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THE FINANCIAL TRANSACTION TAX TIMES EDITION

Friday 4 November 2016

Five Years On From The Introduction Of Financial Transactions Taxes What Have They Achieved ?

Five Years On: The Financial Transaction Tax – Has It Worked? The European financial transaction tax is five-years-old today. In a special supplement, the FT examines just how an idea once dismissed as loony left, was adopted first by Europe and then the world. While vocal sceptics still exist the most surprising thing is the how quickly the FTT has become widely accepted, not just by the general public but also by the financial sector. With hindsight, University of Cambridge economist Ha Joon Chang, had it correct when, ahead of the 2011 G20 in France, he wrote: “They say that we just cannot afford this sort of thing at a time when we are suffering from one of the biggest crises of capitalism. I say these people should have more faith in capitalism.” How it happened In 2011, Europe and the world had yet to recover from the 2008 financial crash and was in the grips of a Eurozone sovereign debt crisis that saw banks fold and economies brought to the brink of collapse due to the reckless gambling of bankers and financiers. It felt like Europe and the Euro were on the brink of chaos. Austerity was biting, jobs were being slashed across the continent as private investment dried up and public spending was cut. There was turmoil in major European nations with semi-permanent protests in cities around the world. Looking back, the pivotal moment seems to have been the G20 summit in Cannes, where a number of European nations –following strong support expressed at the EU summit and with the backing of emerging economies - finally agreed to press ahead with an FTT. Although progress was ini-

tially slow, as the additional revenue came on stream, European governments were able to avoid ever-deeper cuts – keeping teachers and nurses in jobs, keeping vital services running and workers employed. The renewed economic confidence that resulted played an important part in our economic recovery. And Europe didn’t forget its promises to the world’s poorest countries either, recognising that sustainable global growth for all will only be generated by ensuring that health and education are available to all of the world’s population. Vital steps were also taken to address the threat of climate change. Europe’s reputation and standing in the eyes of the world’s poorest countries has also grown, as promises many thought would not be kept are now fully delivered. The money the FTT provided for climate change also helped to unlock negotiations at the UN conference on climate change in Durban in December 2011. From Frankfurt to Freetown, people are now benefiting from the hundreds of billions that this tax has generated. In fact, our research concludes that this tax is proving popular amongst all sorts of different groups. Interestingly, it has enabled bankers to put an end to their pariah status and politicians who took bold leadership decisions back in 2011 have gone down in history. Quite simply, this tax is the one of the most popular of all time – truly meeting the criteria of the many nick-names it received from global campaigners such as ‘Robin Hood Tax’ in the UK, ‘Steuergegenarmut’ in Germany, ‘Robin des Bois’ in France, Zerozerocinque in Italy and ‘La Tasa Robin Hood’ in Spain.

Bank of England

The FTT: The Bankers Atonement? According to a poll published today, the popularity of the banking and financial profession has grown sharply in the last five years – reversing the historic low point in 2008 and 2011 at the time of the financial and economic crisis. For our FT special we commissioned OurGov to conduct a poll of 20,000 people across Europe, and it’s findings show that bankers’ popularity has emerged from its slump – some recompense, perhaps, for the smaller bonuses they now enjoy. Bankers, once a social grouping less popular than journalists and even traffic wardens, have seen a dramatic increase in their public approval ratings since the introduction of the Financial Transactions Tax in 2011. Politicians , too, have seen an improvement in their ratings with more voters crediting them with a willingness to “stand up to vested interests in society”. The main reason for the improvement in bankers’ image is the public perception that bankers are “no longer rewarded for failure” and that the global financial sector is now “making a fairer contribution to society”. With FTT revenue being used

to plug holes in national budgets across the EU and to propel the green economy forward through financing of essential climate change work and development projects abroad, the public appears to finally believe that the financial sector has atoned for the mistakes made in the early years of the century.

As Lehman Brothers fell and the heads of the major banks briefly became guardians of state-owned enterprises, people all across the EU suddenly decided that they weren’t happy with a world where individuals were getting richer than many small economies, while the rest of us had to foot the bill for their reckless gambling. Politicians and bankers then spent years procrastinating and trying to not really make any serious changes to the economic model that had propelled us towards a doomsday scenario. During this time bankers rating crawled along the gutter as national budgets were cut, jobs were slashed and bankers continued to enjoy a champagne life style. Decisive leadership by Europe at the G20 not only saved many politicians from losing their jobs, it also prevented millions of ordinary people across Europe losing theirs, and helped shore up health and education systems by filling holes in developing country budgets. It also turned bankers from wealthy dinner party pariahs into a slightly less wealthy profession seen as having a social conscience - partly (and unexpectedly) thanks to some smart PR work on the part of major banks.


The FTT Leads To A Healthy Africa At the time of the economic crisis it was reported as a rich country problem affecting rich countries. But away from the headlines, people in the world’s poorest countries were paying the price for a party they were not invited to. The crisis left a $65 billion dollar gap in the budgets of 56 of the world’s poorest countries as rich donor countries slashed aid budgets and foreign investment and export earnings dried up. For people on the ground it proved a deadly combination – less education, less healthcare, less government support for poor farmers and a harder trading environment. The FTT has helped reverse the damage and through it Southern Governments are building better lives for their people. In 2011 millions across Europe joined Southern voices to tell the G20 to use a significant part of the billions of Euros raised by the successful implementation of the FTT to finance the fight against poverty and climate change. The stand G20 leaders took to focus not only on their domestic budget deficits but to look beyond is continuing to change lives around the world. Sierra Leone In Sierra Leone the revenue from

the FTT has enabled the Government to provide universal free access to healthcare. The President was able to build on earlier efforts to expand health care in his country. Back in 2010 Sierre Leone made health care free for all pregnant and lactating women as well as children under five. With support from international aid, the President launched what we can now see as the first wave of a free health care policy that has spread across developing countries. Waiting rooms and emergency wards that once stood empty because people simply couldn’t afford to pay are now bursting at the seams. This rapid increase shows

Sister Ivy Conteh, Freetown Sierra Leone Aubrey Wade

just how much of a barrier user fees were for people. The new money that the FTT has provided is enabling governments around the world to increase their health budgets and this is changing people’s lives. As the people I met in the clinic were quick to point out, without an FTT they didn’t know if they’d be alive and talking to me. Burkina Faso In Burkina Faso the government has begun to expand its health system. Following Sierra Leone’s successful example, they have made healthcare free for pregnant women, lactating mothers and children under five. As a long time visitor to Burkina Faso, I was staggered by the changes I saw in the country. I was taken to a post-op ward for women recovering from caesareans. Obstructed labour is one of the chief causes of deaths for mothers in Burkino Faso. Caesarean sections are often the only solution, but in the past they were simply too expensive for the majority of women Unable to pay for a Caesarean, they were left to die. Yet here in this ward were six women sleeping soundly in their beds with their babies next to them recovering from the ordeal of a caesarean.

Mohammed Fofana holding son Hassan, Sierra Leone

The woman closest to me had two tiny but perfect twins. These women have never even heard of RBS, Goldman Sachs and HSBC but the money that those banks are paying for financial transactions is changing their world. I was then taken to the premature baby ward. The ward contained about 8 incubators and I was able to see 5 of the babies up close. The doctor told me that before free care was introduced the hospital didn’t even have incubators because they knew it was beyond the means

Aubrey Wade

of the mothers and their families to pay for them. He also told me that in nine years of working at that same hospital he had never known a premature baby survive. As I left the hospital I mingled with several women in the early stages of their pregnancy clutching copies of their first scan. Antenatal care is also free now in Sierra Leone. The hope is that free antenatal care will help detect any complications early enough to allow a dramatic turn around the country’s tragically high maternal and neo-natal death rates.


FTT Helping Countries Adapt To Climate Change Millions of people across Vietnam are preparing for the worst that a changing climate can throw at them. Money that their government has received from the Financial Transaction Tax (FTT), and a global agreement on taxing shipping and maritime emissions (the so called ‘bunkers’ tax - also agreed in 2011-12) is funding a huge expansion of programmes to help the poorest and most vulnerable parts of the country adapt to climate change. A report published this week by Oxfam, ‘Financial Transactions Tax and the Climate: 5 Years of building resilience’ has highlighted how revenue from the tax has been critical in protecting millions of people from extreme weather events such as flooding and typhoons. Poor men and women are particularly at risk from climate change. Vietnam already had a good track record of strong government intervention to support adaptation . Increased revenues have allowed a rapid expansion of programmes to meet the growing threat. But in two provinces, Ben Tre and Quang Tri FTT revenue is helping poor families to change the way they live. Until five years ago, many households had no platforms built into the ceilings of their homes –

an addition that is essential to escape rising waters in a flood. This has been identified as one of the greatest threats to life, especially for women living in the area. Now all the low-lying households in these provinces are being altered so that they include such life-saving platforms. “Houses are built to be stronger, and when economically possible with two floors. At the com-

types of rice seed with shorter crop cycles and more resilient crops like lotus plants are being planted. This work means that less money is now needed to prepare for emergency responses when disaster strikes. For the people living there, it is clear that the widespread perception is that the climate is already changing, particularly in its unpredictability compared to 20 or

Rice farmer, Vietnam

The Return Of Stable Markets And Balanced Growth

Although it was far from clear at the time, looking back, it is clear that the introduction of the FTT coincided with a remarkable improvement in the stability of financial markets. In 2011, the financial sector argued strongly that any new tax would lead to significant levels of capital flight and damage economic growth, but these worries have proved unfounded. The careful design of the tax made avoidance by relocation very difficult. However, it did lead to a reduction in some types of trading: the burden of the tax has been chiefly borne by the high frequency trading described as “socially useless” by Lord Turner, then chair of the UK’s financial regulator. As a result the FTT has rebalanced markets away from short-term speculation and back towards longterm investments. What’s more it has played a key role in eliminating the ‘flash crashes’ which were becoming ever more common in equity and commodity markets. Indeed, many experts believe that markets are now better able to facilitate the efficient allocation of capital, their fundamental purpose.

mune level, more schools are being built with two levels to be used as a community shelter.” said Vo Viet Gia, Leader of the local council. Early warning systems have been strengthened to inform villagers in a timely way of forthcoming floods and storms. Some of the money is being used to fund innovative approaches to dealing with new realities. Expensive

But perhaps the most significant change in markets has been one of culture: with the incentives for short-term speculation drastically reduced, consideration of a firm’s long-term prospects has once again become the driving force behind their share price. A culture of short term gain has slowly given way to a culture of long-term investment.

The burden of the tax has been chiefly borne by high frequency trading was described as “socially useless” by Lord Turner, then chair of the UK’s financial regulator. Throwing some ‘sand in the wheels of modern finance’ has certainly led to a more stable and purposeful system. Considering the other revenue-raising options that were being considered at the time - like increasing VAT - there is absolutely no question that the FTT was the better choice.

Nguyen Quoc Thuan

30 years ago, and the extremes it can reach. Gia said: “I don’t know why the weather is changing. It seems more unpredictable: it rains less and when it rains it keeps going for two weeks; when it is hot it seems to last longer as well – but this money is making a real difference to help us cope.” Vietnam is one of the countries in the world that is most vulnerable to climate change – despite being one of the least responsible for greenhouse gas emissions. One study says that Vietnam will be the country most hit by rising sea-levels, for example. In addition - and somewhat ironically considering the rise in average temperatures, people in the centre and north are reporting spells of extraordinarily cold weather. This is particularly worrying, as Vietnam has enjoyed one of the best development records in recent years of any country in the world, having done more than most to meet their Millennium Development Goals and reducing the proportion of people living in poverty from about 58% in 1993 to 18% in 2006. Yet across the country, there is a sense of hope as community leaders recognise that the ongoing and secure revenues from a FTT will be invaluable over the coming years.

View From The Ground: A Small Business Owner Five years ago Robert Mills’ steel fender business was on the verge of collapse, as bank after bank lined up to refuse the Yorkshire manufacturer a £10,000 credit line to help stay afloat in the wake of the Great Crash. Despite having a stable business model and a track record for paying back loans, the family firm struggled as banks pulled up the drawbridges and cut millions of small business holders such as Robert’s loose. Fast forward 5 years and orders are thriving, a phenomenon Robert attributes to the introduction of the Financial Transaction Tax. Although not a direct recipient of the revenue, Robert believes the

tax has helped calm the markets, wean the UK off its addiction to socially useless capitalism, and put its economic house in order. For the small business owner this translates into a more stable environment to work in. Previously a hardened eurosceptic, Robert is now a grateful convert to the EU although its still difficult to get him to say a good word about France: ‘ I never thought I’d have a good word to say about Brussels, let alone France and Germany. But it just goes to show how wrong I was. Their courageous decision to pursue this tax has been a lifesaver for thousands of small business owners such as me’.

Life Before An FTT? Remember That Talk to your average 12 year old and they will probably never have heard of the Financial Transaction Tax. Or they might think it’s the new Europe-wide levy on football transfers. But ask a graduate recenltly employed by a bank in Frankfurt or the City of London and they’re likely to feel like it has been around for ever.. That’s a characteristic common to many powerful innovations - the aura of inevitability and permanence that surrounds them right from the moment of inception. Five years ago governments such

as the UK, Netherlands and Sweden decried the very idea that an FTT was feasible let alone inevitable (despite the fact the UK already had an FTT on shares). But time has shown them to be wrong, much in the way that Peel and Disraeli’s critics were wrong when they said income tax would never get a foothold in the UK, let alone the US and Sweden. Back in the dark aftermath of the Great Crash of 2008 certain politicians could be forgiven for their misplaced concern that an FTT would damage an already fragile financial system.

But the reality has been very different. Flourishing green technologies, calmer markets, a narrower global wealth gap and slow but steady job creation have arrived, in part thanks to the FTT, or despite the FTT if you listen to its increasingly isolated critics. . The FTT was successful because it captured the zeitgeist. As an FT editorial said as protests spread from Wall Street across the financial centres of the world: “The frustration of protesters railing against the global financial system is legitimate.”


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THE FINANCIAL TRANSACTION TAX TIMES EDITION Friday 4 November 2016

2011: The Year It All Happened Photo Special Germany

England America Belgium

Kenya

France

Senegal

Mexico

The Leaders That Made It Happen

David Cameron, Great Britain

Donald Tusk, Poland

Mark Rutte, Netherlands

José Zapatero, Spain

Silvio Berlusconi, Italy

José Barroso, EC President

Angela Merkel, Germany

Nicolas Sarkozy, France


Not The Financial Times