Will Labour run on a Financial Transaction Tax?

Labour have a finance spokesman who has never worked in the real world, and basically has very little idea about finance.

It wouldn’t be surprising if he did what the Democrats are doing now they are in opposition, and promote a Financial Transaction Tax.

To pay for the plan, the U.S. would impose what Van Hollen called a tiny fee on market transactions, of 0.1%. A Democratic aide said the fee would apply to any buy or sell transactions, and include stocks, bonds and derivatives. The plan would also limit tax deductions on CEO pay above $1 million.

So far this type of tax has only been promoted by the looney left, in the form of the Alliance and Jim Anderton, Mana, and the Greens.

5. Financial Transaction Tax

The Green Party will:

  1. Involve New Zealand with the group of countries working to agree on a tax on international currency movements, to set up a fund to provide capital for poor countries to improve their social and environmental wellbeing. This would discourage currency speculation without being high enough to impede genuine trade.

These taxes fail, France had a Tobin tax and it failed.

EDHEC called on the Commission to “draw lessons” from the recent failed introduction of the FTT in France.

“The taxed French stocks have recorded an average fall of 15% in volume compared with stocks that were not concerned,” Amenc said.

“Substitution effects have occurred between French and foreign stocks from the same sector.”

Amenc went on to say that some investors decided to modify their equity portfolios by underweighting French stocks in favour of non-taxed European firms as a result of the French FTT.

“This substitution effect will not fail to have consequences on the price of French firms and their capacity to raise capital in order to invest and create employment,” he added.

The Economist magazine looked at this very issue:

The evidence to support Tobin taxes is thin on the ground, however. Most academic studies generally agree that they may not necessarily decrease volatility in financial markets. An experimental study in 2010 by researchers at the University of Innsbruck suggested that a global Tobin tax would have little impact on volatility. And there is not much evidence at all that unilateral Tobin taxes work. Although large markets might see a fall in volatility, smaller markets would see a rise due to a fall in liquidity. Even Barry Eichengreen, a supporter of Tobin’s original proposals, now argues that a European Tobin tax may prove a “distraction” that allows systemic risks and instability to increase in other areas. For instance, according to Harald Hau, an economist at the Swiss Finance Institute and the University of Geneva, “credit misallocation” in the economy as the result of distorting equity and bond prices may make life difficult for small and medium sized business that cannot raise finance from abroad. In practice Tobin taxes imposed unilaterally have proved unsuccessful as markets have moved abroad to avoid them. Sweden’s experiments in the 1980s with a transaction tax on shares, equity derivatives and fixed-income securities ended in failure as activity moved offshore to avoid the levies. In the first week of the fixed-income tax bond trading volumes fell by 85%; the amount eventually raised from the tax averaged only about 3% of what was predicted. By 1990 over 50% of Swedish equity trading had moved to London.

Italy’s experiment didn’t start well:

Similar difficulties may lurk in Italy. Il Sole, a financial daily, has reported that Italian traders are beginning to move their residency to Malta, which has excluded itself from any such proposed tax. This suggests that the Italian government may not raise as much revenue as it originally thought. However, by not extending the tax to bonds, the Italians have attempted to avoid the pitfall identified by the International Monetary Fund that a tax on trading government bonds might increase the cost of public borrowing. This would have been disastrous for Italy, a country faring badly in the European sovereign-debt crisis. But has it avoided all the potential adverse effects of the policy? Current academic opinion suggests that this is unlikely.

Basically they don’t work. Which is why Labour will probably push to promote that…after all they failed with Capital Gains Tax.

 

– The Economist, Marketwatch.com


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As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story.  And when he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

They say that news is something that someone, somewhere, wants kept quiet.   Cam Slater doesn’t do quiet, and as a result he is a polarising, controversial but highly effective journalist that takes no prisoners.

He is fearless in his pursuit of a story.

Love him or loathe him.  But you can’t ignore him.

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