“How is all of this going to be paid for?” This difficult question has struck campaigns for the advancement of welfare since the 1970s, ever more frequently and intensely since the financial crisis of 2008 and resulting austerity measures that were put in place in our European liberal societies. Countering this are arguments about the necessity and logical feasibility of deficit reduction to move towards proposals that have been advanced in order to fund public services in an innovative manner; namely, a full Financial Transaction Tax.
Financial crises since 2008… and consequences
The 2008 financial crisis, and the following Eurozone and sovereign debt crises, have had life-changing consequences for many European citizens. Never before has Eurozone policy had such a directly attributable, visible and negative effect on the welfare of member state citizens as in the austerity measures imposed on the highly indebted Eurozone countries as part of the EU/IMF rescue packages. Wages and pensions were cut, taxes increased, public expenditures and investments reduced as part of the rescue conditionality. In Greece, the hardest hit country, pensions and public sector pay are reported to have decreased by 25% and private sector pay by at least 15%, whereas effective tax rates have increased by more than 20% and unemployment reaching 26% at the end of 2012.
In fact, the 2008 financial crisis (and the sovereign debt and Euro crises which were triggered by it) have engendered unprecedented mass protests against a European policy. Although austerity measures are formally decided and implemented by national governments, they are required or constrained by international loan conditionality. Protesters therefore regularly target financial markets and rating agencies, but also the ‘Troika’, the EU or the German government in addition to their national governments.
Public opinion surveys show a steep plunge in public support for the EU. According to the Pew Research Centre, ‘positive views of the European Union are at or near their low point in most EU nations’ after having fallen from 60% in 2012 to 45% in 2013. On the basis of Eurobarometer data, Debomy (2013) concurs that ‘the highest level of Euro gloom ever observed in the last quarter century has been or is close to being reached’. Already in 2012, the Pew Research Centre observed that there were no majorities, considering the Euro ‘a good thing’ in any of the surveyed Eurozone countries. In addition, there are indications of a growing transnational divergence in public opinion of the Eurozone. This series of crises has triggered widespread discontent and has opened a window of opportunity to propose feasible alternatives to previously imposed neoliberal monetary policies.
The Austerity Argument… and how to counter it
To say that the succession of crises after 2008 have hit the Eurozone hard would be an understatement. The austerity measures that have been implemented in reaction to them have essentially consisted of reducing public expenditure in order to return government debt levels to pre-bail-out times. It has been imposed by order of the ECB and by national governments.
Yet commentators such as David Graeber have sought to explain the deep flaws within the logic of ‘balancing the books’ i.e. reducing the deficit. What he argues is that the less public debt there is, the more private debt individual citizens will have. If the government won’t pay for its public health service, schools, universities, transport facilities, and so on, then, logically, private bodies will have to. This is what students in England have to face, for instance, with university fees introduced in 1998 and reaching £9,000 year in 2012 as the UK government progressively retracted its own funding of higher education.
Even with deficit reduction being implemented as a rule in so many countries, however, the richest percentages of the European population always seem to get richer. David Graeber contends that the reason for this is because debt redistribution from the government to the private sector doesn’t depend on your own financial responsibility, but rather on power.
Graeber’s logic is that large bankers and other rich creditors hold government bonds when the government runs a deficit, and the bonds must then be paid by poorer parts of the population that don’t have the power to pass off the debt to someone else. This is done through taxation. Just in the UK, there are around 300 taxes that individuals must pay, and around 66% of the average person’s earnings goes towards paying taxes.
L’impensé of Maastricht
Since Maastricht in 1992, where the institutionalisation of the Economic and Monetary Union (EMU) was signed, EU member states have not created a fiscal or financial union alongside their ECB-led monetary union. Hence, the EU has no right to tax members of the EMU, and to get into debt. An added complication, which cannot be addressed here, is that not all EU member states are part of the EMU. So even on a larger scale, because the EU budget runs on contributions by the member states limited to around 1% of GDP, the EU’s fiscal room of manoeuvre is extremely limited. The EU does not have a fiscal equalisation scheme across member states that are part of EMU either.
However, it could be that the capacity to tax, and more importantly, to tax fairly, would have extremely positive results on derooting the neoliberal consensus over the necessity of imposing austerity onto citizens and on ridding the union of the great wealth inequalities, nationally and between members states. Indeed, the institutional framework of the EMU set up in Maastricht supported the boom and bust cycles which led to the emergence of macroeconomic imbalances, and hence greater wealth inequalities. This is because members of the Eurozone have very different economies, to which one macroeconomic policy was applied: high-growth and high-inflation countries had low real interest rates which stimulated domestic demand and amplified the boom. Strong domestic demand led to expanding imports and consequently to the emergence of current account deficits. By contrast, real interest rates in low-growth and low-inflation countries restricted domestic demand. This supported the emergence of current account surpluses. Although certain structural reforms are necessary to counter those imbalances, a larger redistributive policy would help solve these issues in the short term, and give a further push to help the reforms. All of this would rekindle popular support for a fair and democratic Europe, all in one go.
The current EU Robin Hood Tax Policy
The Financial Transaction Tax, also dubbed the ‘Robin Hood Tax’ or the ‘Tobin Tax’, a tax on all transactions made in the financial sector, seems to be able to accomplish this. It promises to make the banks and other financial units of our economies contribute to it whenever they decide to speculate and/or engage in other financial activities, without taxing the poorest parts of the population. It could be a way to counter the ideological and material strength of powerful multinational corporations and financial institutions spoken of previously.
The European Commission proposed a harmonised Financial Transaction Tax for the entire European Union in September 2011. The objectives of the proposed FTT were: to prevent the fragmentation of the Single Market that could result from uncoordinated national taxation systems; to ensure that the financial sector made a fair contribution to public finances, and to discourage financial transactions which do not contribute to the efficiency of financial markets or of the real economy, especially speculative transactions. They have grown a high deal since financial deregulation in the 1980s, and that have been one of the causes of the 2008 financial crisis. Now the EU has established a financial accord to levy Financial Transactions Tax from 2016 whereby 11 member states will be imposing that same ‘Robin Hood’ Tax. Those implementing it will be France, Estonia, Slovakia, Slovenia, Greece, Portugal, Belgium, Germany, Spain, Italy and Austria. How the tax will be imposed and how high it will be, however, is still undecided, even though the minimum tax rates foreseen were 0.1% for trading in shares and bonds, and 0.01% for derivative agreements.
Further and Better – the full FTT
Yet, one could go even further than the Tobin Tax. Financial transactions are formal transactions that are made by two individuals or computers. For instance, groceries at the supermarket, the delivery of pay checks, and currency exchanges, would be taxed by 0.2% when the money is sent from one place to another. That money would go the Central European Bank if the transaction is done in euros, or to the English Treasury if in pounds.
One could then imagine imposing the transaction tax onto all transactions in the EU – and not just the ones made in the financial sector – and have almost all of the remaining taxes simply disappear. In such a situation, it could be possible to continue taxing products that are dangerous for our health, such as cigarettes, and for our planet, such as petrol.
Simon Thorpe shows that individual taxpayers are currently paying 66% of all taxes, whilst companies (non-multinational corporations) are paying 29%, and the financial sector is paying only 5% of it. What he is suggesting is the abolishment of all taxes, to be replaced by one, universal tax on all financial transactions, not just those in the financial sector. So the Robin Hood Tax would be extended to all.
Some commentators predict that the quantity of transactions will be considerably reduced because of this tax. This does not have to be, however, an unfortunate prospect: many of transactions are, in effect, useless (especially the ones concerning speculation, or the ones used to skilfully transfer corporation money so as not to be taxed – neither are part of the ‘real economy’). The necessary ones, by virtue of being necessary, would remain.
A further criticism raised is around the fact that multinational corporations and other powers operating in the City of London (and other tax havens) will be able to heavily lobby against such a tax, and will be able to avoid it if ever it passes. When it comes to the latter, according to Tahra Ahmed, spokesperson for The Reset’ , this system would force them to pay, because even if big companies threaten to leave the country, outsource their production to countries with cheap labour and ship their profits off to tax havens, it wouldn’t change the fact that they still have to pay the tax; it being at its source. There would be no possible bypassing of the tax system or loopholes to be exploited. One could logically come to imagine the end of offshore tax havens, or at least a significant reduction in their use.
The former criticism is, in effect, a real possibility. A reason why this tax is not at the very top of the UK (and European) public agenda could come from the fact that those who pay the least amount of tax (financial institutions and MNCs) also have the money to lobby against such a tax, and to take it off of the agenda. Where the money is, is most of the time where the money is wanted to stay.
Full Robin Hood Tax – all in one
If we do manage to get this taxation system voted into place, however, many advantages could be offered. With a tax percentage set out by the ECB, and a redistribution within each Eurozone country according to population percentages, the amount the Eurozone raises each year in taxes (around €4 trillion) could be reached with 0.2%. One could even imagine putting up extra, small percentages on the national and regional levels, in order for individual sub-national units to be more financially independent. Once the mechanism is in place, it’s extremely easy to add these on. Indeed, a strong point in this taxation system is that it does not create more ‘red tape’, but rather less.
Indeed, the tax could be set up now numerically, and would be automatically taken from our transactions, by computer, when they are accomplished. No tax agency would be necessary to go through household tax forms, since there would be none to fill out ourselves. And the percentage of the tax could be adjusted through computer systems just as easily.
A specific example: the UK
It is true that the FTT has not been tested yet anywhere: no one knows whether the system actually works, or if there aren’t any variables that would render the project useless; that its proponents have either omitted or overlooked. But this does not mean that it should not be looked at, as it is still a promising project. Indeed, it deserves to be studied much more than what is being done at the moment.
Research and speculations have already started and campaigns are already being led. For a specific example, ‘The Reset’ in the UK is a campaign group that is working towards a ‘constitutional re-set to re-store fair principles, accountability, community led governance and ethics. Ensuring peoplecare, earthcare and fairshare for the benefit of all’; they have been pushing for this form of tax. They wish to see all taxes abolished, and replaced with a 1% transaction fee. They predict it will raise three times as much money as all previous 300 taxes put together. Those 300 taxes raised around £470 billion in 2013. By applying a 1% transaction tax to only two transaction systems, BACS and CHAPS transfers through the banks (and there are many others, such as PayPal), over £1.5 trillion could have been raised.
Albeit the fact that these remain speculations, many believe that the tax should be implemented because the consequences of such a tax could be very important, and possibly extremely positive. Those who own the ultra-majority of the wealth will finally have to contribute their fair share to our welfare, while individual citizens will be able to enjoy a new-found financial liberty.
For more radical political endeavours, the transformations wouldn’t have to end here: a much smaller financial burden coupled with more public funding would allow a reduction in working hours, freeing up time for other activities, such as caring for loved ones and participating in the democratic process, an idea associated with the radical economic degrowth movement. Indeed, such a tax could be in completed in accord with – and even, a necessary complement of – an economic plan centred around degrowth.
For those who do not wish take such an economically bold move, this is only one of the potentialities. As this article has argued, a Financial Transaction Tax could open up previously unknown economic roads, and solutions for many our contemporary issues.
 Debomy, D. 2013. EU no, Euro yes? European public opinions facing the crisis (2007–2012). Paris: Notre Europe.