Some really bad ideas just keep staggering on, don't they?


One of those really bad ideas being the financial transactions tax. Never mind that it's a very bad tax, that transactions taxes themselves are a bad idea, and concentrate on the most important point of it all:

Think what Labour could do, if it chose, to revitalise public services. A 0.01% financial transaction tax would raise £25bn a year.

That's George Monbiot missing that important point. And he's quoting the IPPR who also miss that major point. That major point being that an FTT won't in fact raise any tax revenue. In fact, it will decrease the amount of tax revenue raised. At which point there's no point in thinking about all the lovely things you can go and spend the money on, it's necessary to start thinking about what of current spending you're going to cut. Which would rather temper peoples' enthusiasm for this tax one would have thought.

The mechanism is that transactions taxes are really, really, bad taxes. Their deadweight costs soar above those of other methods of taxation: that is, for each unit of revenue raised they kill off more economic activity than other taxes. And an FTT could, in theory, be so bad in this manner that it would shrink the entire economy. Shrink it so much that total tax revenues would fall, despite our being able to see this new money coming in from the FTT.

That is of course an empirical question: would those deadweight costs be sufficiently large so as to reduce the total tax take? And fortunately someone has gone and done this work for us. It was the European Union itself, reporting on the idea of an FTT implementation. And the answer is yes. The economy would shrink so much purely from the effects of the FTT that overall tax revenues would fall.

This does, of course, still leave room to argue in favour of an FTT. Maybe you want to screw the banksters, perhaps you just hate everyone and want to make them poorer, possibly even you could make a tortured argument that this will shrink the state. But you can't go around talking about all the lovely stuff you can do by spending the FTT revenues: for there won't be any.

Which isn't, when you come to think of it, all that much of a recommendation for a tax.