Tobin tax on financial transactions - optimists vs others

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Tobin tax on financial transactions - optimists vs others

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Not all save the world acts are created equal; take the Robin Hood Tax campaign: it has staggering credentials and people supporting it – including well-known actors in its explanatory videos, and even a couple of real multi-billionaires.

Ben Kingsley, Bill Nighy, George Soros and Warren Buffett number among a claimed Robin Hood Tax ‘membership’ of 220 million people and counting.

They are part of – or are involved in – a British lobby that wants a tax on financial transactions everywhere to raise funds to protect public services and tackle poverty and climate change around the world.

The ‘hoodie’ movement supports a proposed Financial Transaction Tax better known as the Tobin Tax, named after the American Nobel Prize-winning economist who first introduced this idea back in the 1970s.

Supporters argue that a tax of just one twentieth of one percent (0.05%) on each transaction could raise many billions of euros in revenue for worthy causes.

But not everyone agrees this tax could work. This includes members of the European Union, and notably many people in the UK.

Prime Minister David Cameron has vowed to block the proposal until there is a global agreement to implement it.

Economist Patrick Nolan, at a London-based think tank called ‘Reform’, says the tax is pretty much the stuff of fairy tales.

Nolan told euronews: “The Tobin tax wouldn’t work, simply because it tries to tax an activity that can move across different countries very easily. And this is one of the lessons of countries who’ve tried it, like Sweden in the 1980s. They introduced a tax on bonds which was 0.0003 percent and about within a week, 85 percent of the trading activity actually moved to other countries. Now this tax base that they’re trying to tax is very internationally mobile so it’s going to be a very difficult tax to implement.”

Tell that to other EU players such as France, Germany, Italy and Spain, and they say ‘but here is a way to help governments struggling with deficits, unemployment and funding services’.

Then the critics also warn that small businesses and the average European consumer will suffer if this Tobin Tax is brought in. But spokesman for the Robin Hood campaign Simon Chouffot wiped that away as just scare tactics.

Chouffot said: “It’s a brilliant line by our adversaries. It’s also completely not true. It’s got nothing to do with the retail market where you put a card in the machine and you take money to go out on holiday. This is the completely separate, casino, investment banking business model; the very model that got us into the financial crisis, the very model that keeps on paying the bonuses, the very model that we should be taxing if we want to avoid future crises and we want to live up to expectations that we should be taking care of the poorest who have been hit hard by the financial crisis.”

Nolan said: “I think this issue (the Tobin Tax) is coming back to the surface probably because of the global financial crisis, and the concern that somehow we have to punish financial services, particularly banks. But that’s completely the wrong way to look at this problem in that we actually have to understand that we’re all consumers of financial services and if we had better and stronger financial systems, we’ll all be better off. So the answer is to have better regulations. It’s not to have more taxes.”

Better regulations or even a tiny tax might both be a while in coming. Any change in tax policy in the EU requires all the members to agree. Just now they are far from united on how to fix the euro zone crisis.