Global Day of Action – Calling on Leaders to Introduce a Financial Transaction Tax

21 June, 2011 In the lead up to the next G20 meeting this November, a broad range of civil society actors are keeping the pressure on world leaders and calling for governments to show leadership in response to calls for a financial transaction tax (FTT).

But what is a FTT and why do we support the introduction of one?

A FTT is a levy on transactions in the global financial system. It would apply, for example, to foreign exchange, derivatives trading and share deals.

Depending on the way it is structured and the level at which it is set, a FTT could raise between US$200 billion and US$900 billion.

Ideally, the FTT would apply globally. But for a FTT to work it does not need to be universal. Rather, it would need to be collected in all major financial centres to prevent avoidance, and to further minimise the risks of relocation, a mechanism of sanctions for non-cooperative financial centres could be implemented.

The economic and social benefits of a FTT are clear.

As world leaders seek to minimise the risk of another global financial crisis, the introduction of an FTT should be part of the policy response. It can assist in reducing ‘short-termism’, asset-price bubbles and recurrent financial crises.

Furthermore, it is a global response to a global problem – poverty alleviation. Today approximately 1.4 billion people continue to live under the poverty line, on less than $1.25 a day.

And many countries are struggling to achieve the Millennium Development Goals.

Developed countries have a responsibility to provide overseas aid to assist countries in the efforts to reduce poverty and achieve sustainable development. In 1970, developed countries committed to allocating 0.7% of gross national income to overseas aid. Only five of the twenty-two major donor countries have met the target. Eleven other donors have committed to meet the target by no later than 2015.

While not an alternative to overseas aid funding by developed countries, and we continue to call on governments to reach the UN target of 0.7%, revenue raised from a FTT would provide a new and additional source of public finance to meet the challenges of fiscal consolidation, poverty alleviation and sustainable development.

This would include financing mitigation and adaptation measures designed to address climate change.

The political reluctance to adopt an FTT, identified as the barrier to its promotion, needs to be removed. In Europe, slow progress is being made. The European Commission has announced its support for the idea of a global FTT.

We strongly encourage the Australian Government to show leadership on the issue and advocate for the introduction of an FTT in international fora.