4 Nov 2010

Europeans for Financial Reform

Great. I just discovered a website that seems to be a really good initiative. It's called Europeans for Financial Reform. They've started a petition calling for the introduction of financial regulations including a financial transaction tax - so of course I was happy to join the 1275 people who have already signed. They have also published a newsletter that details all the various things that are happening in Europe in the area of financial reform. Unfortunately, it doesn't make very encouraging reading, because clearly, there is enormous pressure from the financial sector to dilute or block proposals for clamping down on speculation and the bonus culture etc.

For me, the problem is that even this organisation is not being radical enough. They have logos calling for a 0.05% FTT - which would certainly help calm the markets a bit. However, the financial section will naturally resist this, and their lobbying power is colossal. It will need more that a few thousand signatures from across Europe to force this through.

That is why my suggestion of replacing effectively all current taxes with a single 1% Financial Transaction Tax is so neat. Even the financial sector would salivate at the idea of having no taxes on profits. They wouldn't need to send all their profits out to holdings in Bermuda and other tax havens. And of course, we would have a system that was simple to implement and above all FAIR. No-one can reasonably defend a system in which it costs the man in the street anything between 2 and 10% to make a financial transaction, plus up to 20% of VAT on most things they buy, while the financial section pay nothing to exchange trillions of dollars everyday.

There's another influential paper calling for an FTT written by Dean Baker that was published in December 2008.  It takes the following breakdown of transaction taxes originally proposed in 2002 by Pollin, Baker and Schaberg.
  • Bonds: 0.01 percent for each year remaining until maturity
  • Futures: 0.02 percent of the notional value of the underlying asset
  • Options: 0.5 percent of the premium paid for the option
  • Interest Rate Swaps:0.02 percent of asset value for each year until the expiration of the agreement
The problem with this sort of scheme is that the values are pretty arbitrary. That means there will be endless haggling about what values to impose... resulting in the sort of deadlock seen in Europe. That's why a single rate solution is so much easier to implement.

We just need some political parties to include the idea in their manifestoes so that we can vote for them.

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