The G20 is meeting this weekend at a crucial moment.
Weighing on the minds of G20 leaders will be the European sovereign debt crisis, the continuing depth of the US recession and the lack of public financing following gigantic bail-outs to prop up the global finance sector.
On the other hand, recent media reports have suggested that big Australian banks may have profited from the financial downturn by charging borrowers more than their increased costs. Around the world, banking is the most profitable industry on earth, 26 times more profitable than the average industry.
On the table at the G20 meeting is the proposal that the finance sector make a fair and substantial contribution towards society and towards repayment of the costs of the economic crisis.
When considering how the finance sector should repay the costs of the economic crisis, the G20 leaders have an opportunity and a responsibility to help poor countries hit by an economic and climate crisis they did nothing to cause.
In 2000, world leaders made a promise to the world’s poorest people to halve poverty by 2015. Ten years later, reeling from the effects of the economic crisis, around one in 6 of the world’s population goes to bed hungry, more people than ever before. Further funding is needed to even approach meeting this promise by 2015.
Additionally, climate change has not, and will not, go away. At Copenhagen, world leaders pledged to mobilise US $100 billion a year by 2020 for a ‘Green Climate Fund’. The G20 countries urgently need to make rapid progress on this pledge, but have so far failed to finalise even one source of innovative financing for climate change.
The best proposal for a global finance sector contribution is a tiny financial transactions tax of 0.05 per cent, which would raise about US$400 billion globally. Such a tax would be applied across the board to trading on a broad range of financial assets including shares, bonds, commodities, currencies, swaps and derivatives. More than 150,000 people from around the world have signed petitions demanding that the G20 create this global financial transactions tax, popularising the tax as a ‘Robin Hood Tax’.
But the Robin Hood Tax is far from just a popular phenomenon. German Chancellor Merkel and French President Sarkozy have publicly resolved to push for such a tax during the G20 meeting. The US and UK are also committed to some form of tax, and the European Union, whilst not a G20 member, is publicly discussing implementing its own Robin Hood Tax with or without the rest of the world.
However, a Robin Hood Tax isn’t only gaining support for its ability to fund poverty alleviation, climate change and domestic public services like health and education. Prominent economists have joined the call for a Robin Hood Tax because of the tax’s role in reducing financial turbulence in global markets.
Billions of dollars are traded on financial markets every day. The amount of money traded annually is 75 times global GDP, a huge increase from 1990 when trading was 15 times global GDP. Most of this increase is due to high-speed, high-volume speculation by traders. The enormity of this speculative trading can cause the prices of financial instruments to fluctuate and vary more widely than in the past from economic fundamentals.
Three hundred and fifty prominent global economists, including Nobel prize-winner Joseph Stiglitz, have signed a letter arguing that the Robin Hood Tax provides a disincentive by taxing this speculative trading that has been decried as market-distorting.
Now is the time for the G20 to commit to taxing the global banking and finance sector through the implementation of a Robin Hood Tax. The economic crisis has made clear that we need disincentives for risky practices in global markets. Meanwhile, the world’s poor, a warming globe, and even the struggling public finances of wealthy countries demand political leaders have the courage to implement a Robin Hood Tax.
We urge Wayne Swan to have that courage when he attends the G20 meeting this weekend.
Andrew Hewett, Executive Director of Oxfam Australia, and Professor John Langmore, School of Social and Political Sciences, University of Melbourne, on behalf of the Robin Hood Tax campaign.
This opinion editorial first appeared in The Canberra Times on 25 June 2010.