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Introducing a 0.05% Financial Transactions Tax as an Instrument of Global Justice and Market Efficiency

  • Ross P. BUCKLEY (a1)

Abstract

A financial transactions tax (FTT) is a tax on wholesale capital market transactions, which civil society has long advocated for on grounds of social justice. This so-called “Robin Hood Tax” would take from the rich and give to the poor. Revenue estimates for a global FTT of 0.05 percent are around US$500 billion per annum. One-quarter of this revenue stream can achieve the first six Millennium Development Goals relating to poverty, health, and education. Even if the developed countries retain all of the revenue raised, the impost would see financial services institutions making a fairer contribution to the societies in which they operate. Thus, as an instrument of justice, the potential of an FTT is great—but, most of all, such a tax will enhance the operations of contemporary financial markets substantially. This paper explores the potential of such a tax, the arguments for and against it, and its feasibility.

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Scientia Professor and Centre for International Finance and Regulation (CIFR) King & Wood Mallesons Chair of International Finance Law, University of New South Wales, Sydney, Australia; Fellow, Asian Institute for International Finance Law, University of Hong Kong, Hong Kong. The author sincerely thanks the Australian Research Council for the Discovery Grant which supported this research; the two anonymous referees whose questions, comments, and insights greatly improved the final version; and the participants at the joint conference of the Asian and Australian and New Zealand Societies of International Law on “International Law and Justice” in Sydney on 25−26 October 2012 for their insightful comments on an earlier draft. The author would also like to thank Rebecca Stanley, Vivianne Schwarcz, and Laura Ferraro for their invaluable research assistance. The responsibility for any errors remains with the author.

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5. Ibid.

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7. Over 600 civil society groups are involved in the Robin Hood Tax campaign globally, including Oxfam, World Vision, The Salvation Army, UNICEF, and Comic Relief.

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14. Ibid.

15. The Volcker Rule is named after former Chairman of the US Federal Reserve system, Paul Volcker. The basic idea is that banks that accept deposits from the public should not engage in proprietary trading. It is now enshrined in s. 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376 (commonly known as the Dodd Frank Act), which prohibits depository institutions and their affiliates from engaging in proprietary trading, or acquiring or retaining an interest in a hedge fund or a private equity fund, or sponsoring a hedge fund or a private equity fund.

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17. Most post-GFC reforms have simply tried to make regulatory measures, that were in place before the crisis, work better, such as reforms aimed at improving the efficacy of disclosure regimes. The Volcker Rule is not really new as it is in the main part simply a return to the division between investment and commercial banking instituted by the Glass-Steagall Act. However, limits on bank executive compensation is a new measure, and not an attempted enhancement of an old measure.

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21. Algorithmic trading uses high-speed computer programs to generate, route, and execute orders. The Australian Securities and Investments Commission defines algorithmic trading as “computer-generated trading activity where trading parameters are determined by strict adherence to a predetermined set of rules, aimed at delivering specific execution outcomes”. See Australian Securities and Investments Commission, “Market Assessment Report: ASX Group, Report 222” (November 2010), online: ASIC 〈http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/rep222.pdf/$file/rep222.pdf〉.

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23. Matheson, supra note 22 at 19

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25. Ibid. See also International Organization of Securities Commissions (IOSCO), “Regulator Issues Raised by the Impact of Technological Changes on Market Integrity and Efficiency” (July 2011), online: Securities Technology Monitor 〈www.securitiestechnologymonitor.com/news/iosco.php〉.

26. WILLIAMS, Tee, “Oh Dear! I'm Queued! It's Latency!” Mondo Visione (29 October 2008)

27. BUCKLEY, Ross and NORTH, Gill, “A Financial Transaction Tax: Inefficient or Needed Systemic Reform?” (2012) 43 Georgetown International Law Journal 745

28. See European Commission, “Commission Staff Working Document: Innovative Financing at a Global Level” (1 April 2010), online: European Commission 〈http://ec.europa.eu/economy_finance/articles/international/documents/innovative_financing_global_level_sec2010_409en.pdf〉 at 19 [European Commission, “Commission Staff Working Document”].

29. Robert POLLIN et al., “Securities Transaction Taxes for U.S. Financial Markets” (2003) 29 Eastern Economic Journal 527 at 542

30. European Commission, “Commission Staff Working Document”, supra note 28 at 19.

31. Schulmeister, supra note 10

32. European Commission, “Proposal for a Council Decision on the System of Own Resources of the European Union” (29 June 2011), online: European Commission 〈http://ec.europa.eu/budget/library/biblio/documents/fin_fwk1420/proposal_council_own_resources_en.pdf〉 at 5 [European Commission, “Proposal”].

33. INMAN, Phillip, “EU Approves Financial Transaction Tax for 11 Eurozone Countries” The Guardian (22 January 2013)

DIZARD, John, “Trouble Brews over EU Transactions Tax” Financial Times (12 April 2013)

MIECAMP, Julie, “Europe's Financial Transaction Tax Could Be Boost to Loan Market” Bloomberg (15 February 2013)

34. European Commission, “Proposal”, supra note 32 at 5; Inman, supra note 33.

35. BUCKLEY, Ross and NORTH, Gill, “A Fundamental Re-examination of Efficiency in Capital Markets in Light of the Global Financial Crisis” (2010) 33 University of New South Wales Law Journal 714

36. The Aspen Institute, “Overcoming Short-Termism: A Call For a More Responsible Approach To Investment and Business Management” (9 September 2009), online: The Aspen Institute 〈http://www.aspeninstitute.org/sites/default/files/content/images/Overcoming%20Short-termism%20AspenCVSG%2015dec09.pdf〉.

37. Schulmeister, supra note 10 at 1

38. Ibid.

39. BUCKLEY, Ross and ARNER, Douglas, From Crisis to Crisis: The Global Financial System and Regulatory Failure (The Hague: Kluwer Law International, 2011) at 1360

40. Nations, United, “Report of the Commission of Experts of the President of the UN General Assembly on Reforms of the International Monetary and Financial System” (21 September 2009)

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43. Report of the Commission of Experts, supra 40 at 47.

44. MONAGHAN, Angela, “Tax ‘Socially Useless’ Banks, Says FSA Chief Lord Turner” The Telegraph (27 August 2009)

45. Turner, supra note 40

46. RAWLS, John, A Theory of Justice (Cambridge, MA: Belknap Press of Harvard University Press, 1971) at 136142

47. BRONDOLO, John, “Taxing Financial Transactions: An Assessment of Administrative Feasibility”, International Monetary Fund, Working Paper, 1 August 2011 at 5

48. CHOUDHURY, Ambereen and CHRISTIE, Rebecca, “EU Financial Transaction Tax Seen Costing Britain $6 Billion”, Bloomberg (3 April 2013)

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50. McCulloch and Pacillo, supra note 10

51. International Monetary Fund, “A Fair and Substantial Contribution By the Financial Sector: Final Report for the G-20” (June 2010)

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52. Buckley and North, supra note 35 at 714−744

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56. KIM, Young-Chul, “Understanding the Silence Amid Turmoil: The Tobin Tax and East Asia” in James WEAVER et al., eds., Debating The Tobin Tax: New Rules for Global Finance, (Washington, DC: New Rules for Global Finance Coalition, 2003), 135

57. NINGZHU, Zhu, “Tobin Tax Estimated To Add 740 Mln USD To S. Korea's Tax Revenue” Xinhua News Agency (21 February 2013)

RANGANATHAN, Vidya, “Korea Becomes the Red Flag for Asia's Currency War” Reuters (1 February 2013)

SEUNGKI, Yoo, “S. Korean President-elect Park Stresses Currency Stabilization” Xinhua News Agency (20 February 2013)

58. MAIN, Carla, “Won Bets Ease As South Korean Calls For Transaction Tax Escalate” Bloomberg (3 April 2013)

59. Xiaotian, WANG, “Safe Promises Crackdown on ‘Hot Money’ ” China Daily (5 August 2011)

SHAW, Joy C. and YU, Rose, “PBOC Adviser Mulls Tobin Tax” Wall Street Journal (25 November 2010)

LEUNG, Sophie and AVERY, Nerys, “China's PBOC Plans to Strengthen Liquidity Management” Bloomberg (25 November 2010)

60. Wang, supra note 59

61. CONWAY, Edmund, “ ‘Robin Hood’ Bank Tax Wins Backing of Japanese Foreign Minister” The Telegraph (2 March 2010)

62. Toru, FUJIOKA, “Japan Should Impose Taxes on Financial Trading, Minezaki Says” Bloomberg (17 February 2010)

63. Stewart, Heather, “Robin Hood Tax: 1,000 Economists Urge G20 to Accept Tobin Tax” The Guardian (13 April 2011)

* Scientia Professor and Centre for International Finance and Regulation (CIFR) King & Wood Mallesons Chair of International Finance Law, University of New South Wales, Sydney, Australia; Fellow, Asian Institute for International Finance Law, University of Hong Kong, Hong Kong. The author sincerely thanks the Australian Research Council for the Discovery Grant which supported this research; the two anonymous referees whose questions, comments, and insights greatly improved the final version; and the participants at the joint conference of the Asian and Australian and New Zealand Societies of International Law on “International Law and Justice” in Sydney on 25−26 October 2012 for their insightful comments on an earlier draft. The author would also like to thank Rebecca Stanley, Vivianne Schwarcz, and Laura Ferraro for their invaluable research assistance. The responsibility for any errors remains with the author.

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Introducing a 0.05% Financial Transactions Tax as an Instrument of Global Justice and Market Efficiency

  • Ross P. BUCKLEY (a1)

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