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IFI governance

Background

Financial Transaction Tax implementation

23 September 2011

Notes of a meeting, Washington DC, 22 September 2011

Sponsors: Oxfam International, International Trade Union Confederation (ITUC), Institute for Policy Studies (IPS)

Panelists: Victoria Perry (Chief, Fiscal Affairs Department’s Tax Policy Division), Max Lawson (Head of Policy and Advocacy, Oxfam/GB), CHAIR: Peter Bakvis (Director, ITUC/Global Unions – Washington Office).

This panel will discuss several recent developments in the debate over financial transactions taxes. For example, the European Commission included such taxes in its budget proposal and the French and German finance ministers shared with the Commission their proposals for how such taxes should be administered. In addition, the IMF has continued to produce useful research on the issue, including, most recently, the working paper “Taxing Financial Transactions: An Assessment of Administrative Feasibility.”

Peter Bakvis

  • debate if research papers
  • IMF in September 2009 was given a mandate to look at options for a fair and substantial contribution from the financial sector.
  • Initially held FTT in contempt but are currently coming around.
  • FTT to be effective has to be broad based.
  • FTT can be introduced in countries.
  • FTT most effective when they are introduced in a coordinated fashion.
  • IMF promoting a FAT
  • World however is moving towards an FTT.
  • If realises that financial sector grossly under taxed.

Victoria Perry, IMF

  • Good dialogue on taxing the financial sector.
  • Focus on paper: administrative feasibility of implementing a financial transactions tax.
  • IMF had not viewed the FTT as the optimal way of imposing a tax on the financial sector.
  • This is still the case, prefer focusing on FAT and an insurance fund for future financial crises.
  • FAT less distortionary.
  • used to be said it would be difficult to impose an FTT
  • Stamp tax demonstrates that it is feasible.
  • Much more feasible now to implement an FTT than before due to modernisation.
  • The reason not to do it is to see if this will achieve the results you want it to achieve.
  • Can assess FTT on the money that changes hands.
  • Do we exempt transactions or institutions?
  • flat rate or progressive
  • Who to collect it from.
  • Who collects it?
  • exchange traded instruments are easiest to tax
  • over the counter instruments more difficult
  • Foreign exchange instruments most difficult to tax.
  • Modern developments have made these things easier.
  • for tax to be feasible need to:
  1. define types of transactions
  2. establish the timing of the tax liability
  3. determine tax base
  4. identify taxable persons
  5. devise efficient workable methods for assessing and collecting tax
  • Simplest approach should be to apply FTT to transactions that lead to change of ownership.
  • Unfortunately most problematic assets come from transactions that have no change in ownership.
  • do you tax both legs
  • Problem of tax evasion occurs.
  • Tax has to be backed up by credible enforcement mechanisms.
  • Taxation will create market distortion unless appropriately measured.
  • Coherent international legislation required to deal with FTT implementation.
  • Mitigation and penalties need to be clearly established.
  • Policy makers need to decide on the goal you want to achieve.

Natalie Broadhurst

  • ODA is key for development and has reached a high level in 2010
  • Budgetary constraints will mean that alternative mechanisms need to be developed.
  • France supports FTT because it is efficient and deals with all transactions.
  • Low rate of FTT can raise large amounts of money.
  • Question and issue of coordination is a big issue.
  • See FTT as an ethical dimension of the financial sector.
  • Most global sector does not contribute to global solidarity.
  • Inequality and instability are greater risk than market distortion of FTT.
  • need to come to a global agreement on FTT.
  • In March 2011 euro zone leaders agreed to consider FTT at their level or higher.
  • FTT in the framework of the MFF
  • Differentiated rate of FTT depending on the type of transaction.
  • Large convergence of views on implementation of FTT.
  • FTT should be technically simple and should fit into international law.
  • commission proposal does not include currency
  • Financial institutions should pay the tax.
  • EC should have a minimum rate that goes to EC budget but the rest can go to governments.
  • steps ahead is that the EC should adopt the proposal and then go to the council and the ECB.
  • at the international level much work needs to be done which is why it is high on the agenda of the G20

Max Lawson

  • FTT getting a lot momentum.
  • Casino culture of financial transactions is troubling.
  • Transactions dwarf the real economy, could be labelled the unreal economy.
  • HFT is a perfect example of how distorted markets have gotten.
  • More liquidity is not a good thing. We have excess liquidity and socially useless transactions.
  • currently in financial crisis part 2
  • ODA could face a ten to fifteen percent cut as a direct result of the financial crises.
  • there is a moral and ethical background to the FTT
  • Need to see the FTT be implemented.
  • Needs to be about when instead of if.
  • Cannot see this tax implemented and then the Germans using it to bail out banks.