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A chance to push for a Tobin tax (sort of) February 24, 2011

Posted by Tomboktu in Capitalism, European Politics, International Finance, Trade Unions, Uncategorized, Workers Rights.

The suggestion of a tax on financial certain financial transactions (primarily on short-term currency trades) in order to put some “grit” in the system and generate a social benefit from the transaction was proposed by the Nobel prize-winner James Tobin in 1972. More recently, many have suggested that other aspects of the financial industry — the bonuses paid to traders and executives in the banks, for instance.

The EU has taken some action — baby steps, but potentially useful — in bringing some control to the sector and reigning in its madness. Last November, the EU amended the law on capital requirements for banks and on remuneration policies in the sector. Some of the provisions were to be implemented (or, in EU-speak, ‘transposed’) by 1 January of this year, all of the rest by 31 December. There are twenty new characteristics set out for the pay policies of financial institutions in the amending law, and you won’t be surprised to know that none of them would set a leftie’s heart aflutter with excitement. (I do think it interesting that one of the new points required by the directive is the following:

(m) payments related to the early termination of a contract [should] reflect performance achieved over time and are designed in a way that does not reward failure.

I suppose we might see a glimmer of a possibility in the staandards set for remuneration committees that large instiutions are required to establish, if they don’t already have one:

When preparing such decisions [i.e. decisions regarding remuneration], the remuneration committee shall take into account the long-term interests of shareholders, investors and other stakeholders in the credit institution.

A nice start would be to make sure that “other stakeholders” is defined to include customers and non-trading staff.

The next stage of dealing with banks at an EU level is under way. The European Commission is conducting a public consultation on taxation of the financial services sector. The Commission has identified three reasons for “addressing the issue”, as they put it:

  • Substantial public financing support during the crisis, need for fiscal consolidation and possible under-taxation of the financial sector.
  • Undesirable behaviours for the society as a whole (systemic risks), e.g. excessive risk taking.
  • Uncoordinated patch-work of national measures may:
    1. create incentives for tax-driven relocation either within the EU or outside the EU and distortion of competition;
    2. create situations of unrelieved juridical double taxation

    The second bullet point has to be of interest to those of us on the Left.

    The Commission is being both thorough and focused in its consultation. They are asking that responses deal with 57 questions, and they do ask for each of those you respond to that you provide evidence if you have any.

    Questions 10 to 21 deal with the core idea of a Tobin tax (although the Commission’s possibilities are not restricted to the specific type of trading/speculation that James Tobin had proposed be taxed). The level of thinking that is going into this can be gauged by the final question in that set: “What do you think of the effect on small and medium enterprises (SMEs) from broadbased [financial transaction tax]?” Questions 22 to 37 deal with the question of taxes on wages and profits in the sector. And, again, they are thinking of the broader picture. For example, they ask: “Do you think that the tax incidence of the tax will fall of the financial sector, or it will be shifted to the customers?“.

    I’ve no doubt that the technical details of the consultation will mean it will pass most of us by, although we can be sure that the industry and the businesses in it will contribute their views. (On that, I wonder will the Department of Finance and the current or new Minister use the golden shares acquired as part of the bailout to make sure any Irish companies the State has rescued do not make submissions reflecting the interests of those who couldn’t run them properly, but the public which is now propping them up).

    The consultation does provide us, simply as citizens, to make our views known, and I hope that both citizens and bodies like TASC, unions, the parties of the Left, and the MEPs (both ongoing and soon to be former :)) make submissions. Consultations close on 19 April, and all submissions will be made public (along with the identities of those making submissions unless there is a good reason not to reveal that information — see the consultation documents for an explanation of how that operates).


    1. Tomboktu - March 12, 2011

    I see that on his first (and last for the moment, at least) full day as a working backbencher, Alan Kelly TD issued a press release on a vote the previous day (Tuesday 8 March 2011) in his old stomping the ground, the European Parliament, on a report calling for the introduction of a Tobin tax.


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