There is still discussion about a Tobin tax – a tax on financial transactions. The French have said they’ll impose one unilaterally. David Cameron threatens to veto even the suggestion of it being imposed on London. The US won’t even consider the topic seriously. And a lot of rubbish is spoken about it.
Interestingly, we already have a Tobin tax in the UK. Its called Stamp Duty. Its not universal, with property & shares being the main targets. Although it doesn’t seem to have damaged British interests much, it’s unilateral imposition across all products probably would lead to the emigration of business to softer domiciles. This is a lesson the French may learn.
But there is a lot to be said for it. Both implicitly and explicitly, governments are supporting the stability of financial systems. And going by some low tax rates being paid by some financial institutions, they are paying very small insurance premiums for this. The primary role of the financial system should be to provide capital and services to the economy, but much of the time they are swamped by the financial speculation that occurs. It is important that the system should be efficient – market making, for example, is a positive activity and some speculation provides useful liquidity. High frequency trading is less obviously beneficial – indeed there is some evidence it brings less stable markets. A universally applied Tobin tax would make this area less attractive, hopefully pushing capital to more productive uses.
While the utopian in me would like to believe this, I’m not convinced how true it is. If we have a problem it is that for too many people finance is seen as an end in itself. Too many products are designed more to produce high margins for the manufacturers rather than good for the end users. How about a compromise? Standard exchange traded & cleared products get no Tobin tax. Anything that isn’t pays. It might discourage a little innovation, but its not clear that’s a bad thing if it makes our financial system a little safer.