NOT THE

THE FINANCIAL TRANSACTION TAX TIMES EDITION Friday 4 November 2016

Five Years On From The Introduction Of Financial Transactions Taxes What Have They Achieved ?

The European financial transaction tax is five-years-old today. In a special supplement, the FT ex-amines just how an idea once dis-missed as loony left, was adopted first by Europe and then the world. While vocal sceptics still exist the most surprising thing is the how quickly the FTT has become widely accepted, not just by the general public but also by the fi-nancial sector. With hindsight, University of Cambridge economist Ha Joon Chang, had it correct when, ahead of the 2011 G20 in France, he wrote: “They say that we just can-not afford this sort of thing at a time when we are suffering from one of the biggest crises of capi-talism. I say these people should have more faith in capitalism.”

How it happenedIn 2011, Europe and the world had yet to recover from the 2008 finan-cial crash and was in the grips of a Eurozone sovereign debt crisis that saw banks fold and econo-mies brought to the brink of col-lapse due to the reckless gambling of bankers and financiers. It felt like Europe and the Euro were on the brink of chaos. Austerity was biting, jobs were being slashed across the continent as private investment dried up and public spending was cut. There was tur-moil in major European nations with semi-permanent protests in cities around the world. Looking back, the pivotal mo-ment seems to have been the G20 summit in Cannes, where a num-ber of European nations –follow-ing strong support expressed at the EU summit and with the backing of emerging economies - finally agreed to press ahead with an FTT. Although progress was ini-

tially slow, as the additional rev-enue came on stream, European governments were able to avoid ever-deeper cuts – keeping teach-ers and nurses in jobs, keeping vi-tal services running and workers employed. The renewed economic confidence that resulted played an important part in our economic re-covery. And Europe didn’t forget its promises to the world’s poorest countries either, recognising that sustainable global growth for all will only be generated by ensur-ing that health and education are available to all of the world’s pop-ulation. Vital steps were also taken to address the threat of climate change. Europe’s reputation and standing in the eyes of the world’s poorest countries has also grown, as promises many thought would not be kept are now fully deliv-ered. The money the FTT provid-ed for climate change also helped to unlock negotiations at the UN conference on climate change in Durban in December 2011. From Frankfurt to Freetown, people are now benefiting from the hundreds of billions that this tax has generated. In fact, our re-search concludes that this tax is proving popular amongst all sorts of different groups. Interestingly, it has enabled bankers to put an end to their pariah status and poli-ticians who took bold leadership decisions back in 2011 have gone down in history. Quite simply, this tax is the one of the most popu-lar of all time – truly meeting the criteria of the many nick-names it received from global campaigners such as ‘Robin Hood Tax’ in the UK, ‘Steuergegenarmut’ in Ger-many, ‘Robin des Bois’ in France, Zerozerocinque in Italy and ‘La Tasa Robin Hood’ in Spain.

According to a poll published to-day, the popularity of the bank-ing and financial profession has grown sharply in the last five years – reversing the historic low point in 2008 and 2011 at the time of the financial and economic crisis. For our FT special we commis-sioned OurGov to conduct a poll of 20,000 people across Europe, and it’s findings show that bank-ers’ popularity has emerged from its slump – some recompense, per-haps, for the smaller bonuses they now enjoy. Bankers, once a social grouping less popular than journalists and even traffic wardens, have seen a dramatic increase in their public approval ratings since the intro-duction of the Financial Transac-tions Tax in 2011. Politicians , too, have seen an improvement in their ratings with more voters crediting them with a willingness to “stand up to vested interests in society”. The main reason for the im-provement in bankers’ image is the public perception that bankers are “no longer rewarded for fail-ure” and that the global financial sector is now “making a fairer contribution to society”. With FTT revenue being used

to plug holes in national budgets across the EU and to propel the green economy forward through fi-nancing of essential climate change work and development projects abroad, the public appears to final-ly believe that the financial sector has atoned for the mistakes made in the early years of the century.

As Lehman Brothers fell and the heads of the major banks briefly became guardians of state-owned enterprises, people all across the EU suddenly decided that they weren’t happy with a world where individuals were getting richer than many small economies, while the rest of us had to foot the bill for their reckless gambling. Politicians and bankers then spent years procrastinating and trying to not really make any seri-ous changes to the economic mod-el that had propelled us towards a doomsday scenario. During this time bankers rating crawled along the gutter as national budgets were cut, jobs were slashed and bankers continued to enjoy a champagne life style. Decisive leadership by Europe at the G20 not only saved many politicians from losing their jobs, it also prevented millions of ordinary people across Europe losing theirs, and helped shore up health and education systems by filling holes in developing country budgets. It also turned bankers from wealthy dinner party pariahs into a slightly less wealthy profession seen as hav-ing a social conscience - partly (and unexpectedly) thanks to some smart PR work on the part of major banks.

Five Years On: The Financial Transaction Tax – Has It Worked?

The FTT: TheBankers Atonement?

Bank of England

At the time of the economic crisis it was reported as a rich country problem affecting rich countries. But away from the headlines, people in the world’s poorest countries were paying the price for a party they were not invited to. The crisis left a $65 billion dollar gap in the budgets of 56 of the world’s poorest countries as rich donor countries slashed aid budgets and foreign invest-ment and export earnings dried up. For people on the ground it proved a deadly combination – less education, less healthcare, less government support for poor farmers and a harder trading en-vironment. The FTT has helped reverse the damage and through it Southern Governments are build-ing better lives for their people. In 2011 millions across Europe joined Southern voices to tell the G20 to use a significant part of the billions of Euros raised by the suc-cessful implementation of the FTT to finance the fight against poverty and climate change. The stand G20 leaders took to focus not only on their domestic budget deficits but to look beyond is continuing to change lives around the world.

Sierra LeoneIn Sierra Leone the revenue from

the FTT has enabled the Govern-ment to provide universal free ac-cess to healthcare. The President was able to build on earlier ef-forts to expand health care in his country. Back in 2010 Sierre Le-one made health care free for all pregnant and lactating women as well as children under five. With support from international aid, the President launched what we can now see as the first wave of a free health care policy that has spread across developing countries. Waiting rooms and emergency wards that once stood empty be-cause people simply couldn’t af-ford to pay are now bursting at the seams. This rapid increase shows

just how much of a barrier user fees were for people. The new money that the FTT has provided is enabling governments around the world to increase their health budgets and this is changing peo-ple’s lives. As the people I met in the clinic were quick to point out, without an FTT they didn’t know if they’d be alive and talking to me.

Burkina FasoIn Burkina Faso the govern-ment has begun to expand its health system. Following Sierra Leone’s successful example, they have made healthcare free for pregnant women, lactating mothers and children under five. As a long time visitor to Burki-na Faso, I was staggered by the changes I saw in the country. I was taken to a post-op ward for wom-en recovering from caesareans. Obstructed labour is one of the chief causes of deaths for mothers in Burkino Faso. Caesarean sec-tions are often the only solution, but in the past they were simply too expensive for the majority of women Unable to pay for a Cae-sarean, they were left to die. Yet here in this ward were six women sleeping soundly in their beds with their babies next to them recover-ing from the ordeal of a caesarean.

The woman closest to me had two tiny but perfect twins. These women have never even heard of RBS, Goldman Sachs and HSBC but the money that those banks are paying for financial transac-tions is changing their world. I was then taken to the pre-mature baby ward. The ward contained about 8 incubators and I was able to see 5 of the babies up close. The doctor told me that before free care was intro-duced the hospital didn’t even have incubators because they knew it was beyond the means

of the mothers and their families to pay for them. He also told me that in nine years of working at that same hospital he had never known a premature baby survive. As I left the hospital I mingled with several women in the early stages of their pregnancy clutch-ing copies of their first scan. An-tenatal care is also free now in Sierra Leone. The hope is that free antenatal care will help detect any complications early enough to allow a dramatic turn around the country’s tragically high ma-ternal and neo-natal death rates.

The FTT Leads To A Healthy Africa

Mohammed Fofana holding son Hassan, Sierra Leone Aubrey Wade

Sister Ivy Conteh, FreetownSierra Leone Aubrey Wade

Millions of people across Vietnam are preparing for the worst that a changing climate can throw at them. Money that their govern-ment has received from the Fi-nancial Transaction Tax (FTT), and a global agreement on taxing shipping and maritime emissions (the so called ‘bunkers’ tax - also agreed in 2011-12) is funding a huge expansion of programmes to help the poorest and most vulner-able parts of the country adapt to climate change. A report published this week by Oxfam, ‘Financial Transactions Tax and the Climate: 5 Years of building resilience’ has highlight-ed how revenue from the tax has been critical in protecting millions of people from extreme weather events such as flooding and ty-phoons. Poor men and women are particularly at risk from climate change. Vietnam already had a good track record of strong gov-ernment intervention to support adaptation . Increased revenues have allowed a rapid expansion of programmes to meet the growing threat. But in two provinces, Ben Tre and Quang Tri FTT revenue is helping poor families to change the way they live. Until five years ago, many households had no platforms built into the ceilings of their homes –

an addition that is essential to es-cape rising waters in a flood. This has been identified as one of the greatest threats to life, especially for women living in the area. Now all the low-lying households in these provinces are being altered so that they include such life-sav-ing platforms. “Houses are built to be strong-er, and when economically pos-sible with two floors. At the com-

mune level, more schools are being built with two levels to be used as a community shelter.” said Vo Viet Gia, Leader of the local council. Early warning systems have been strengthened to inform vil-lagers in a timely way of forth-coming floods and storms. Some of the money is being used to fund innovative approaches to deal-ing with new realities. Expensive

types of rice seed with shorter crop cycles and more resilient crops like lotus plants are being planted. This work means that less money is now needed to prepare for emergency responses when disaster strikes. For the people living there, it is clear that the widespread percep-tion is that the climate is already changing, particularly in its un-predictability compared to 20 or

30 years ago, and the extremes it can reach. Gia said: “I don’t know why the weather is changing. It seems more unpredictable: it rains less and when it rains it keeps go-ing for two weeks; when it is hot it seems to last longer as well – but this money is making a real differ-ence to help us cope.” Vietnam is one of the countries in the world that is most vulner-able to climate change – despite being one of the least responsible for greenhouse gas emissions. One study says that Vietnam will be the country most hit by rising sea-lev-els, for example. In addition - and somewhat ironically considering the rise in average temperatures, - people in the centre and north are reporting spells of extraordinarily cold weather. This is particularly worry-ing, as Vietnam has enjoyed one of the best development records in recent years of any country in the world, having done more than most to meet their Millennium Development Goals and reducing the proportion of people living in poverty from about 58% in 1993 to 18% in 2006. Yet across the country, there is a sense of hope as community lead-ers recognise that the ongoing and secure revenues from a FTT will be invaluable over the coming years.

FTT Helping Countries Adapt To Climate Change

Rice farmer, Vietnam Nguyen Quoc Thuan

Five years ago Robert Mills’ steel fender business was on the verge of collapse, as bank after bank lined up to refuse the Yorkshire manufacturer a £10,000 credit line to help stay afloat in the wake of the Great Crash. Despite having a stable busi-ness model and a track record for paying back loans, the family firm struggled as banks pulled up the drawbridges and cut millions of small business holders such as Robert’s loose. Fast forward 5 years and orders are thriving, a phenomenon Robert attributes to the introduction of the Financial Transaction Tax. Although not a direct recipient of the revenue, Robert believes the

Talk to your average 12 year old and they will probably never have heard of the Financial Transaction Tax. Or they might think it’s the new Europe-wide levy on foot-ball transfers. But ask a graduate recenltly employed by a bank in Frankfurt or the City of London and they’re likely to feel like it has been around for ever.. That’s a characteristic com-mon to many powerful innovations - the aura of inevitability and per-manence that surrounds them right from the moment of inception. Five years ago governments such

as the UK, Netherlands and Sweden decried the very idea that an FTT was feasible let alone inevitable (de-spite the fact the UK already had an FTT on shares). But time has shown them to be wrong, much in the way that Peel and Disraeli’s critics were wrong when they said income tax would never get a foothold in the UK, let alone the US and Sweden. Back in the dark aftermath of the Great Crash of 2008 certain politicians could be forgiven for their misplaced concern that an FTT would damage an already fragile financial system.

But perhaps the most significant change in markets has been one of culture: with the incentives for short-term speculation drastically reduced, consideration of a firm’s long-term prospects has once again become the driving force behind their share price. A culture of short term gain has slowly giv-en way to a culture of long-term investment.

Throwing some ‘sand in the wheels of modern finance’ has certainly led to a more stable and purposeful system. Considering the other revenue-raising options that were being considered at the time - like increasing VAT - there is absolutely no question that the FTT was the better choice.

Although it was far from clear at the time, looking back, it is clear that the introduction of the FTT coincided with a remarkable im-provement in the stability of fi-nancial markets. In 2011, the financial sector argued strongly that any new tax would lead to significant levels of capital flight and damage econom-ic growth, but these worries have proved unfounded. The careful design of the tax made avoidance by relocation very difficult. How-ever, it did lead to a reduction in some types of trading: the burden of the tax has been chiefly borne by the high frequency trading de-scribed as “socially useless” by Lord Turner, then chair of the UK’s financial regulator. As a result the FTT has rebalanced markets away from short-term specula-tion and back towards long- term investments. What’s more it has played a key role in eliminat-ing the ‘flash crashes’ which were becoming ever more common in equity and commodity markets. Indeed, many experts believe that markets are now better able to facilitate the efficient alloca-tion of capital, their fundamental purpose.

tax has helped calm the markets, wean the UK off its addiction to socially useless capitalism, and put its economic house in order. For the small business owner this translates into a more stable environment to work in. Previously a hardened eurosceptic, Robert is now a grateful convert to the EU although its still difficult to get him to say a good word about France: ‘ I never thought I’d have a good word to say about Brussels, let alone France and Germany. But it just goes to show how wrong I was. Their courageous decision to pursue this tax has been a lifesaver for thousands of small business owners such as me’.

But the reality has been very different. Flourishing green tech-nologies, calmer markets, a nar-rower global wealth gap and slow but steady job creation have ar-rived, in part thanks to the FTT, or despite the FTT if you listen to its increasingly isolated critics. . The FTT was successful be-cause it captured the zeitgeist. As an FT editorial said as protests spread from Wall Street across the financial centres of the world: “The frustration of protesters rail-ing against the global financial system is legitimate.”

View From The Ground: A Small Business Owner

Life Before An FTT? Remember That

The Return Of Stable Markets And Balanced Growth

The burden of the tax has been chiefly borne by high frequency trading was described as “socially useless” by Lord Turner, then chair of the UK’s financial regulator.

NOT THE

THE FINANCIAL TRANSACTION TAX TIMES EDITION Friday 4 November 2016

2011: The Year It All Happened Photo Special

England

America

Germany

Senegal

David Cameron, Great Britain Donald Tusk, Poland Mark Rutte, Netherlands José Zapatero, Spain

Silvio Berlusconi, Italy Angela Merkel, GermanyJosé Barroso, EC President Nicolas Sarkozy, France

The Leaders That Made It Happen

France Mexico

Belgium

Kenya