Transcript Global Unions’ Support for the Financial Transactions Tax

Global Unions’ Support for the
Financial Transactions Tax
Presentation by ITUC and TUAC to IMF’s
Consultation on Financial Sector Taxation
Washington, 18 February 2010
2. Outline of presentation
1. Overview of why the global trade union movement supports the
financial transaction tax (FTT) – Peter Bakvis, ITUC/Global Unions
Washington Office
2. Comments on the coming post-crisis “resource gap” in OECD
countries and why the FTT is the best policy response – Pierre
Habbard, Trade Union Advisory Committee to the OECD (TUAC)
3. Comments on feasibility and implementation issues concerning the
FTT – colleagues from the AFL-CIO
3. Global trade union movement and
financial transactions taxes
• Since the 1980s, the international trade union movement has urged
governments to consider introducing a currency transactions tax
(CTT) in order to discourage potentially damaging speculation and
generate needed revenues, such as for development goals
• In 1995, G7 labour leaders met with Prof. James Tobin and then the
head of the host government, who accepted to include CTT for
consideration in G7 summit agenda for first time (Halifax, Canada)
• Global Unions have discussed CTT/FTT with IMF; in 2004, the IMF’s
managing director told a delegation of international labour leaders
that the obstacles to this kind of tax are political, not technical
• In other meetings, e.g. in 2006-2007, Global Unions urged IMF to
pay greater attention to the potentially destabilizing impact of
insufficiently regulated financial instruments on the real economy
4. IMF’s G20 mandate on financial sector taxation
• “Prepare a report ... as to 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”
• Full cost to governments of burdens associated with near collapse of
financial sector in 2008 include:
– Government bailouts to private financial institutions
– Government stimulus spending to counteract and mitigate impact of
financial crisis on the real economy
– Decline in government revenue due to recession caused by financial
crisis
• Most countries having capacity to borrow are currently running huge
fiscal deficits to cover cost of financial and economic crisis
5. The financial resource gap
• OECD has suggested that member countries should begin fiscal
consolidation by 2011, which will place severe budget constraints on
governments and could lead to cuts in public services and transfer
payments and regressive tax reforms
• Financial “resource gap” to meet OECD deficit reduction goal is
equivalent to $372 billion per year from 2012-2014, and $295 billion
per year from 2015-2017
• These same governments will have to deliver on their commitments
to fund climate change adaptation and mitigation and to raise official
development assistance to 0.7% of GNI: $324-336 billion per year
2012-2017 ($156bn for climate change, $168-180 billion for ODA)
6. Criteria for financial sector contribution or tax
• IMF report should put forward options that generate substantial
revenues to meet, at the very least, the financial resource gap
created by the financial crisis
• IMF recommendations should also put forward measures that
contribute to preventing recurrence of speculative bubbles and
another catastrophic financial crisis
• Some of the other options being considered are clearly inferior to the
FTT, according to these criteria:
– Levy on banking sector liabilities: versions being discussed would
exempt many institutions such as hedge funds and generate relatively
modest revenues
– A “banking insurance” scheme: would be pre-funded (no revenues) and
pose near-impossible challenge of adequately pricing risk
7. Revenue-generating capacity of the FTT
• Tax rate(s) should be established with aim of eliminating harmful
speculative trading while maintaining well functioning markets
• Amount of revenue generated by FTT depends on:
– The established rates and post-FTT trading volumes
– The scope of transactions covered by the tax – foreign exchange,
stocks, bonds, derivatives (exchange-traded and OTC), etc.
– The jurisdictions that apply it
– The counter-parties to be covered and any exemptions, e.g. basic
individual exemptions, for pension funds, etc .
• Recent estimates of possible global revenue from different types of
FTT range from $200 to over $900 billion annually, assuming
reductions in trading volumes of up to 75%
8. Feasibility of an FTT
• Some countries already utilize FTTs, e.g. UK securities tax, without
significant flight to tax havens
• Taxing financial transactions is facilitated by the fact that clearing or
settlement of these transactions is already highly centralized, e.g.
more than half of global foreign exchange transactions are cleared
through the Continuous Linked Settlement (CLS) Bank
• International coordination of FTT implementation, led by the IMF,
would reduce further the possibility of tax havens being used to
evade application of the FTT
9. Impact of the FTT
• Opponents of the FTT have argued that it would have an impact on
financial markets, by reducing the number and lengthening the
average term of financial transactions
• All taxes, such as VATs, income taxes, business taxes have an
impact on markets and the alternative – substantially increasing
those kinds of taxes rather than introducing an FTT in order to
bridge the “resource gap” – should be the criterion by which the
FTT’s impact is judged
• By reducing “short-termism” the FTT could, along with elimination of
the bonus culture and other financial reforms, actually contribute to
reducing asset-price bubbles and prevent recurring financial crises
– Aspen Institute’s Overcoming Short-termism, approved by several US
business leaders, endorsed “an excise tax ... to discourage excessive
share trading” among measures aimed at “restoring a long-term focus”
10. The time for an FTT is now
• Working women and men around the world have paid a heavy price
for the consequences of a global crisis caused by financial
institutions, through massive job reductions, decreased wages,
reduced benefits
• The global trade union movement will strongly oppose any attempt
to make working people assume the major burden of the financial
crisis through regressive tax reforms (e.g. increases in VATs,
general income tax rates) that have a depressive effect on the real
economy and cause even higher unemployment, or through more
cuts in social programmes
• The FTT is the only option that will generate substantial revenues to
pay for costs of the crisis, climate change and ODA, and contribute
to reducing the pressures that could cause a renewed financial crisis