Oh dear, oh dear, Dr. Williams

This is one of those deals that we really ought to try and make with churchmen.

We\’ll leave to them the arguments over trans- and con-substantiation as long as they confine their pronouncements to those subjects they themselves understand.

The third suggestion is probably the most far-reaching. The Vatican statement strongly backs the proposal of a Financial Transaction Tax – a “Tobin Tax” or, popularly, a “Robin Hood Tax” in the form in which it has been talked about most recently. This means a comparatively small rate of tax (0.05 per cent) being levied on share, bond, and currency transactions and their derivatives, with the resulting funds being designated for investment in the “real” economy, domestically and internationally. The modest rate of taxation conceals the high levels of return that could be expected (some $410bn globally on one estimate).

This has won the backing of significant experts who cannot be written off as naive anti-capitalists – George Soros, Bill Gates and many others. It is gaining traction among European nations, with a strong statement in support this week from Wolfgang Schaüble, the German finance minister. The objections made by some who claim it would mean a substantial drop in employment and in the economy generally seem to rest on exaggerated and sharply challenged projections – and, more important, ignore the potential of such a tax to stabilise currency markets in a way to boost rather than damage the real economy.

There\’s two errors here.

1) The FTT cannot be applied to currency markets in the EU. It is against the basic European Treaty to tax spot FX as this would be a violation of the principle of the free movement of capital.

And of course, if you can\’t tax spot FX inside the EU you cannot tax it anywhere as if you do then all the trade will simply migrate into the EU.

2) There will be no net revenue raised by an FTT. Far from it. As the EU\’s own report puts it, the long term effect of and FTT will be a 1.76% shrinkage of GDP. Given average marginal tax rates (some 40-50% of any increase in GDP ends up as tax revenue in EU states) this means that an FTT will reduce, not increase, revenues. For the loss of revenue will be in the 0.7% to 0.9% of GDP range (from the previous calculation). But the revenue raised will be about 0.1% of GDP.

This is known as a reduction in tax revenue, not an increase.

The UK government prefers the model of a direct taxation of bank assets.

Not precisely and exactly Your Grace, no. The levying of an insurance charge on liabilities which are not already insured through one or another scheme in order to pay for the implicit guarantee (\”too big to fail\”) that the larger banks enjoy, yes.

And a damn good idea it is too. You know, this idea that we might want to do something that actually addresses the problem we\’d like to address? Wonder if it will ever catch on in political circles, this basic approach to problem solving?

8 thoughts on “Oh dear, oh dear, Dr. Williams”

  1. As a churchman, and a non-economist, I don’t have a problem with churchmen, and non-economists, commenting on matters such as this.

    The real problem with the Archbishop is not that he is a non-expert, it’s that he is among that group (common on the left) who think that sounding like you’re doing something about a problem is the same as actually doing something.

    I’m struck this morning by the contrast between Giles Fraser, who tried to be hospitable and welcome the (albeit misguided) protestors, and lost his job because he was forced into a difficult position; and Rowan Williams, whose idiocy is completely unforced and voluntary. There’s injustice for you.

  2. Can’t help thinking that Gates and Soros have made their massive fortunes already, so it actually benefits them if everyone else is kept poorer.

  3. Williams refered to a statement by the Vatican, that bastion of financial propriety…err…not !

    And those bloody eyebrows of his…..whats that all about?

  4. Where the Archbishop is right, it seems to me, is in noting “widespread exasperation with the financial establishment…a powerful sense…of a whole society paying for the errors and irresponsibility of bankers…of impatience with a return to “business as usual” represented by still soaring bonuses and little visible change in banking practices”. This sense of exasperation is, in my view, compounded by such incidental factors as the Government’s claim that “we’re all in this together” while raising the cost of living for all via VAT and attempting to reduce the benefits of public sector pensions, and at the same time as acknowledging a 49% increase in Footsie Directors’ take-home and (via Boris Johnson) calling for a tax cut in income tax for the wealthy. (These are just examples).

    No wonder many people are “exasperated”. The great thing about a Tobin tax is that it’s a simple idea which appears to solve many of these concerns in an apposite and just manner. The problem, however, is that in fact it doesn’t achieve the intended results at all (this blog passim).

    My concern is that unless the discontent rightly noted by the Archbishop isn’t addressed, then a Tobin tax may well be carried by popular acclaim. In this context dissing the Occupy movement and indeed the Archbishop himself is seriously counterproductive.

Leave a Reply

Your email address will not be published. Required fields are marked *