The European Commission has now given 11 EU member states the green light to implement a financial-transaction tax (FTT), showing that the EU has no intention to be hostage of the financial sector's vested interests. Your most recent report (“Commission proposes transaction tax for ten countries”, EuropeanVoice.com, 23 October) did not address one burning question that this welcome development raises: how will the revenues be used?
The tax is designed to limit excessive financial speculation and stabilise financial markets. It would be odd, therefore, to put the money aside in a bail-out fund for a future financial crash.
This would create moral hazard, incentivising the kind of irresponsible behaviour that the tax is designed to curb.
The revenues would be better directed to addressing poverty and inequality. These are also the purposes for which an FTT was intended.
The founding father of the idea was the American economist James Tobin. Back in the early 1970s, he proposed a tax on foreign-exchange transactions to reduce speculation, which he saw as dangerous and unproductive. The idea became firmly established on the political agenda thanks to the efforts of NGOs and development experts.
In the heady days of the new millennium, NGOs lobbied hard for the currency transactions tax to be one of the pillars of financing for a new era of development. In 2005, the Belgian government adopted the necessary legislation for such a tax to be used to meet development objectives. In the same year, France and Spain joined Brazil and Chile in stressing the need for innovative finance for development in their ‘action against hunger and poverty' programmes.
Political attention to the FTT increased rapidly with the onset of the financial crisis in 2008, but preoccupation with the crisis has also diluted attention to the development dimension of the FTT.
After nearly three decades of effort by development activists and experts to promote the idea of FTTs, it would be unjust not to use FTT revenues to improve the lives of millions of poor people and instead use them to secure the future of actors largely responsible for the crisis in which we find ourselves today.