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A Financial Transaction Tax (FTT) for Ireland

Around 40 Irish civil society groups and NGOs (including Feasta) have expressed their support for RobinHoodTax.ie, an initiative led by Claiming Our Future aimed at introducing an FTT in Ireland. The launch event yesterday at the Mansion House in Dublin featured speakers from Stamp Out Poverty and the Nevin Economics Research Institute plus, inevitably, a large number of Lincoln Green hats with red feathers for the apres match photo-opportunity.

A Financial Transaction Tax levies a (small to miniscule) percentage tax on financial transactions such as share and bond purchases and derivatives. The idea is as old as the hills (well 1930s) but it has recently reappeared on the political horizon, as ten EU countries work together to flesh out a European implementation under a so-called ‘enhanced co-operation‘ [1] regime – an occasionally used device for facilitating agreement of a subset of EU members when full consensus is not possible in the short-term. David Hillman of Stamp Out Poverty gave a rundown of progress on this front, ending with a ‘you are not alone’ message.

The Irish government has taken a passive aggressive stance on the proposal – lining up (but less vociferously) with the UK and Sweden in the anti-lobby. The last detailed discussion in the Dail looks to be in 2013 [2].

The second presentation at yesterday’s event was from Micheál Collins of the Nevin Economic Research Institute (NERI). He is in the process of completing a quantitative analysis of the likely tax receipts of an FTT in Ireland, based on the emerging European model. Estimates stand at a net positive annual tax receipt effect of 320-360 million euros. Full results are scheduled to be revealed at a NERI seminar on February 10th [3].

So what are the messages that would most likely hit the spot with policy makers? This is difficult territory for me because while I admire policy advocates, I have no deep belief in the power of ideas carrying all before them. The thoughts that follow therefore are more in the tradition of Harry S Truman’s advisors [4].

Fairness. After many years of privatised megaprofits, the losses associated with the 2008+ financial crisis have been socialised. Thats a coded way of saying that the corporations who caused the problems didn’t pay for them, citizens did. The residual resentment at that unfairness is deeply entrenched in society, and despite calls for an end to banker-bashing from the 1%, they are still part of the zeitgeist. The #MakeBankersPay hashtag is therefore understandable.

Whether it is wise is another matter. It identifies with the activist strand within the FTT lobby. If we believe that policymakers are more likely to identify themselves with the 1% than with street demonstrators [7], it may invite a further retrenchment into that embattled minority, and encourage existing confirmation bias against all and any activist agendas. So it may be a good message for recruiting activist support and a bad one for influencing policy makers.

This is not to say there is no fairness issue here, clearly there is. But it may be best approached via a plea for rebalancing the economy. With the prevailing neoliberal self-sufficient self-interest narrative, ‘not fair’ is the complaint of the playground weakling. Sad and deeply disappointing as that is.

Rebalancing. There is a clear sentiment in society at large that the financial economy tail has been wagging the real economy dog for too long. There are also some indications that this sentiment extends into the mindset of many politicians. They are constrained however by the ‘race to the bottom’ between nation states as they seek to compete for the attention of multinationals by deregulating, lowering corporation tax and generally bribing to achieve FDI (Foreign Direct Investment). Arguably FTT gives these nation states a mechanism for embarking on the beginnings of a rebalancing – if – and only if – they can be reassured that their resident financial corporations will not migrate to pastures new at the first mention of the tax. As they will no doubt threaten.

So there’s the rub. At yesterday’s event David Hillman defended the laughably low levels of tax (for example a tax of 0.01% on derivatives) by saying it was easier to get it accepted at that level and then increase it once it was established. This has indeed been the pattern with taxes, and that much will be obvious to the financial lobby who will see it as the thin end of the wedge and resist it tooth and nail. In this context it becomes vital to be able to rebut the FUD (fear, uncertainty, doubt) agenda that will be offered up. FUD is proving a reliable strategy for those seeking to preserve the status quo. It worked well for the electoral reform referendum in the UK and for the Scottish independence vote, and will take some countering here.

NERI’s work is vital because it will break down the taxation receipts by instrument, allowing an analysis of the likely effects of a tax at a per instrument level. It seems likely that virtually all the costs will fall on financial institutions and that the potential for them to pass on these costs to consumers will be limited by competition. This is the way the FTT is designed. In 1936 when John Maynard Keynes floated the idea of an FTT, he saw it as a tax on excessive speculation [5]. If a detailed analysis by instrument can reinforce this strategic positioning, there may be a chance. This brings us to the final message – of increased stability and resilience.

Stability. If, as Keynes envisaged, and the more enlightened politicians hope, an FTT dampens some of the excessive speculation/ gambling that takes place in the casino economy, it can be developed as an intervention mechanism for policy makers. Having discovered that control of the interest rate does not give them the power they once thought it did, they have very few tools left in their toolbox and may well welcome one more. To say such a tax could do away with the boom-bust cycle is going too far. Other systemic monetary changes will be necessary for that including the resumption of strategic guidance over the allocation of credit-as-capital [6]. But an FTT could well give potential for a smoothing effect. Policy-makers who must feel like eunuchs in a brothel at present, may well like the idea of having another meaningful instrument at their disposal.

So that would be my prescription for messages – stability, rebalancing and yes,ok, fairness. The final message, which most FTT proponents emphasise and which I called unkindly in the introduction dogoodability is also important. Emphasis is usually placed on the use of FTT receipts for (say) climate change work and international development. As delegates yesterday pointed out, such hypothecation of tax receipts is normally resisted by policy makers as a constraint on their decision-making. But as an appeal to a wider society audience it has it place. And there are precedents in Ireland with some environmental taxes, so why not?

Claiming our Future are to be congratulated for spearheading FTT adoption in Ireland. If NERI can put together some detailed technical rebuttals on a per-instrument basis, we may yet see a proposition for re-empowering economic policy-makers on the back of a societally-beneficial FTT. Used and adjusted actively such a tax can help restore financial resilience – a valuable quality that has been sacrificed in favour of efficiency for too long.

References

[1]: http://www.euractiv.com/topics/enhanced-cooperation which also has an article on banking industry response.
[2]: http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committe etakes/FIJ2013100200003?opendocument#C00350
[3]: http://www.nerinstitute.net/events/2016/02/10//
[4]: “Give me a one-handed economist! All my economists say, ”On the one hand? on the other.'” Harry S. Truman
[5]: “Speculators may do no harm as bubbles on a steady stream of enterprise. But the situation is serious when enterprise becomes the bubble on a whirlpool of speculation.” J M Keynes
[6]: see for example: Richard Werner at http://republicirelandbank.com/?p=601
[7]: http://www.commondreams.org/views/2016/01/26/volcanic-core-fueling-2016-election

Featured image: “Here begynneth a gest of Robyn Hode”, 16th century. Source: https://commons.wikimedia.org/wiki/File:Here_begynneth_a_gest_of_Robyn_Hode.png

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