The power is in the microcosm

Why the micro-tax initiative very much deserves support

by Martin Neff, Chief Economist Raiffeisen

In 1990, the world was on the threshold of globalisation.
  The value of all goods and services produced worldwide at that time was about 22 trillion dollars (USD). Shares and bonds were traded to the tune of USD 9 trillion annually, over-the-counter financial derivatives for about USD 2 trillion, and the volume of foreign exchange transactions amounted to USD 147 trillion. Almost 30 years later, in 2018, the value of all goods and services produced was USD 75 trillion. In the same year, shares or bonds were traded for USD 162 trillion, foreign exchange for USD 602 trillion and financial derivatives (over-the-counter) for a staggering USD 1250 trillion. A nearly three-and-a-half-fold increase in real economic output in a good thirty years is thus offset by an almost twenty-fold increase in stock and bond trading. Moreover, today, 800 times more financial derivatives (including foreign currency options) are traded than in 1990. What the financial markets have achieved is called exponential growth. Compared to this, the real economy has literally fallen by the wayside in terms of growth.
  Of course, not everything that caused the exorbitant growth on the financial markets in the last three decades is of a purely speculative nature. The advancing international division of labour and the resulting increase in cross-border flows of goods and services also automatically lead to more transactions on the foreign exchange markets and an increased need for forward and hedging transactions with derivative financial instruments. But the market for financial derivatives has taken off to such an extent that only one conclusion remains: The majority of what is traded today in derivative products has little or nothing to do with the real economy. Globalisation and the fact that capital is the “fastest and most mobile” factor of production compared to immobile land and the rather sluggish factor labour have also contributed to the world’s prosperity. But mainly they have given rise to the biggest casino in the history of the world, where the wildest bets are made and those who have or to whom it is given play for stakes that are x-times the real economic output, i.e. the wages and profits.
  With the exception of Corona, all recessions since the nineties have been triggered by speculation-related financial market crashes and not by “classic” economic overheating, as our parents may still have known it. In the age of globalisation, the financial markets degenerated into a hotbed of economic instability because quick profits were placed above the well-being of the community, money was no longer invested but often only speculated with – with manifold multipliers. In view of the figures presented here, I have been asking myself for some time why global tax practice still “only” taps into the real economy instead of helping itself to where the real money flows. And in view of the growing debt burden of the industrialised nations, I ask myself why they have been discussing a financial market transaction tax only half-heartedly for years, if at all.
  We Swiss are a bit further ahead, thanks to direct democracy, and have the so-called micro-tax initiative. It is undoubtedly revolutionary, so revolutionary that it will probably fail because it comes too early and mobilises the usual federal defensive reflexes, especially when it really comes to going it alone. The business lobby, the Federal Council and some “renowned” professors more or less dismiss the undertaking as a “fart”. Personally, however, I have some sympathy for the idea. In terms of tax theory, it is more efficient to tap a large substrate such as financial market transactions with a small rate than a small substrate such as income and profits with a large rate. This is actually scientifically beyond question. If this huge substrate also grows exponentially, it could well form the new tax base of the future. So why not think about it?
  If, for example, Switzerland was to tax the CHF 40 trillion in payment flows subject to SIC (Swiss Interbanking Clearing) at just 0.05 %, this would generate almost CHF 20 billion in tax revenue, almost as much as the entire value-added tax today. Private households would be noticeably relieved by the abolition of VAT, and the micro-tax would not hurt them very much. Why then do so many nevertheless dismiss the undertaking as a crackpot idea? Quite a number of innovations of the last centuries were or are Swiss Made. While others were waffling and debating, we were putting it into practice. The financial market transaction tax will come sooner or later, that’s out of the question for me, because the debts of the states are exploding and their tax sources are drying up. Joe Biden wants to make companies pay more, the EU wants to make internet companies pay more, China wants to make its citizens pay more, everyone is desperately looking for new potential sources of revenue, but always on the same ground. Why not look in the casino? Yesterday, Bitcoin was traded for almost 48 billion USD, Tether for 113 billion USD – that is more than twice the market capitalisation of this cryptocurrency – and Ethereum for 40 billion USD – without any real economic motive, pure speculation. Half a per cent of that alone would be a good 500 million USD, every day, and there are even more cryptocurrencies, not to mention billions of other financial market transactions. Krethi and Plethi could probably get over a small obulus on it, financial hyenas anyway. There would even be something left over to relieve the tax burden on those who have borne the brunt of it for generations. So, the idea of a micro-tax is not that stupid at all.  •

Source: Raiffeisen Economic Research of 26 May 2021

(Translation Current Concerns)

A pleasingly good sign

gl. The fact that Martin Neff, Raiffeisen’s chief economist, supports the micro-tax initiative* is remarkable and gratifying for several reasons. The Raiffeisenbank has had difficult years. When its chief economist criticises the development of the financial markets so clearly today – “In the age of globalisation the financial markets have degenerated into a stronghold of economic instability, because fast profits are placed above the well-being of the community” – this is a good sign for the return of the Raiffeisenbank into a true cooperative bank with traditional cooperative values.
  For Neff, is out of question that a financial market transaction tax will come sooner or later. It may be revolutionary, but Switzerland has always been innovative. The idea of such a tax is not new; there have already been various considerations in this direction. So far, however, it has not been possible to convert a larger part of the population to the idea, perhaps because the feeling of powerlessness towards the financial sector and the timidity to discuss economic interrelationships are widespread. In the meantime, however, the time has come. The excesses of the so-called financial casino are now common knowledge. To involve the general public with a small tax rate in the unbelievable sums of money, which are lost through speculation is by no means an absurd idea. Thanks to direct democracy, Swiss citizens have the rights of the people that many people around the world would like to have, and they may also take initiatives and vote on tax issues. For the good of all: sooner rather than later.

* The initiative was presented in detail in Current Concerns No. 11 of 25 May 2021. It provides the introduction of a marginal tax of 0.1 % to a maximum of 0.5 % on cashless payment transactions. This is to replace value added tax, direct federal tax and stamp duty. The collection of signatures period expires on 5 November 2021.

Marc Chesney: A permanent crisis. The Financial Oligarchy’s Seizing of Power and the Failure of Democracy

“The title of this book may be surprising. It might even seem contradictory to evoke a ‘permanent crisis’ when, at the same time as this book is going to print, the media are talking about a resurgence in economic growth and, according to so-called experts, economic fundamentals are healthy, even strong. Proof of this would lie in the rise of stock prices.
  Strangely enough, until today, none of these commentators has mentioned the artificiality of this growth which is essentially based on the explosion in global debt, or the increasing disconnection between bullish stock markets and the performance of both companies and the overall economy. Nor, for that matter, have they alluded to the astronomical sums perpetually injected into the financial sector by central banks in order to keep the too big to fail banks afloat, or to every sort of advantage from which they have benefited, most often at citizens’ expense.
  For many economic commentators, enhanced labour statistics also appear to constitute one of these encouraging ‘fundamentals’. It seems anecdotal therefore that numerous unemployed have disappeared from the statistics and reappeared as working poor or impoverished pensioners. Whereas the emergence of new technologies and the expansion of digitalisation of the economy should result in more leisure time, the main consequence until now has been an increase in casual employment and under-employment.
  Regarding the trickle-down theory, often put forward by the media, it does not seem to obey the law of gravity, seeing that, in this case, it works from the bottom up, and allows those who are already the wealthiest in the world, to accumulate even more wealth.
  The operation was a success, they lead us to believe, but the patient, in this case society, is still ill. It is precisely on this skilful trickery presented as an effective economic remedy that these positive ‘fundamentals’ lie.
  This book endeavours to provide an objective assessment of reality which is quite different. It describes the currently operative financialisation of the economy and of society, and the role of the big banks and hedge funds in this process. It denounces financial croupiers’ state of mind and the mercenaries of the financial war, the consequences of which affect each of us every day and in every corner of the world.” (back cover)

“This financial caste absorbs astronomical amounts that it is incapable of actually investing in the economy. These amounts always move more quickly within the framework of a casino finance contrary to an entrepreneurial logic which this oligarchy claims, where dubious betting on the bankruptcy of companies, banks or countries takes precedence over standard financial operations inherent to the economy. What characterises these bets is that they are most often made discarding the risks to the rest of society. For those institutions known as “too big to fail”, having reached such a critical size and such density of connections within the economic and financial network, it is in fact the state, and at the end of the day the taxpayer, the pensioner, the customer and the unemployed who assumes the risks and, if need be, pays the bills. This financialised economy at such a scale weakens both the economic and social fabric.” (chapter 1)

“Finally, the implementation of all these measures requires citizens and politicians to be able to analyse the situation and to demonstrate the will to find real solutions as well as... a lot of courage. The author is aware that doing so will not be an easy task, neither now nor in the future, and will require time. Paradoxically, it is more than a priority to get the economy and society out of the deadlock it is in. Finally, it is a choice of society, a choice between the dictatorship of the financial sector and a democracy where active citizens take their future in their own hands. We have a responsibility vis-à-vis present and future generations who have the inalienable right to live in a decent and dignified manner in an accountable and civilised society.” (Conclusions)

A permanent crisis, Palgrave Macmillan, London, 2018

micro-tax • Current


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