The EU could help the poorest countries of the world to recover from the consequences of the COVID-19 pandemic by taxing financial transactions, both on and off the stock exchange.
The COVID-19 pandemic has not only health consequences: it is likely to be followed by the worst economic crisis in almost a century. Tax revenues have fallen dramatically in many countries. Worldwide, this crisis could push an additional 100 million people into extreme poverty and leave 270 million people facing acute food insecurity.
So far, EU governments have launched national stimulus packages totalling more than €3 trillion – that’s a 3 with 12 zeros! That is money that will be missing in the future: in the course of recovering from the crisis, many EU Member States will have to deal with substantial budget deficits. This will make it more difficult for the EU and its Member States to financially support the world’s poorest countries in their efforts to recover from the consequences of the pandemic.
So on one hand, the EU and its Member States need to increase their support to people and countries that need it most in the context of international development. This is the only way these countries can cope with the medical and economic consequences of COVID-19 and prepare for future pandemics. The international community is only as strong as its weakest link, and the current pandemic has made it clear that none of us are safe until all of us are safe. On the other hand, money is becoming scarce.
One solution is for the EU and its Member States to generate substantial tax revenues with a Financial Transaction Tax (FTT). If all 27 states were to participate, up to €57 billion more could be collected each year. The Member States would have new resources at their disposal without having to go into debt again.
The Financial Transaction Tax is a common-sense approach to raising much-needed revenues:
- Virtually all products across the EU are taxed, making financial products some of the few that aren’t taxed.
- The use of financial products has risen dramatically during lockdown, so it’s only fair that they play a role in the post-pandemic recovery.
- 3500 organisations, representing more than 125 million European citizens, support the establishment of a FTT, as do a significant number of financial industry professionals.
- Six EU Member States (Belgium, Finland, France, Ireland, Italy, and Poland)
already have put in place a national FTT, with no demonstrated harm to competitiveness, and three others (Hungary, Portugal, and Spain) have drafted legislation.
- Many international financial centres are thriving despite the fact that they levy taxes on financial transactions, including the UK, Hong Kong, Switzerland, Singapore and South Africa.
The EU draft FTT proposal must become more ambitious
The current pandemic and its enormous financial consequences should serve as a political incentive for European leaders to agree on an EU FTT. Germany and France have jointly tabled a proposal and eight other EU Member States intend to implement it. Unfortunately, this proposal falls far short of what is needed, as it only aims at taxing some of the financial transactions (shares); the corresponding tax revenue would be estimated at €3.45 billion per year. If derivatives were also taxed, the revenue could be much higher. The European Commission estimates that if an FTT taxing both shares and derivatives were implemented in these 10 countries extended to all 27 Member States, it could raise as much as €35 billion – or 10 times more than the current proposal.* At the same time, the extension to derivatives could put a stop to trading in alternative financial instruments for tax avoidance purposes.
Given the serious health and economic consequences of COVID-19, the EU must act urgently and agree on a strong FTT to support the world’s poorest and most vulnerable countries. This is an effective way to fight the pandemic and help countries recover from its effects. Doing so would immediately establish the EU as a global leader in finding creative, low-cost ways to help the world’s poorest thrive.
*It should be noted that this estimate applies to 11 countries; Estonia is not currently a party to the enhanced cooperation process.