozone, and is open to a stamp duty like tax, which includes derivatives as a possible compromise. This would be an FTT by any other name and would raise significant revenue, but it would of course be better if it covered all transactions not just equities. Schauble is now speaking publicly about going ahead this year with the coalition of 9 countries, although there is not unifed German government agreement as the junior partner the FDP remains opposed.
· New research by former JP Morgan city figure Avinash Persaud overrides EC Impact Assessment’s claim that FTT will result in a drop in growth by demonstrating FTT will lead to a rise in growth of 0.25%
· Support for an FTT grows in the US against backdrop of increasing resentment over unemployment, lower than needed growth and the costs of the financial crisis - US Robin Hood Tax campaign to be launched at G8 with Chicago rally of unions and CSOs
· Fast-track to end June: There is a strong likelihood of a European FTT although opposition fierce– major challenge is to get a portion allocated to development and climate change
FTT could be fast-tracked by group of nine European nations
Europe has continued to dominate discussions on FTT throughout the Spring, with a European FTT driven by a coalition of the willing now closer than ever. In February, 9 Member States[1] wrote to Denmark, which holds the Presidency of the European Union, asking them to fast-track the process on a European FTT. This plea aims designed to help the coalition of the willing get past the blockers to an EU-wide 27 tax – particularly the UK which has made clear it will not sign up to any form of European tax on the financial sector - and agree on an implementation plan by the end of June, when the European political calendar closes for business. The letter did the job of getting the Danish Presidency to take the job of fast-tracking the FTT seriously, and discussion on a European FTT was put on the formal agenda of the European Finance Ministers meeting on 13 March, but no real progress was made on agreeing a route forward. A worrying development from the meeting was the request from some member states previously supportive of an FTT to look for alternatives that will be more palatable to the whole of the EU 27, including the suggestion for an EU wide stamp duty (which the UK will still reject simply by virtue of it being a European tax) an FAT, VAT for the financial sector or a bank levy). There is a real risk that we will end up with an un-ambitious tax, setting the campaign back a long way. Keeping up pressure for an FTT - not an alternative – in those supportive states will be vital in the coming months. It is not clear whether Italy and Spain are completely supportive of a smaller coalition pushing ahead.
Further meetings of the EC’s technical working group on FTT are planned for April to discuss technical obstacles and feed into a new impact assessment to be published by 24th April. The forthcoming European Finance Ministers on May 15 and 22 June, and Heads of State meetings on 28-29 June that will be key to what happens next – keeping pressure up in the run-up to these meetings will be crucial for ensuring that an FTT does not drop off the European agenda. Also vital will be keeping the idea of an FTT to tackle poverty and climate change at the forefront of political discussions.
Meanwhile, Algirdas Semeta, the European Tax Commissioner, travelled to London to give evidence to the House of Lords EU Sub-Committee on the FTT. Semeta did a valiant job of defending the proposal for an FTT, allying fears over the perceived negative impact of the tax on UK business, stressing instead the benefits the UK would derive from a tax on the financial sector. Semeta’s arguments for an FTT were met with scepticism by the Lords committee, reflecting the continuing obstruction on an FTT by the UK establishment.
New research shows positive impact of FTT on EU
New research by leading economists Stephanie Griffiths and Avinash Persaud[2] presented to the European Parliament challenged the EC Impact Assessment that an FTT would lead to a drop in growth of 0.53% (-1.76% was the worst case scenario figure published by the Commission that has been extrapolated by FTT opponents arguing it would lead to tens of thousands of job losses), concluding instead that it would lead to an increase in GDP growth to the tune of 0.25%. The European Parliament ECON committee welcomed this report and confirmed its support for a broad based FTT. A first discussion on the Green, Socialist and Democrat group report on the EC FTT directive will take place on Monday 26th March in the Economic and Monetary Affairs Committee, followed by a vote on 24th April in ECON, before the committee makes a recommendation to MEPs to vote on the issue during the 12th June plenary. [3] This report will be an opportunity to show cross party political support for the FTT and we need to be alert to ensuring the message that the revenues of the FTT should go to fighting poverty at home and abroad and climate change are reflected in that report.
France
At the national level, France has seen the FTT play an increasingly visible role in the national election campaign. In early February, the French government proposed new legislation to put a unilateral French FTT of 0.1% on shares in place, but – frustratingly given Sarkozy’s prior championship, there was no mention of any revenues directed towards development and climate change. A flurry of campaigning and lobbying activity by the French coalition saw a full page advert spread across leading broadsheet Liberation accusing Sarkozy of backing out of his promises and a twenty strong Oped by NGOs in Le Monde, targeting Hollande, the Socialist candidate to come out in support of an FTT for tackling poverty and home and abroad as well as addressing climate change. The socialists are ahead in the polls and Hollande is likely to be the next leader of France following the elections in May. This impressive attempt to influence the legislation as the bill went through the French parliament and national assembly took effect: whilst too late to amend the bill, it forced the main candidates to clarify their position on the issue, and Hollande, stated that he would set aside a third of a financial sector tax to tackle development and climate change if he came to power, backing Sarkozy into a corner. The French Minister of Cooperation Henri de Raincourt also stated[4] that as of 1 January 2013, an increasing proportion of GDP would be given to development and climate change each year – keeping the FTT firmly on the agenda in France. Other influential candidates (Greens, centre right and extreme left) have also committed to allocate a part of the FTT to development and climate change. Crucially, these developments keep open a window of opportunity to push the next government to allocate money an FTT to development and climate change at the next budget vote in July, and position France in its role as driver of a European FTT.
Germany
Germany remains the driving force behind an FTT being agreed this year by a group of European nations. German finance minister Schauble has expressed disappointment that they cannot reach agreement at eurozone level, and is now speaking explicitly about a coalition of the nine countries in favour moving ahead.
These nine countries represent 90% of eurozone GDP. They include Italy, Germany, France and Spain, four out of the five biggest EU economies, and three of the G8. An FTT in these countries could raise $38 billion euro.
The German finance minister also discussed the possibility of a compromise based on the stamp duty on share transactions, similar to that in the UK, but also including derivatives. Whilst not nearly as good as a broad-based FTT this would still be a precedent setting transaction tax that would raise a lot of money.
Merkel and Schäuble have multiple reasons for wanting an FTT including their desire to tax derivatives, both to regulate the sector and raise revenue, so strong continued support from both Merkel and Schäuble in the upcoming month is very likely. The coalition partner of the Conservatives, the Liberals, is still against any solution beyond the EU-27 level. But the Liberals are weak, and some of their members are already calling for more flexibility on the party’s FTT position and lobbying for the party to come behind a Eurozone solution as well, which means the overall opposition of the Liberals is likely to be overcome.
Moreover, the FTT has become something of a political football in national German politics: the new EU treaty needs to be ratified by three quarters of the German parliament, which means the Conservative need the votes of the Socialists and the Greens – both of which have said they will approve the treaty only if an FTT is implemented. All in all, German support for an FTT remains a safe bet.
Blockers and Swingers
Key vocal blockers at the European level still remain the UK, Sweden, the Czech Republic and Malta. Many of these blockers will not be persuaded on a European FTT, but the swingers are critical for building the coalition of the willing. The Netherlands unfortunately seem to have swung in the wrong direction, with the Finance Minister saying this week that he is against an FTT and stating his desire to explore other options. Despite this negative statement, there is still a good chance that with some pressure from Germany, the position of the Netherlands will be turned around. Ireland and Denmark are other crucial swingers given their respective roles as Eurozone member, and holder of the Presidency of the EU.
In sum, the core European coalition of willing on the FTT is now out in the open and committed to pushing through a fast-track FTT through an enhanced cooperation process by the end of the Danish Presidency in June. Whilst Germany and France have been reasonably vocal that a portion of the FTT should go to tackling development and climate change, the coalition of the willing have not yet nailed their colours to the mast. Renewed lobbying and campaigning around key moments, and keeping the issue of an FTT for tackling poverty and climate change alive and vibrant in the media will be key to keeping the door open to the European FTT that we want to see in June. Whilst an FTT for Europe is now closer than ever, there is still everything to play for.
The exceptional case of the UK’s aggressive anti-FTT stance continues
The UK has continued to aggressively lobby against a European FTT, indicating that they would block even proposals for an EU-wide Stamp Duty that closely followed their own, on the grounds that any new European tax would be bad for Britain. The UK government budget again cut further spending on social services and benefits, lowered taxes for the richest. One chink of light though was the First Minister for Wales, Carwyn Jones coming out in support of a Robin Hood tax.
Revelations that major donors to the Tory party paid 250,000 pounds to have dinner with Cameron and influence him on policy have been linked to the Financial Transaction Tax, with five of the visitors being from the City of London.
A new report from ex JP Morgan City commentator Avinash Persaud[5] debunked the myth that a European FTT will destroy the City, finding that the UK government could in fact raise £8.4 billion, which it could spend on reversing its spending cuts, stimulating economic growth and contributing to the fight on development and climate change.[6]
Research from Ernst and Young[7] also confirmed the contradictory nature of the government’s hostile stance on the FTT: analysis showed that an FTT implemented in Europe and including Britain would cost the British financial sector £35 billion, money it could reinvest in stimulating economic growth, tackling poverty at home and abroad and addressing climate change. Alternatively, an FTT implemented in Europe but excluding Britain would cost the British financial sector £21 billion, just £14 billion less than if they had signed up to an FTT in the first place, but with none of the financial revenue to reinvest. In other words, even if the UK opts out, 60% of the revenues would still come from the City – but all paid to European governments with none for the UK Treasury.
Meanwhile the UK bonus season has continued apace with Bob Diamond, the head of Barclays Capital taking home around £17million in 2011. Against the backdrop of one more anti-poor budget, this increasingly raises the public’s hackles – and support for an alternative. But bonus season wasn’t all bad: Fred Goodwin, ex-chief of Royal Bank of Scotland got stripped of his knighthood, undoing his good services to the country.
US FTT campaign builds to challenge world leaders meeting at G8
In the US, resentment against the political elite and the rich rewards to the financial sector, continues to build against the backdrop of the approaching election. Whilst the US government is in no way likely to support an FTT any time soon, President Obama is under considerable pressure to demonstrate his willingness to take on Wall Street and taxation is becoming a touchstone issue in the campaign. At the same time, support for an FTT in the US also grows- a new and exciting campaign will be launched with a rally in by the nurses union in Chicago as G8 leaders meet in Camp David, timed with the start of the Global Week of Action on the FTT. The powerful call for governments to make the financial sector pay for the cost of the crisis in the US will cast a shadow over the G8 especially as the aid figures for this year will show the first fall in aid since 1997. The FTT is not on the official agenda, but strong campaigning, together with having three of the G8 countries, France, Germany and Italy actively moving ahead with an FTT, with the EU too represented and supportive, will help embolden the Europeans to push ahead.
G20 – Mexico searches for money to fill the green climate fund
Last year’s momentum at the G20 culminated in an unprecedented coalition of the willing backing at FTT. This momentum was not however strong enough to deliver on a global FTT. This year’s G20 in Mexico does not have an FTT on its formal agenda, but the government of Mexico has made clear it is not opposed to an FTT, and moreover, has signalled its intention to try and get political agreement on financing the green climate fund. We should make the most of this political opportunity by working with governments that are allies on an FTT, pushing for the G20 to come out in support of a European FTT and asking for governments to report back on the recommendations on innovative financing made by Gates in the report he presented to leaders at the G20 in Cannes last year.
The Rio+20 Summit offers another opportunity to push for more global support on an FTT: as governments meet to discuss plans for an ambitious new sustainable development agenda, they will face the inevitable question of how this will be financed. Rio is an opportunity to push for an FTT to help cover the costs of these new and ever growing challenges.
Also on the international circuit, the meeting of the Leading Group was hosted by Spain where South Africa and Brazil were identified as possible candidates for its next Presidency. As both are members of last year’s G20 coalition of the willing on FTT, pressing one of these governments to take on the Presidency will be crucial. In other news, South Africa also announced in its budget that it would broaden its current FTT on shares and potentially expand it to equity derivatives – strengthening further South Africa’s role as a leading G20 proponent for a global FTT.
So what needs to be done?
We need to keep pressure up on those critical 9 European Member States that have asked the Danish Presidency to fast-track the process. Ensuring they feel the public wants an FTT not some compromise alternative like a financial sector VAT is vital. When this needs to happen by is a moving target but we still need to aim to get a European FTT agreed by the end of June when the Danish government wraps up its Presidency of the EU.
Key proponents France and Germany need to be reminded of their role as drivers of an FTT and the need to deliver on a coalition of the willing process that overrides the antagonistic blocking tactics of major opponents such as Sweden and the UK. The political reality that an EU-27 agreement is out of the question needs to be brought home to the German government particularly.
Those swinging states also need to feel the heat. It’s crucial that we keep the issue of broad based support for an FTT in the press in swinger Member States such as the NL and Ireland.
The new US campaign promises an injection of energy into international discussions on an FTT. We need to use the rally at the G8 as well as G20 President Mexico’s desire to find money to fill the Green Climate Fund as opportunities for keeping FTT as a viable option on the international agenda.
In blocking countries – particularly the UK – there is a constant need to be vigilant about busting the myths pedalled by governments and financial establishments that promise the FTT will lead to economic meltdown, punish pensioners and end up in the EC’s purse. We need to pursue any potential political friendships we do have in these blocking countries and convince them that not only will an FTT work, but also, that it is going to happen.
Crucially, all of our influencing work needs to profile that an FTT must be for tackling poverty at home and abroad, as well as addressing climate change. There is still a risk that we end up with an FTT which goes to national budgets, but with no intention of helping to face the challenges of perennial poverty and climate change.
ENDS
[1] Austria, Belgium, Finland, France, Germany, Greece, Italy, Portugal and Spain
[2] http://robinhoodtax.org/sites/default/files/Financial%20Transaction%20Taxes%20-%20Griffith-Jones%20%26%20Persaud_0.pdf
[3] http://www.europarl.europa.eu/news/en/headlines/content/20120316STO41072/html/Parliament-weighs-up-cost-and-benefits-of-taxing-financial-transactions
[4] http://www.liberation.fr/monde/01012393072-taxe-robin-des-bois-ceux-qui-en-parlent-et-ceux-qui-la-font
[5] http://robinhoodtax.org/latest/report-rebuts-disproportionate-inconsistent-and-disingenuous-attacks-robin-hood-tax
[6] Persaud, A; The Economic consequences of the EU proposal for a 0.1% financial transaction tax; March 2012
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