Social Justice Ireland welcomes European Parliament resolution urging a transaction tax on banks

Social Justice Ireland welcomes the decision of the European Parliament to urge the EU to promote the introduction of a financial transaction tax such as the Tobin Tax which could raise around €200 billion per year in the EU and would also discourage speculative trading by making it more costly. A tax along these lines has been proposed constantly by Social Justice Ireland.

The resolution argues that a tax of this kind can yield a "double dividend" by not only generating more funds, but also making the financial sector safer and society greener. 
The EU should promote the introduction of such a tax, even if it is alone in doing so, "as a first step", according to the resolution which was agreed by a vote of 529 to 127 on Tuesday March 8, 2011.
As the international economic chaos of the past few years has shown the world is now increasingly linked via millions of legitimate, speculative and opportunistic financial transactions. Similarly, global currency trading has been increasing dramatically throughout the last few decades. It is estimated that a very high proportion of all financial transactions traded are speculative currency transactions - these speculative transactions are completely free of taxation.

There is growing support worldwide for the introduction of a tax on such speculative exchange transactions. The Tobin tax, proposed by American James Tobin the Nobel Prize winner in economics in 1981, provides a potential solution. It is a progressive tax, designed to target only those profiting from currency speculation. Therefore, it is neither a tax on citizens, nor on business. Given the recent world economic experience, the tax also has merit in assisting Governments and regulators to continually monitor the risk that financial institutions are taking.
The majority of foreign exchange dealings are done by one hundred of the world's largest commercial and investment banks. The scale of their dealings is estimated at US$1.5 trillion worth of currency every day; all this in essentially unregulated financial markets. In 1998 the financial institution with the largest share of this market, Citibank, engaged in foreign exchange transactions worth US$8.5 trillion, a value in excess of the corresponding US GDP for that same year. The scope of the Tobin tax varies. Initially, James Tobin suggested a tax on all purchases of financial instruments denominated in another currency. Since then, Canadian economist Rodney Schmidt has broadened the tax to include all foreign exchange transactions.

These would include simple exchanges of one currency for another (spot transactions) as well as complex derivative financial instruments including forwards, swaps, futures and options if they involve two currencies. The recent proposals in the UK for a ‘Robin-Hood Tax’ represent a further development of these proposals.
The rate would be determined by each country enacting the tax, but the tax range recommended to produce moderate market calming and revenue-raising outcomes is between 0.1 and 0.25 per cent. While this may seem very small to consumers, relative to VAT rates and income taxes, the impact on the margins of currency speculators would be enough to curb their activities.

The revenue from the tax would be considerable - somewhere in the region of €50 -100 billion per year. Though the effect of the tax over time would be to reduce the volume of currency speculation and thus the potential revenue from the tax, nevertheless the intake will remain high. It is proposed that the revenue generated by this tax be used for national social development and international development co-operation purposes. According to the United Nations, the amount of annual income raised from the tax would be enough to guarantee to every citizen of the world basic access to water, food, shelter, health and education. Therefore, this tax has the potential to wipe out the worst forms of material poverty throughout the world.

When James Tobin first put forward his idea he envisaged the tax being adopted by every country in the world simultaneously. Otherwise, he argued, speculators would “flock” to those countries without Tobin tax laws. Since such international agreement seemed improbable, the tax was seen by many as a worthy but impracticable proposal. However, over recent years the work of economists and financial experts has demonstrated that universal simultaneous adoption is not vital for a successful implementation. Essentially, foreign currency markets are concentrated on a global scale and if the principal countries implement the tax, this would suffice to cover the planet as a whole.

Eight major countries account for more than 80 per cent of world exchange transactions, the foremost four for 65 per cent. In the City of London, the largest financial centre with 33 per cent of the world total, the 10 biggest banks account for 50 per cent of transactions. What is needed is for one major region of the world to implement the tax. Consequently, Social Justice Ireland welcomes the increasing attention this proposal has been receiving at European Inter-Governmental Level. We believe that the time has come for such a tax, It would simultaneously facilitate, and perhaps fund, the required regulation of financial speculation while providing substantial funds to adequately address the world development issues highlighted in the Millennium Development Goals.
The plenary session of the parliament in Strasbourg , which approved this resolution, heard that the next step should see the European Commission produce a feasibility study and concrete legislative proposals. Social Justice Ireland urges the Commission to act swiftly on this issue which has so many positive aspects if it were introduced.