A Tax on Financial Transactions Is on Its Way, But Who Will Benefit From Its Revenues?

09/11/2012 18:46 GMT | Updated 09/01/2013 10:12 GMT

If you gave eurozone governments over €30billion right now, you wouldn't be surprised to see them use it to plug the huge holes in their domestic budgets. With the Greek government facing violence on the streets of Athens in the wake of a new raft of austerity measures, it takes real political courage to prioritise the poorest people in countries far away.

But that's exactly what we need cash-strapped countries to do right now.

Nine months ago the European Commission proposed a low EU-wide tax - 0.1% on share and bond trades, 0.01% on other transactions - which, with full bloc cooperation, was expected to bring in around €57 billion a year. Now that a group of 11 nations, accounting for two-thirds of Europe's economy - including France, Germany and Italy - have been given the green light on implementing the tax, revenue is likely to be substantial. And with this financial transaction tax (FTT) the EU has shown it has no intention to be held hostage to the financial sector's vested interests.

Now that the tax is finally on its way, the question is whether any of it will benefit those it was originally meant for: the poorest.

Robin Hood's M.O. was that he gave the money he got to the poor. And that's exactly what the campaigners calling for the FTT or 'Robin Hood Tax' demanded. Without a shadow of a doubt, there are many families in Europe finding life incredibly hard, and increased spending on public services and financial support to ease their situation would be welcome. But as UNICEF research has shown, many families suffering the worst impacts of the financial crisis and recession are in developing countries. They too should benefit from making the financial sector pay for the damage it is has caused to the global economy.

Of course, developing countries could benefit indirectly if eurozone countries implementing the FTT were to use their new-found budget boost to reach pledged overseas aid levels of 0.7% of national income, or even to reverse declines in aid in countries such as Italy.

Even better would be to use the revenues to create a new substantial, independent and predictable source of revenue for development financing that would be free from the capriciousness and whims of donors. This has been behind the success of the Global Fund to fight AIDS, tuberculosis and malaria that is helping turn the tide on those diseases and saving millions of lives.

The fight for an FTT began decades ago in the early 1970s with the ideas of American economist James Tobin but was firmly established on the political agenda thanks to the efforts of NGOs and development experts. Governments in Canada and France carried out substantive research into the viability of the tax. In the heady days of the new millennium, NGOs lobbied hard for the currency transactions tax to be one of the pillars of financing a new era of development. In 2005 the Belgian government laid down the necessary legislation for such a tax to be used to meet development objectives. In the same year, France and Spain joined Brazil and Chile in stressing the need for innovative finance for development in their 'Action against Hunger and Poverty' initiative.

With the onset of the financial crisis in 2008, political attention on the FTT increased rapidly. Championed by Germany and France, the G20 commissioned the International Monetary Fund to look into the tax as one way for the financial sector to pay for the damage they caused. UK support has been conspicuous by its absence, with consecutive governments reluctant to be at odds with the country's valuable financial sector.

But memories are short. Some of the same eurozone governments are part of the 'Leading Group' of governments who have called for innovative financing to help fill the funding gap for fighting poverty and climate change is around $324-336 billion per year. More than 870 million people do not have enough to eat every day, 98% of them are in developing countries. Effects of a changing climate continue to make it harder for small holder farmers to grow crops and make a living in large parts of sub-Saharan Africa.

After nearly three decades of development activists' and experts' efforts to bring about FTTs, it would be heinous not to use the revenues to contribute to a better future for millions of poor men, women and children.