STRAIGHT AND TRUE

JOSIE PAGANI

An idea whose day has come?

Why not be really bold and look at a Financial Transaction Tax?


When IRD suggested that the New Zealand Tax Working Group look at this idea in 2010 it was told that it was beyond the government’s mandate. Apparently it’s not beyond the mandate of the International Monetary Fund, which is actively exploring the idea. 
 
Maybe it's an idea whose time has come.

Here’s how it works; a very small levy of 0.1% or 10 cents per $100 would be placed on all bank withdrawals. For most people this is less than the fee most customers pay a bank to use an ATM or eft-pos. You would hardly notice it.

But it would deter the wild speculators who play monopoly with our currency or buy and sell houses to bank the tax free capital gain.

Adair Turner, the former chairman of Britain’s Financial Services Authority, the regulator of the City of London called an FTT a tax on “socially useless activities”.

The best news for New Zealand businesses is that an FTT would stabilise the exchange rate by deterring the kind of speculation driving the housing bubble. Our productive sector would be able to grow and expand without the constant threat of a volatile dollar.

An FTT would raise more money, more fairly than GST. How can it be fair that someone earning below the average wage pays the same tax on food as someone earning millions? As far as working and middle class New Zealanders are concerned, an FTT could offset GST.

Its real target is the currency speculators who buy and sell our money - sometimes in the space of one day.

Should we use tax to deter excessive financial speculation? Absolutely, especially if it allows us to get rid of GST.
A family that spends $350 per week on food and essential services pays about $39 of GST. The same family would pay only 35 cents in FTT.

Compliance costs would be low. The banks simply collect the FTT from financial transactions and pass it on to the IRD.
 
Leading economists, numbering more than 350, including Nobel prize winner Paul Krugman think FTT is a good idea. The former chairs of IBM and Goldman Sachs are interested. Many OECD countries have legislation supporting some kind of  FTT; some in the form of a stamp duty on transactions; others as a levy on currency transactions where the proceeds go to global public goods like climate change or poverty reduction, and on domestic services .