Kimmo Kiljunen, a Finnish member of parliament, has written the following article for PSI Focus issue 16-02. The full Focus on Public Services magazine can be accessed here: www.world-psi.org/focus
The global financial crisis has led to the worst economic downturn since the Depression of the 1920s. Governments have called on taxpayers to save the system, but many people are asking who should really be paying the bill.
Over the past 30 years, financial innovations, in particular derivative instruments of all kinds, have contributed to spectacular increases in turnover in all asset markets. At the same time, exchange rates, stock prices and commodity prices have undergone wide swings, providing the basis for speculative short-term capital flows. Today, the volume of currency transactions and interest rate speculation is many times greater than the volume of trade in goods and services or of exchanges of real stocks or investments. The entire economic system has become very vulnerable, and we are now all paying the price.
No wonder, then, that there is a renewed interest in the Tobin tax, and in particular the broader family of financial transaction taxes. The European Parliament recently adopted a resolution welcoming the G20 leaders’ agreement to work towards an international framework for taxing financial transactions. For many idealists this is close to a miracle. Just two years ago, the introduction of a Tobin tax was something they could only dream about. Now, even that is seen to be too limited, since it would apply only to currency transactions.
Everyone who has followed the financial crisis now acknowledges that continuing ‘business as usual’ is not an option. We have witnessed a systemic crisis. Now we need new regulatory mechanisms and firm governance of financial markets. We need much greater accountability and transparency. We need to shut down tax havens and eliminate legalised tax evasion. In particular, we need to tax all financial transactions.
Is it not strange that there are turnover taxes on all forms of trade, except in the one commodity that is traded most extensively – money!
There are many arguments in favour of financial transaction taxes. They would, for example,
• ensure a fairer sharing of the burden of taxation, by ensuring that the financial sector pays for bailing out the financial system, and not only taxpayers;
• improve the stability of the financial system by helping to shift the incentives for speculators away from short-term gains towards longer-term investments;
• raise revenues for public spending – there is huge potential to generate resources for public spending that has been hidden in the financial sector; and
• improve accountability and transparency, by providing a means of overseeing financial transactions, just as turnover taxes allow for supervision of trade in goods and services. The lack of financial oversight has been one of the key causes of the current crisis.
Such taxes would be progressive and therefore fair. By taxing transactions in stock, bond, currency exchange and derivatives markets, they would be targeting the loosest money belonging to the rich. Since almost all financial transactions are now done electronically, the taxes would be relatively cheap and easy to collect.
Above all, they would be next to impossible to avoid, as long as there is a collective will to impose them. It is our task to generate this will. Financial transaction taxes are undoubtedly the taxes of the future.
