Global Unions’ Support for the Financial Transactions Tax

1. Global Unions’ Support for the Financial Transactions Tax Presentation by ITUC and TUAC to IMF’s Consultation on Financial Sector Taxation Washington, 18 February 2010

2. 2. Outline of presentation • Overview of why the global trade union movement supports the financial transaction tax (FTT) – Peter Bakvis, ITUC/Global Unions Washington Office • Comments on the coming post-crisis “resource gap” in OECD countries and why the FTT is the best policy response – Pierre Habbard, Trade Union Advisory Committee to the OECD (TUAC) • Comments on feasibility and implementation issues concerning the FTT – colleagues from the AFL-CIO

3. 3. Global trade union movement and financial transactions taxes • Since the 1980s, the international trade union movement has urged governments to consider introducing a currency transactions tax (CTT) in order to discourage potentially damaging speculation and generate needed revenues, such as for development goals • In 1995, G7 labour leaders met with Prof. James Tobin and then the head of the host government, who accepted to include CTT for consideration in G7 summit agenda for first time (Halifax, Canada) • Global Unions have discussed CTT/FTT with IMF; in 2004, the IMF’s managing director told a delegation of international labour leaders that the obstacles to this kind of tax are political, not technical • In other meetings, e.g. in 2006-2007, Global Unions urged IMF to pay greater attention to the potentially destabilizing impact of insufficiently regulated financial instruments on the real economy

4. 4. IMF’s G20 mandate on financial sector taxation • “Prepare a report ... as to how the financial sector could make a fair and substantial contribution toward paying for any burden associated with government interventions to repair the banking system” • Full cost to governments of burdens associated with near collapse of financial sector in 2008 include: • Government bailouts to private financial institutions • Government stimulus spending to counteract and mitigate impact of financial crisis on the real economy • Decline in government revenue due to recession caused by financial crisis • Most countries having capacity to borrow are currently running huge fiscal deficits to cover cost of financial and economic crisis

5. 5. The financial resource gap • OECD has suggested that member countries should begin fiscal consolidation by 2011, which will place severe budget constraints on governments and could lead to cuts in public services and transfer payments and regressive tax reforms • Financial “resource gap” to meet OECD deficit reduction goal is equivalent to $372 billion per year from 2012-2014, and $295 billion per year from 2015-2017 • These same governments will have to deliver on their commitments to fund climate change adaptation and mitigation and to raise official development assistance to 0.7% of GNI: $324-336 billion per year 2012-2017 ($156bn for climate change, $168-180 billion for ODA)

6. 6. Criteria for financial sector contribution or tax • IMF report should put forward options that generate substantial revenues to meet, at the very least, the financial resource gap created by the financial crisis • IMF recommendations should also put forward measures that contribute to preventing recurrence of speculative bubbles and another catastrophic financial crisis • Some of the other options being considered are clearly inferior to the FTT, according to these criteria: • Levy on banking sector liabilities: versions being discussed would exempt many institutions such as hedge funds and generate relatively modest revenues • A “banking insurance” scheme: would be pre-funded (no revenues) and pose near-impossible challenge of adequately pricing risk

7. 7. Revenue-generating capacity of the FTT • Tax rate(s) should be established with aim of eliminating harmful speculative trading while maintaining well functioning markets • Amount of revenue generated by FTT depends on: • The established rates and post-FTT trading volumes • The scope of transactions covered by the tax – foreign exchange, stocks, bonds, derivatives (exchange-traded and OTC), etc. • The jurisdictions that apply it • The counter-parties to be covered and any exemptions, e.g. basic individual exemptions, for pension funds, etc . • Recent estimates of possible global revenue from different types of FTT range from $200 to over $900 billion annually, assuming reductions in trading volumes of up to 75%

8. 8. Feasibility of an FTT • Some countries already utilize FTTs, e.g. UK securities tax, without significant flight to tax havens • Taxing financial transactions is facilitated by the fact that clearing or settlement of these transactions is already highly centralized, e.g. more than half of global foreign exchange transactions are cleared through the Continuous Linked Settlement (CLS) Bank • International coordination of FTT implementation, led by the IMF, would reduce further the possibility of tax havens being used to evade application of the FTT

9. 9. Impact of the FTT • Opponents of the FTT have argued that it would have an impact on financial markets, by reducing the number and lengthening the average term of financial transactions • All taxes, such as VATs, income taxes, business taxes have an impact on markets and the alternative – substantially increasing those kinds of taxes rather than introducing an FTT in order to bridge the “resource gap” – should be the criterion by which the FTT’s impact is judged • By reducing “short-termism” the FTT could, along with elimination of the bonus culture and other financial reforms, actually contribute to reducing asset-price bubbles and prevent recurring financial crises • Aspen Institute’s Overcoming Short-termism, approved by several US business leaders, endorsed “an excise tax ... to discourage excessive share trading” among measures aimed at “restoring a long-term focus”

10. 10. The time for an FTT is now • Working women and men around the world have paid a heavy price for the consequences of a global crisis caused by financial institutions, through massive job reductions, decreased wages, reduced benefits • The global trade union movement will strongly oppose any attempt to make working people assume the major burden of the financial crisis through regressive tax reforms (e.g. increases in VATs, general income tax rates) that have a depressive effect on the real economy and cause even higher unemployment, or through more cuts in social programmes • The FTT is the only option that will generate substantial revenues to pay for costs of the crisis, climate change and ODA, and contribute to reducing the pressures that could cause a renewed financial crisis