In your article “Bin It” concerning the European Financial Transaction Tax (FTT), the article makes a mistaken comparison to a previous transaction tax on shares applied in Sweden as a basis for arguing that transaction taxes do not work, due to poor design, narrow coverage and lack of anti-avoidance measures.
The Economist could surely have taken an example much closer to home from the country where it is published, where a Stamp Duty has been extended on shares trading for over 200 years, with continued success, raising over £3 billion every year in tax revenue. This has not hurt the location of the United Kingdom for listing major companies, and raising capital for businesses.
The critique of applying the tax on the basis of issuance as well as residence is also well-established in the UK Stamp Duty. Indeed, an estimated 40% of the UK Stamp Duty is actually paid by foreign counterparts in transactions. It violates no international treaty, as the UK has sovereignty over the activities that are seen to take place within its jurisdiction, and it includes the issuance of financial instruments.
The Stamp Duty, of course, does not extend to bonds and derivatives as is the case of the European FTT, but that doesn’t change the principle on which it is based. The broader coverage actually improves the proposal, as the UK Stamp Duty can be avoided by trading in equity derivatives or engaging in repurchase agreements that are not covered by the Stamp Duty.
The wider implication of the tax is that financial market actors should pay a fair share of their responsibility towards the consequences of the current and past crisis that they caused. The campaign on the financial transaction tax started in the wake of the Asian Financial Crisis in 1997, and has been led by a civil society coalition, and a group of leading countries who wished it to become a reality since 2001. The occurrence of the financial crisis in 2008 made it a more feasible in political terms.
Now the challenge is to allocate a large share of the revenues in favour of those who have the most suffered from the financial crisis both in Europe and in developing countries. In addition, the allocation should learn form the previous mistakes of aid effectiveness, and build representative global funds that represent the interests of those who receive the funds. The Global Fund to fight against AIDS, Malaria and Tuberculosis; The Green Global Fund and the Global Fund for Education are all worthy of additional resources from the European FTT.
If this were the case, maybe we learn a lesson from this financial crisis in opening a new beginning for global democratic governance.