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FRIDAY FILE: Due to the financial and economic crisis, renewed attention has been placed on Financial Transaction Taxes (FTTs), which have been lauded by proponents for both their revenue generating potential and regulatory effects.[1] The crisis – which has disproportionately impacted women – has reversed many development gains of the last 10 years. Official Development Assistance (ODA) is decreasing and will not be enough to finance the Internationally Agreed Development Goals (IADGs), let alone the Millennium Development Goals (MDGs) by 2015. There is clearly a need for other sources of financing for development – and, in this context, FTTs can raise much needed funding for development.
By Natalie Raaber with Masum Momaya
ODA decreasing, FTTs hold promise for supplementary revenue
In the wake of the systemic crisis, ODA levels - which were low even prior to the crisis – have decreased and the need for additional funding to reach the IADGs, including the MDGs, has become all the more acute. Among the mechanisms to generate additional financing are financial transaction taxes (FTTs). According to Alessandra Nilo and Juliana Cesar from the Brazilian NGO Gestos, some estimates suggest that the revenues generated by FTTs would provide enough financing to fully address a wide array of development concerns, including access to primary healthcare, nutritious food, clean water and sanitation and the treatment and/or management of TB, Malaria and HIV/AIDS. [2]
FTTs are taxes levied on transactions such as currency exchanges and the buying and selling of stocks and securities. In addition to the revenue generated from these taxes, which could be used for development projects, poverty eradication programs, initiatives to address climate change and the like, proponents argue that FTTs would also control volatility in financial markets by, for example, curbing short term speculation and discouraging brokers from trading back and forth to inflate their profits or manipulate the market.
Who should be taxed? How should revenue be spent?
While there is growing consensus that FTTs can provide much needed funding for development, there is disagreement on what to tax and what to do with the revenue. For instance, some proponents favor a tax only on currency exchanges. The Tobin tax, proposed in 1972, is one example of this and is still being debated today. Others, including those from the Robin Hood Tax campaign think that FTTs should be applied to a broader range of financial transactions and asset classes, including the purchase and sale of stocks, bonds, commodities, mutual funds, and derivatives.
The IMF, while not dismissing Tobin tax and Robin Hood tax proposals outright, recommends a bank tax initially levied on all financial institutions at a flat rate and then refined thereafter to reflect individual institutions’ riskiness and contributions to systemic risk. It has also endorsed a ‘Financial Activities Tax’, a “tax on profits and bonuses seen to be above the norm in the financial sector.” [3]
The IMF recommendations are intended to compensate governments for costs incurred during bank bailouts and build an insurance fund for potential future bailouts. Many civil society organizations, including women’s rights organizations, argue, though, that while these kinds of taxes are important, they don’t go far enough in securing dedicated funds for development. These same proponents argue that much money could be generated by taxing currency exchanges, at a minimum, and a wider range of financial transactions for even more revenue. For example, experts calculate that a currency transaction tax of 0.005% would raise more than 33 billion USD per year.
FTTs already exist – and are effective
FTTs are not new - they already exist either permanently or temporarily in over 40 countries. The UK, for example, places a 0.5% Stamp Duty on stock trades, raising more than GBP 3.2 billion per annum. Argentina taxes checking account debits and credits, [4] Taiwan levies a generalized securities transaction tax,[5] and Turkey applies at tax called BITT (Banking and Insurance Transaction Tax) on the gross income of financial companies, including insurance companies.[6]
Growing political will, public support and some more questions for FTTs
Whilst there may not be consensus on a unified levy that is adopted internationally, many countries – including France, Spain, Germany, Austria, Belgium and Indonesia, the US and the UK - support some form of a FTT.[7] The International Monetary Fund (IMF), while not endorsing a FTT directly, has said that it is in indeed feasible.
The majority of G77 countries support a FTT to generate revenue for their sovereign development finance purposes. However, many developing countries have also expressed caution, raising questions such as 1) how would FTTs impact developing country investors, firms and banks? 2) how would the impacts of FTTs vary between emerging market economies like China and India and low-income countries, including Caribbean island countries that are tax-havens? and 3) are there any types of transactions to avoid in FTTs that are particularly sensitive for developing countries, such as remittances?
There are also concerns on how revenue from FTTs will be channeled and disseminated to developing countries, whether conditionalities will be imposed and whether what will be funded will be determined through democratic and participatory processes.
Still, according to a recent report, commissioned by the Leading Group on Innovative Financing for Development, a currency transaction tax is economically and technically feasible.
The High-Level Taskforce on International Financial Transactions for Development of the The Leading Group on Solidarity Levies to Fund Development is convening key discussions of innovative financing mechanisms but it remains unclear the extent to which women’s rights groups and women’s rights/gender equality advocates have a voice in this space.
Women’s rights groups need to continue to engage and raise questions
Many civil society organizations, including women’s groups, see a FTT as a feasible and much needed tax to generate financing to support development and human rights. The Ubuntu Forum for example, together with others, supports a CTT as a means to “contribute in a decisive manner to alleviate the lack of resources” for development. At the UN FfD conference in Doha in 2008, CSOs also supported the introduction of a FTT. Social Watch, AFRODAD, and the International Trade Union Confederation (ITUC-CSI) – to name but a few - also back a FTT and have called on governments to take action on implementation. As noted ITUC General Secretary Sharan Burrow, “a financial transactions tax not only makes good economic sense – it is also a matter of justice and equity.”[8]
Speaking specifically to women’s rights organizations, women’s groups have been actively involved in the broader Financing for Development debates at the UN. The Women’s Working Group on Financing for Development (WWG on FfD) has called for a the implementation of FFT as a way to “tackle and control financial speculation” and a means for the “financial sector to pay for the crisis they created.”[9]
DAWN (Development Alternatives with Women for a New Era) was one of the earliest women’s groups to be involved in the discussions on FTTs, placing these taxes on their platform for the UN World Conference on Women in Beijing in 1995. Recently, at a DAWN panel entitled "Feminist Interventions Amidst Contending Views on Financing for Development," Gita Sen discussed the implications of the Tobin Tax for women.
Women’s rights advocates are essential to ensuring that discussions and actions on FTTs, as well as on the broader international financial system, are grounded in human rights and serve the well-being of the most marginalized.
Additionally, women’s rights advocates have been pointing out and can continue to underscore that while FTT is a way to raise additional funds for development, it is not a substitute for overall systemic and structural reform of the international financial system. FTTs can be a part of a broader reform of the international financial architecture – which, itself, must be in line with human rights - but must not take its place. As the WWG on FfD states, “we need to examine the underlying causes of inequalities and obstacles to peoples’ and countries’ development and rights and to address these in an integrated and sustainable manner.” [10]
[1] http://www.eurodad.org/whatsnew/articles.aspx?id=4108
[2] Nilo, Alessandra and Juliana Cesar (2010) “Information piece prepared for AWID on the MDGs, the Crisis and the Robin Hood Tax.”
[3] http://robinhoodtax.org.uk/debate/jargon-buster-a-z/
[4] http://www.pkf.com/site/webdav/site/pkf/shared/Intranet/International%20Tax%20other%20attachments/Country%20Tax%20Guides%20in%20PDF/Argentina%20Tax%20Guide%202009.p
[5] http://www.ubuntu.upc.edu/index.php?pg=13&lg=eng
[6] PriceWaterhouseCoopers (2003) “Turkey: Transaction Taxes on Banking and Capital Markets,” available at http://www.pwc.com/en_TR/tr/assets/ins-sol/publ/transactiontaxes.pdf
[7] Gestos (2010) “Information piece prepared by Alessandra Nilo and Juliana Cesar for AWID on the MDGs, the Crisis and the Robin Hood Tax.” See also http://www.guardian.co.uk/commentisfree/2010/mar/18/robin-hood-tax-benefits and http://www.diplomatie.gouv.fr/fr/actions-france_830/aide-au-developpement_1060/evenements_19763/financements-innovants-il-est-temps-agir-1er-septembre-2010_85673.html
[8] http://www.ituc-csi.org/ituc-calls-for-un-summit-to.html?lang=en
[9] http://www.dawnnet.org/advocacy-un-ny.php
[10] WWG on FfD (2010) “Policy Coherence with Gender Equality, Equity and Rights in Development Cooperation," WWG on FfD Statement at the 2010 ECOSOC High Level Segment, 28 June -2 July 2010. Available at http://www.awid.org/eng/About-AWID/AWID-News/Women-s-Working-Group-on-FfD-Statment-at-the-2010-ECOSOC-High-Level-Segment