Not only bankers need a bailout

Posted on May 23, 2010 in Governance Debates

Source: — Authors: – Opinion – Tax on transactions could raise money earmarked to address global problems
Published On Sun May 23 2010.  Ed Broadbent

Everyone can agree that everything should be done to avert another financial crisis, which then morphs into an economic crisis, thereby imposing pain and suffering on many people throughout the world who had nothing to do with creating the financial crisis.

There is a lot of talk at present about a levy on financial institutions that would create a fund to bail them out in the future and lessen the burden on taxpayers. That’s what the influential International Monetary Fund (IMF) favours.

That’s all to the good but what we risk losing sight of is what needs to be done to bail out the rest of us, to provide insurance for us as well as for them. That includes some of the worst off people in the world, who are already in a condition of extreme poverty.

Regardless of what is done with respect to a tax on financial institutions, including what some are now calling a Financial Activities Tax, there is a compelling case for implementing a Financial Transactions Tax (FTT).

The Canadian government has a lot to teach our G20 colleagues, whom we will be hosting here in June. Our strong recovery with respect to other G20 countries is a testament to our sound banking system.

But in terms of how that same banking system should contribute toward alleviating future crises our government has little to say. Indeed, our message is simple, and simplistic: not our problem.

I think the government is wrong.

While we do not need to recoup the cost of bailing out our banking sector, the financial and economic crises have had a truly devastating impact around the world and have hurt many Canadians.

It has been estimated that it would cost more than $700 billion (U.S.) annually to buy our way out of these crises. That is what would be required to meet the budget deficits in developed countries resulting from the economic crisis; to finance the costs of mitigating climate change in developing countries; and to help the developing countries achieve the Millennium Development Goals of better lives for people that developed countries like Canada committed to.

That’s where the FTT comes in.

It is a tiny tax that is nevertheless a giant step forward. Present proposals are for a tax of 0.05 per cent on financial transactions globally that could raise close to that $700 billion annually because of the huge number of transactions.

The tax would deter harmful speculation that causes crises. But that is only half the story. It would at the same time provide the funds that could alleviate the current economic and climate crises.

Such financial resources are essential, particularly at a time when some governments, including ours, are freezing aid budgets.

And administering the tax is feasible. The technology that made possible the quantum leap in financial transactions in recent years can itself be used to collect the tax.

The financial transactions that most of us engage in would not be affected and we will not have to pay this tax. It would apply to transactions in stocks, bonds, derivatives, currencies and hedge funds. That’s the world of financial institutions and speculators where the big money is made, and that is where any burden would fall.

The IMF is a player in all this, and at the moment it gives first priority to taxing financial institutions directly so as to create an insurance fund for future bailouts.

So be it, but that is no alternative to a FTT which can provide, in effect, social insurance for the rest of us who bear the real costs of crises.

It is, after all, in our interest as Canadians to reduce the likelihood of financial crises anywhere in the world that play back adversely on our economy and our people.

Given Canada’s privileged position in global governance as the host of both the G8 and G20, let us not pass up our chance on the world stage to do good.

Lest we forget, the FTT is a Canadian legacy. Just over 11 years ago, this country, through our Parliament, declared “the government should enact a tax on financial transactions in concert with the international community.” We were the first country in the world to do that.

Globalization demonstrates its dark side by the financial and economic crises we are experiencing. Let us demonstrate its bright side by imposing the first global tax that will serve global goals.

Ed Broadbent is writing on behalf of Make Poverty History’s G8/G20 At The Table Campaign. He is the former leader of the New Democratic Party of Canada.

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