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The Robin Hood Tax in the EU: A political update
David Hillman, from the Robin Hood Tax Campaign UK and Stamp Out Poverty Uk, shares his political update on the European situation of the Robin Hood Tax (from March 2017).
1) After major breakthrough with FTT agreement in October, frustration as progress stalls
i) October breakthrough
Serious progress on the FTT file was achieved in October with agreement of the basic elements of the FTT deal by 10 EU Member States, including Germany, France, Italy and Spain. The accord is outlined in this official document, whose annex sets out what assets will be taxed and how tax will be collected. This is sometimes referred to as the core engine of the agreement because without these fundamental aspects in place it is not possible to finalise the further elements to complete the legislation, particularly tax rates.
The October agreement, which was made official when it was tabled as a state of play item at the 6 December Ecofin, was greeted by Pierre Moscovici, European commissioner for economic and financial affairs, as "very important progress", adding "we are designing something which is ambitious and realistic. Hopefully in the weeks to come we will be capable of submitting drafts ... and adopt what could be the first European FTT." The media outlet, CITY AM reported that both France and Germany also hailed the progress, with French finance minister Michel Sapin stating: "It is the first time we really have a clear agreement from all the countries," and German finance minister Wolfgang Schauble saying: "I hope we will be able to meet the finish line later this year." Moscovici affirmed the popularity of the measure declaring: “This is something that is expected by a lot of people who would like to see the financial sector contribute.”
ii) Strong goals but no movement
As a result of the October progress, finance ministers signalled they wanted two consequent outcomes to happen rapidly with a target of June 2017 to finalise the deal: 1) enshrine areas of agreement to date into legislative text and 2) create a roadmap setting out the critical path to resolution of all outstanding issues on the FTT file with tax rates as the final item. Disappointingly, neither have proceeded – with the 10 countries unable to agree legal language and unwilling, in the case of Germany, to publish a roadmap.
Austria, under the leadership of their finance minister, Schelling, are politically leading the FTT-10 group but their efforts to achieve success on the FTT file are being frustrated particularly by Belgium, who first demanded exemptions for pension funds but are now also calling for the exclusion of the insurance sector. This is not acceptable to the other countries, particularly small states such as Slovenia, who question the value of being part of the FTT group unless revenue is maximised - they are consequently strongly opposed to any financial actors being excluded. This stalemate is exhausting and demoralising to Austria, who are threatening to withdraw as political lead, potentially imperilling the FTT initiative itself. One technical solution to the ‘exemptions’ problem is a national opt-out, allowing each country the right to exclude specific financial players based in their own countries. The issue, however, illustrates a wider problem evident during negotiations last year – is Belgium blocking progress of the file on technical grounds or politically?
iii) Frustration with lack of progress
In January, the FTT was debated in the European Parliament with MEPs unhappy and impatient that negotiations appeared in deadlock. Udo Bullman, from the German Social Democrats (SPD) and vice-president of the S&D Group in the parliament, called on the 10 countries: “to continue working towards an ambitious and strong FTT based on the October 2016 agreement.” He added that since that time: “…rumours have emerged that several finance ministers have hardened their lines and are again working against the introduction of the FTT…this amounts to a shameful act of political sabotage…The introduction of a financial transactions tax is a matter of both justice and economic rationality. Why, after years of economic and social crisis caused by financial meltdown, would you continue to refrain from curbing harmful speculation and sourcing an estimated €35 billion of additional tax revenue that could fund necessary investments?”
To make matters worse the meeting of the FTT-10 finance ministers planned for the end of January, which would have demonstrated business on the file was continuing, was cancelled at the last moment by the Austrians. In all fairness, this was because of a constitutional crisis in Austria threatening the Government and potentially the position of finance minister Schelling. However, it did not prevent the media from having a field day declaring the FTT Europe’s Zombie Tax. Reuters reported Tax Commissioner Moscovici defending the tax saying: "A deal is within reach, if we only consider technical and legal issues,” but he also conceded “what is needed is political will."
2) Analysis – in light of the French presidential election (April/May) and German general election (September)
In recent days, civil society representatives have met with Commissioner Moscovici, as well as a number of officials close to the negotiations to discuss the state of play of the FTT file. The forthcoming elections in France and Germany present both a threat and an opportunity. In terms of threat, uncertainty of what a future administration’s position on the FTT will be (especially in France) means that in order not to risk wasting the enormous time and effort and considerable political capital expended on the file so far, securing strong progress by May would seem imperative. The opportunity is that the election period in both countries gives a distinct time period to exert strong pressure on politicians to keep their word to deliver the FTT or pay the price in terms of whether they can be trusted with the potential to negatively affect their popularity and consequently their electoral chances.
There is an impression, true or otherwise, that key states, such as Germany and France, are not working seriously or sufficiently towards a successful FTT outcome, although at the same time not wanting to be blamed for the file’s failure. They are thus hiding behind the difficulties raised by Belgium, waiting for Austria to quit leading the FTT-10 group, and will watch the initiative collapse claiming ‘they did all they could but in the end despite their best efforts it was not possible to reach agreement.’
In response to this, urgent steps need to be taken to demonstrate this perception is false and counter current risks:
i) most importantly, the large countries, particularly Germany, France and Italy, need to be far more proactive in exerting strong pressure on countries in the group, specifically those who are preventing agreement, to ensure an ambitious FTT deal, including equities and derivatives, is achieved by the Summer; and ii) if Belgium persist in a ‘sabotage’ role, their ejection from the group has to become a serious option to ensure the desired progress can happen in this time period.
Delay is not an option
The FTT file is being brought to agreement under the little-used Enhanced Cooperation Procedure (ECP) allowing a minimum of 9 countries to pursue initiatives without consensus of all EU countries. Although previous ECP legislation (in the area of divorce and patents) took many years to finalise, this ought not to suggest that the FTT file can afford to lose any time on the road to being realised. It is arguable, as well, after Germany’s forthcoming election, that their next administration are still likely to be pro-FTT, perhaps giving a sense that some drift on the file may still be possible. This should be cautioned against especially given concerns over the French post-election position, the atmosphere of uncertainty and reactionary direction heralded by Brexit and the Trump presidency - favouring a climate of unfettered corporate power and decreasing regulation in coming years – and, lastly, the palpable exhaustion with the length of the negotiations felt by key FTT actors, notably the participating FTT-10 countries themselves and civil society players. For these reasons, any delay in expediting the FTT file is fraught with risk.
Instead, strategic, powerful use has to be made of the electoral windows in Germany and France to portray politicians who do not deliver the FTT (when, for instance, in Germany it is part of the present government’s coalition agreement) as effectively in the pockets of the financial sector and working against the interests of ordinary people. In this way, a climate needs to be created where there is greater jeopardy for politicians, such as Germany’s finance minister Schauble, from not doing what is necessary to make the FTT happen than expending the required political capital to bring it about.
3) Human cost of delay of FTT deal to be broadcast to ministers ahead of next key meeting
After the last minute cancellation of the FTT-10 ministers meeting in late January, all eyes are turning to the next such meeting planned for February 20th (the eve of the next Ecofin). It is vital that this ministerial meeting takes place (and does not again suffer a postponement) to demonstrate the commitment of the FTT-10 to their on-going work to finalise the file. Technical sessions of the officials working on the FTT are scheduled in advance of the meeting, which is a good sign, and it is hoped that progress on matters such as pension funds will be an outcome.
In advance of the meeting, civil society groups in many FTT-10 countries including Germany, France, Italy, Spain, Belgium and Austria will launch an initiative publicising how much money would have been raised if the FTT had been agreed in December 2016 – the date politicians gave as when the agreement would be concluded. The FTT counter, which increases all the time that a deal is not reached, graphically illustrates to decision-makers the cost of their continued failure to achieve agreement demonstrating what the lost revenue could have been spent on, such as green infrastructure, education and health.
4) Brexit used by finance sector to confuse picture on FTT for politicians
The situation of Brexit is being used aggressively by the financial sector to confuse the picture on the FTT for politicians. According to this Bloomberg article, a partner at London firm Clifford Chance, said: “Germany and France are expending quite a lot of effort trying to entice financial services to Frankfurt and Paris, including derivatives desks. This isn’t going to work if the financial transaction tax is introduced by Germany and France.” According to finance expert, Avinash Persaud from think tank, Intelligence Capital, this argument “cannot be taken seriously” and is “nothing more than mischief.”
The finance industry position doesn’t make sense on a number of levels. Firstly, the UK already has an FTT on equity transactions and has done for decades. If the strain of such a tax on financial firms was really a determinant of the location of their business then finance businesses would have relocated to Germany (where no FTT exists) years ago. The reality is that the FTT is not a high enough cost for a financial firm to relocate its operations. Conversely, the imposing of the FTT by France and Germany would not prevent UK firms moving their operations. The real question is what would actually lead UK companies to relocate their operations? This would depend on whether their business model is under threat by remaining in the UK, not due to the FTT, which is just one of a number of costs of doing business. The actual determinant of relocation is if the outcome of Brexit negotiations does not give these companies sufficient (or sufficiently profitable) opportunity to do business with EU countries.
5) France’s FTT to bring in more revenue
Due to strong efforts by the French Robin Hood Tax campaign, parliamentarian’s voted changes to France’s FTT on equity transactions at the end of last year increasing the tax rate from 0.2% to 0.3% and including the taxation of intra-day transactions (from 1st January 2018). This will result in revenue rising from less than €1bn. a year to approximately €1.5bn.