Keeping EU promises to the poorest with the FTT
Civil society campaigners, financial lobbyists, governments and many others in Europe and world-wide are waiting with bated breath for the long anticipated announcement of the introduction of the Financial Transactions Tax (FTT) in the EU, expected by the end of 2012.
The European Commission (EC) has given 11 EU member states the green light to implement a FTT, a tax of 0.1 percent on share and bond trades and 0.01 percent on other transactions. But the deal is not yet done. Questions still remain about how FTT revenues, expected to be over 32 billion euros annually, will be used. A week before the 22-23 November Summit to discuss the next EU budget (2015-2020), President van Rompuy suggested that the new FTT could generate around 20 billion euros for the EU. This amount could then be deducted from national contributions to the annual EU pot. In such a scenario, FTT revenues would simply disappear into the budget rather than being used where most needed.
Other rumours would have it that FTT revenues could be used to cushion a future meltdown of financial institutions in the EU. Putting the money from a tax meant to curb excessive speculation on financial markets into a bailout fund for a future financial crash would incentivise the kind of irresponsible behaviour the tax means to curb. That would be like telling a child not to jump down the stairs yet placing a mattress at the bottom to break its fall. Earmarking FTT revenues for development and climate change would be a more just alternative. It would also be a logical continuation of the long history of policy discussions on the tax.
Financial Transactions Taxes were firmly put on the international political agenda thanks to efforts of NGOs and academics not long after the earliest form of FTTs - a tax on foreign exchange transactions - was developed by American economist James Tobin in the 1970s. In the heady days of the new millennium NGOs lobbied hard for FTTs to be one of the pillars of financing a new era of development. Rooted in our vision of a world where the lives and choices of rich and poor alike are transformed through solidarity, CIDSE has been at the forefront of this advocacy effort. Our work to realise such taxes have been supported by voices of leadership in the Catholic Church. Speaking to CIDSE in early 2012, the President of the Pontifical Council of Justice and Peace, Cardinal Peter Turkson stressed that taxing financial transactions was a way to bring economics and finance back within the boundaries of their real vocation, including their social function. Bishop John Arnold, Auxiliary Bishop of Westminster, has also expressed support for such taxes pointing out that financial markets must be reformed so that they can serve human well-being and society.
As Catholic development agencies, CIDSE member organisations believe FTTs should be an integral part of a social market economy, as a means to bind freedom of the market with the principle of justice and the commandment to love of neighbour. Indeed policy-makers in a number of countries have viewed the FTT in this light for sometime now. In 2005 the Belgian government laid down the necessary legislation for such a tax to be used to meet development objectives. In the same year, France and Spain joined Brazil and Chile in stressing the need for innovative finance for development in their ‘Action against Hunger and Poverty’. Unfortunately while the financial crisis and the search for mechanisms to make the financial sector pay for the crisis has sharpened political interest in FTTs, it has diluted the development aspect of the tax at the same time.
It would be principally wrong to deny FTT revenues the potential of contributing to a better future for millions of poor men, women and children and the well being of our planet after nearly three decades of development activists’ and experts’ effort for FTTs. There is also a serious moral hazard in using FTT revenues to secure the future of the same actors largely responsible for the crisis we find ourselves in today. More pragmatically, the additional revenue of the FTT could provide the EU with the much needed money to fulfil unmet commitments to eradicate poverty and tackle climate change. In the global fight against poverty, the EU claims itself to be a leader in the field of Official Development Assistance to poor countries and has made pledges to spend 0.7% of Gross National Income (GNI) on development by 2015. But most Member States are off-track to reach this target.
The EU is also struggling to keep its climate finance commitments. Alongside other developed countries, the EU agreed to support developing countries’ efforts to adapt to climate change with $100billion per year by 2020 via the UN Green Climate Fund. Even though some EU Member States announced new funds at the yearly global climate talks held recently in Doha, collectively the EU has not yet indicated how it will scale up climate finance towards 2020. At a moment when discussions on climate finance have become an important stumbling block in striking a global deal to tackle climate change, the EU would do well to set aside FTT revenues to fill its share of commitments to the Green Climate Fund. In so doing the EU would show the world that it is a reliable global partner which keeps its promises.
Jean Letitia Saldanha
Policy and Advocacy Officer at CIDSE – Catholic development agencies