Financial Transaction Taxes: Assessing their role in Financing for Development and the International Financial Architecture reform agenda

Assessing the role of financial transaction taxes in financing for development was the central theme of a panel discussion organized on 18 March by the Global Social Economy Group and the United Nations Non-Governmental Liaison Service (UN-NGLS) at UN Headquarters. The discussion tackled, among others, challenges for implementing financial transaction taxes and for ensuring that potential revenues are not channeled to general budgets but are instead used to finance development needs.

The panel, chaired by Mr. Aldo Caliari, who acted in representation of the International Cooperation for Development and Solidarity Network (CIDSE), included Mr. Julien Meimon of the Leading Group on Innovative Financing for Development (further, the Leading Group), Mr. James Parrott of the Fiscal Policy Institute in New York, Ms. Christina Weller of the Catholic Agency for Overseas Development (CAFOD), and Mr. Martin Tsounkeu of the African Development Interchange Network.

Mr. Meimon opened his remarks by introducing the work of the Leading Group and explained that innovative financing is aimed solely towards development and is complementary to Official Development Assistance (ODA). He stressed that there was a need for more stable and predictable sources of financing for MDGs, Global public goods, etc. that would complement—not replace—traditional ODA, and that there was a need to correct some of the externalities of globalization.

Mr. Meimon also noted that the Leading Group established a special financial-transaction-tax taskforce to provide robust ground for discussion about questions and topics such as:

  What are the main types of financial transactions?

  Options for implementing solidarity levies

  Under what conditions should a financial transaction tax be implemented?

  What is technically feasible?

  How will such a tax impact economic regulation?

  Existing voluntary schemes

The floor was next given to Ms. Weller who emphasized that the financial transaction tax is necessary to reduce the size of the financial sector, and noted that, however, “commitments are at best patchy.” To illustrate the potential of the tax, Ms. Weller mentioned that in 1 minute, money to send 7 000 African children to school can be raised, and that due to technical feasibility, and political and public support, the time is now ripe.

Ms. Weller further presented on what a tax on international financial transactions could look like. The instrument should be marginal and the rate of the tax varied by products. In addition, all financial transactions should be subject to the tax, not only currency. Ms. Weller also noted that individual countries do not need to act at the same time or adopt such a measure simultaneously, and that the United Nations should play a role in pushing forward the political momentum.

Speaking of bank fees and the financial sector particularly in New York State, Mr. Parrott stated that it is necessary to restore the proper role of the finance sector in the economy and called for a fundamental reorientation. He said concerns about enforceability of a financial transaction tax were overstated. In New York a financial transactions tax—specifically, a stock transfer tax— had been in place for a long time before being phased out in 1981. It was still in the books, however, and companies are until today required to report on the transactions –though the state provides a 100 percent rebate of the tax. Such reports indicate - that some USD 16 billion could be collected from such transactions in New York alone and his organization had made a proposal that the rebate be of 80 instead of a 100 percent, which would mean some USD 3 billion to support public finances. In addition, Mr. Parrott added that on top of compelling global development needs, there are also compelling local needs that can give rise to new initiatives, in particular financial transaction taxes.

Last to present his remarks was Mr. Tsounkeu who, in the midst of the economic and financial crises debate and turmoil, accentuated the importance of not forgetting about the continuing poverty crisis. Mr. Tsounkeu also noted that the financial crisis presents new opportunities, forces actors to talk, and gives rise to political will which must be utilized. Turning to the tax rate itself, Mr. Tsounkeu mentioned that it should be something that does not discourage economic activity and that however small the rate would be, the amount raised would be significant due to the number and frequency of financial transactions globally. He noted that Mr. Meimon said that the Leading Group task force is working with a 0.005% tax on financial transactions, and that at this rate the tax would raise approximately $30 billion per annum. Mr. Tsounkeu concluded by explaining that the prevailing opinion among the public in the developing world is that the tax should be promoted, implemented globally and under the UN umbrella.

In the ensuing discussion with the audience, an interesting point was raised about allocating the funds generated by taxing financial transactions. It has been pointed out that in order to gain political support for the initiative, it is essential that allocation of the revenues is well established and transparent very early in the discussion process. Mr. Tsounkeu noted that because it is a number of different interests what has led to the debate today, one should be open to using the funds/revenues for different matters so those interests do not wither away. Mr. Meimon mentioned that within the Leading Group process, state representatives have agreed that the revenues would go towards the Millennium Development Goals, climate change, and global public goods.

To view the event flyer, please go to http://www.cidse.org/uploadedFiles/Publications/Publication_repository/Flyer%20side%20event%20on%20FTT%2018%20March%202010%20final.pdf

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