How it works
The Robin Hood Tax (more formally known as a financial transaction tax) is a tiny tax on financial speculation by investment banks, hedge funds and other finance institutions that would raise billions to tackle poverty and climate change, in Australia and overseas.
It can start as low as 0.005 per cent – and average 0.05 per cent. But when levied on the billions of dollars moving round the global finance system daily through transactions such as foreign exchange, derivatives and share deals, it could raise hundreds of billions of dollars annually.
That can provide for vital investment in much needed and underfunded public services like health and education, resource efforts to conserve our environment, aid the fight against global poverty and climate change. This money can help shape the future of our world.
The tax would not be levied on everyday banking transactions conducted by individuals.
Because the time is right.
First, from 2007 to present the world is suffering the greatest recession since World War I that is caused by a crash in the financial system. There is global agreement that we need to regulate finance so it cannot crash in the same way again, even if there are different views about how to do this. But the finance sector can – and should – make a proper tax contribution towards putting right the damage it caused and making the world a better, fairer, more sustainable place.
Second, computerisation of the finance sector has made a tax like this easy to implement. What’s more, it’s made it necessary – the very speed of today’s financial systems is a direct contributor to the surge in global trading. Nowadays, too much trading is done to make a quick profit, and not to serve the real economy. This high frequency trading has brought instability.
Finally, because sometimes an idea’s time has come. The time of the Robin Hood Tax is now. Globally, it is gaining support daily and it’s time for Australia to begin playing her part.
German Chancellor Angela Merkel, French President Nicolas Sarkozy, and Former UK Prime Minister Gordon Brown have been promoting a tax on financial transactions for many years. EU tax commissioner Algirdas Semeta is facilitating the development of a Financial Transactions Tax for 11 EU countries to implement in 2014/15.
Plenty of business bigwigs are on board, including philanthropist George Soros, US businessman extraordinaire Warren Buffet and renowned economist Jeffrey Sachs. And there are hundreds of other economists, along with philosophers, thinkers, writers and actors, who have backed the idea, too.
This isn’t some crazy pipedream. It’s a simple and brilliant idea which transcends party politics and which – with your support – can become a reality.
How would it work?
Our key demand is there transaction tax should be extended to both the international and national financial transactions which would raise substantial amounts from the finance sector. As the tax would be imposed at the point of trade this would specifically target on speculative and short-term transactions. There are different approaches and routes to achieving this – and clearly there would need to be detailed technical work and international negotiation before practical implementation. But the principle is both easy to understand and entirely practical.
Different kinds of transaction could be taxed at different rates. Many have suggested a currency transaction tax rate of 0.005 per cent (5 cents for every $1,000 traded). This would also work for other low-margin high-volume trades such as derivatives. Not all transaction taxes need be introduced at the same time, and some rates and taxes might be sensibly phased in.
We are confident an international transaction tax system could eventually raise hundreds of billions of dollars. Of course predicting the precise tax take from a tax change is impossible since imposing it may change behaviour, and affect the collection of other taxes. Indeed, suppressing short-term speculative transactions would be a welcome by-product of a Robin Hood Tax.
The world’s economy is still extremely precarious and the timetable for introducing the transactions to be covered and at what rate would need to be carefully set. But various experts have produced estimates of the tax take of a range of different approaches to introducing a transaction tax, and all are in the hundreds of billions of dollars range. They converge around a figure of US$400 billion – a substantial sum but still only one thousandth of the world’s transactions.
What would the tax be used for?
The campaign is calling for half the tax raised to be used domestically and half internationally – equally split between development and climate change adjustment. Here are some illustrations of what one quarter of a US$400 billion tax take could achieve for development:
- In one second this tax could provide 9,000 school children with a pencil and exercise book
- In just over one minute it would raise enough money to build a six classroom school for 250 pupils
- In one month it would save the lives of 4.5 million children by providing essential health services
- In three months the tax would provide life saving treatment for 8.6 million people with HIV/AIDS
Domestically the proceeds of the tax could help schools, hospitals and valuable national public services.