A Financial Transactions Tax but is it fit for Robin Hood?

Aid, Economics, Inequality

After four years of campaigning, a Financial Transaction Tax is likely to be introduced by 11 European countries next week. But Inequality Public Campaign Manager Adam Musgrave, asks whether European leaders will commit to making this a true ‘Robin Hood Tax,’ one that works to combat poverty and climate change. 

Next week, the pillars of an agreement to introduce the world’s first regional Financial Transactions Tax (FTT) are expected to be announced at a European Council of Finance Ministers (ECOFIN) on 6 May. This is a historic opportunity to usher in a new era for innovative financing for development, but the question remains whether European leaders are committed to making this a true Robin Hood Tax – one that tackles inequality, poverty and climate change.    

The most successful innovative financing mechanism dates back to 2006, when a small levy on air tickets was introduced in France, South Korea and seven other states. This long-term and predictable source of funds has since raised more than €1bn towards UNITAID, increasing access to medicines in low and middle-income countries. It has been heralded as a great success by UN Secretary General, Ban Ki-moon, former US President Bill Clinton and France’s President Hollande.

Before the air ticket levy was even considered, campaigners were calling for micro-taxes on financial transactions to be introduced in a similar way: providing long-term, sustainable and additional finance to fight poverty and climate change.  In the wake of the global financial crisis and increasing public anger towards the banking sector, the campaign for a FTT took on new impetus and began gaining traction with politicians around the world. 

…instead of allocating a major portion of the revenues to fight poverty and climate change at home and abroad, they may use all of it to bolster government coffers.

In 2011, the FTT was discussed by world leaders under the French Presidency of the G20, and Bill Gates recommended it to the G20 as key innovative financing for development. Rebranded the Robin Hood Tax, the campaign gained popular support in dozens of countries around the world, whilst more than 1,000 economists, (including Joseph Stiglitz and Jeffrey Sachs) and more than fifty other
from European financial centres, the City of London and Wall Street.

The negotiations between 11 EU Member States have taken two years to unfold, under intense pressure from the financial lobby to water down the proposals. Whilst Finance Ministers next week are set to agree on the headlines of the future European FTT on 6 May, at this advanced stage they appear poised to back away from the tax’s raison d’etre: instead of allocating a major portion of the revenues to fight poverty and climate change at home and abroad, they may use all of it to bolster
government coffers.

In 2015, Europe will take centre stage in the international debate over the response to climate change. Germany will host the G8 Summit, and France will host crucial UN climate negotiations. As France has acknowledged, the innovative finance stream provided by the FTT could be crucial to the success of these talks. With the UN-backed Green Climate Fund now open for pledges, it is time for the 11 Member States to give a firm signal that they will use a portion of the revenues in this way.

Furthermore, just a few weeks after the pillars of an FTT agreement are set out, there is an opportunity to definitively link the FTT to development, with Europe hosting the Global Partnership for Education Replenishment Conference on 26 June in Brussels. Funds from the FTT could be promised to help raise the targeted $4bn. And the FTT could additionally, for instance, help the Global Fund to fight Aids, Tuberculosis and Malaria get ahead of the curve on
HIV/AIDS: putting more people onto treatment than contract the virus each year. Neither France nor Germany significantly increased their allocations to this Fund in its replenishment round last year.

The need is great: the FTT will be agreed against a backdrop of falling overseas aid from the 11 implementing countries. According to figures just released by the Organisation for Economic Co-operation and Development (OECD), aid from these countries fell by more than $600m between 2012 and 2013. And, as a group, they are more than $40bn short of the 0.7% of GNI standard for overseas development aid. 

It is of fundamental importance that developed countries respect their promise to reach 0.7% of GNI. However, as the international community draws up an agenda for global development beyond 2015, it is also clear that innovative financing measures like the FTT will be required to generate the additional, stable, and predictable sources of income required to fight poverty and climate change. 

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Author: Adam Musgrave
Archive blog. Originally posted on Oxfam Policy & Practice.