France is showing the rest of the EU the way by introducing the new tax on financial transactions – but it could still do far more.
(This article was originally published on europeanvoice.com)
For much of the Olympic Games, France was the leading EU medal winner. In another arena – important to millions globally – it is a leader in Europe. On 1 August, it became the first European country to introduce a new financial-transaction tax (FTT) on equity sales and high-frequency trading.
The FTT, often called a ‘Robin Hood tax’, is a tax on selected products traded by the financial sector, such as equities, bonds, foreign exchange and their derivatives. Where those countries where such a tax has been introduced (in South Korea, South Africa, India, Hong Kong, the UK and Brazil), the tax may have been tiny (ranging between 0.005% and 0.5%), but it has raised substantial amounts of revenue. The FTT discourages high-risk financial operations and makes the financial sector pay its fair share of taxes. This is sensible: a reckless casino culture in parts of the financial sector caused the financial crisis. It is also fair: our governments bailed out the banks but left taxpayers with debts of trillions.
An FTT could also generate billions in euros to help the poorest and most excluded both domestically and internationally. This too is fair: every family in the West is paying for the financial sector’s mistakes, but so too are communities in the developing world, thousands of miles from the financial powerhouses of Europe.
An analysis by Action for Global Health of 2011 Official Development Assistance (ODA) data produced by Organisation for Economic Co-operation and Development (OECD) shows that European governments have been cutting foreign aid. In 2011, the Netherlands, one of the development aid champions, reduced ODA by more than 5%. Belgium reduced its spending by more than 10% and Spain reduced its ODA by more than 30%. These are cutbacks prompted by the financial, economic and now debt crises.
As Europe reduces its overseas development assistance, it is lagging ever further behind its promises to meet the United Nations’ Millennium Development Goals by 2015 and the possibility to end AIDS in a generation becomes remoter.
In deciding how the revenues of the new FTT are deployed, the French government should remember that that the brunt of these crises have been carried by the poor and excluded, at home but also abroad. France’s President François Hollande appears to recognise this. He deserves praise not just for his strong leadership, but also for his pledge, made at an international AIDS conference in Washington in late July, to use some of the FTT revenue to fight global poverty and HIV/AIDS.
However, these commitments at the moment are only in his rhetorical and need to be translated into action.
And he should be more ambitious. The French FTT, which came into effect on 1 August and applies to purchases of shares in businesses with a market value of over €1 billion, is not ambitious enough to raise significant revenues: the 0.2% levy is expected to raise €500 million next year.
Hollande, a Socialist, has in fact merely introduced the equivalent of the UK’s stamp duty on shares – but at only 0.2% per share traded compared to the UK stamp duty of 0.5%, introduced by Margaret Thatcher, a Conservative.
As a minimum, Hollande should raise the FTT rate to at least 0.5% per transaction. Khalil Elouardighi from Coalition Plus, a French HIV/AIDS organisation that campaigned for an FTT in France, believes that François Hollande should also commit half of the new revenue to saving essential social services in France and the other half to global development challenges such as bringing an end to AIDS, and improving health and education.
This would set the example that others need to follow. At least nine other European countries have said they will introduce an FTT via the ‘enhanced co-operation’ procedure, possibly by this December. They include Europe’s biggest economies (accounting for 67% of Europe’s gross domestic product) with the notable exception of the UK. The tax of between 0.01%-0.1% would apply not just to shares, but to bond and derivative transactions and could raise as much as €34 billion.
But the real test of leadership for France will be to convince EU member states who oppose the FTT to support it. If other governments in Europe and around the world were to follow France’s example and introduce the FTT, in one year a global FTT could raise around €325bn – money that could be use to provide access to drinking water, life-saving treatment to people living with HIV, and free healthcare to millions.
So far, Hollande deserves a bronze medal. If he raises the levy, allocates significant part of the revenues to help the poorest and convince other countries like the UK to support an FTT he will deserve a gold medal.