IRELAND WON’T BE joining the 11 countries who said earlier today that they would support a financial transaction tax.
An FTT, commonly known as a Robin Hood tax, is a small tax levied on financial transactions in a bid to discourage risky behaviour by market operators.
Supporters say that an FTT will recoup some of the massive cash injections that have gone into banks through the financial crisis, while critics say it will hurt jobs and growth.
But who’s right? Two experts give their opinions below.
For: Michaél Collins, Senior Researcher at the Nevin Economic Research Institute
This is an important issue that’s in the limelight in a European context, yet very much under the radar in an Irish context.
As a concept, it’s been around for a long time. James Tobin in 1972 is given the credit, and it has grown, evolved, died and come back from the dead since then on numerous occasions.
Measuring our exposure
The first reason I think it works is that it allows us to monitor society’s financial exposure.
This is the biggest argument for an FTT. If you implemented it, it would necessitate central banks to establish a real time monitoring mechanism for everything that happens in the financial markets.
Last year, the daily foreign exchange turnover in Ireland was $11 billion (€7.9 billion). That’s €173 per day, per person. Much of that is totally legitimate, but a lot of it is linked to speculative activities.
So it’s big, and we should know what’s going on because societies underwrite these financial institutions. Society has to step in when they fail, so society is in effect writing an insurance contract all the time to underpin those institutions.
In 2008, governments and central banks didn’t know what was going on, and didn’t know what the bank’s liabilities were that they were underwriting.
If you’re writing an insurance contract, you should know what’s going on, and what you’re covering. It’s worth implementing, even if all it did was ensure we knew what we were underwriting.
Targeting risk
It would also dampen the attractiveness of short term speculative transactions.
These are often driven by profiteering and in many cases target vulnerable countries. They work on tiny margins, are all about short term gains, and are questionable in terms of their economic activity.
For Ireland, there’s a couple of difficulties.
Firstly, UK participation is ideal, and is currently lacking. That would limit any transfer of activity from the IFSC to the City of London.
The second issue for Ireland is the scale of the exchequer revenue we would gain. The current proposals suggest that we would raise somewhere between €300 and €550 million from a FTT.
However, the European Commission wants 66 per cent of the yield from it to pay for the itself. We need to make sure that if they take this, it is in place of what we already give to fund the EC, otherwise you’re talking about very small gains overall from the tax.
The FTT has real merit. Ideally Ireland should be giving leadership to get this implemented right across Europe. That leadership so far has been completely lacking.
Against: Brendan Bruen, Director, Financial Services Ireland (IBEC)
We will have sorted out a co-ordinated approach to climate change and wealth redistribution before we get to a stage where we can realistically talk about a globally agreed FTT.
The US aren’t going to be a part of this. The same can be said for the far eastern transaction centres like Singapore and Hong Kong. The UK is not going to sign up, short of a seismic political shift. Luxembourg is also highly unlikely to sign up.
Those last two are critical, because they’re Ireland’s key competitors in the financial services sector.
Jobs
It is a pragmatic decision from the Irish perspective not to support this.
International Financial Services, broadly speaking, is about 36,000 jobs. It’s €2.1 billion between payroll tax and corporation tax. It’s absolutely huge money.
The key question is, will the jobs move? For me, if we impose this, business will move elsewhere. The margins are so small between setting up in Ireland and setting up in Luxembourg that it’s very hard to conceive that there would be no movement.
When you look at how much is done through Ireland, and the uncertainty that this will cause, we would see this as a massive competitive disadvantage.
Furthermore, when you impose a cost across an entire industry, you typically see that being moved on and placed on the consumer – look at VAT or insurance policies. Where the tax is levied isn’t necessarily where the burden falls.
Risk reduction
Does it reduce risk? It doesn’t seem to me that the FTT would have an impact on the big speculative plays, in rapidly moving markets, because the risk reward for the trader is so high.
What it will hit is where margins are much smaller. The small transactions, where 0.1 per cent suddenly makes them uneconomical, or certainly makes them costly, are going to be more dramatically hit than the ‘big ticket’ speculative trades.
You’ll see these low margin transactions moving outside Europe and into less regulated areas.
What are we targeting? A transaction tax doesn’t discriminate between different types of behaviour. It’s the same 0.1 per cent on the risky stuff and the not so risky stuff.
I would be reasonably confident that the costs would outweigh the benefits here. It’s not the 0.1 per cent, it’s the 100 per cent. If business isn’t getting done here, we’re not getting jobs, payroll or corporate tax. Everybody’s losing.
This article is based on a debate hosted last week by Claiming Our Future.
Is a Robin Hood tax something you’d support in Ireland?
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