French backtracking on FTT undermines development commitments

Edouard Philippe announced the reduced FTT tax base at an event designed to attract banks to Paris after Brexit. [VanderWolf Images/Shutterstock]

France’s development aid objectives appear to be compromised by a reduction in the base of the Financial Transaction Tax (FTT), which funds more than one-fifth of the country’s international solidarity effort. EURACTIV France reports.

Paris will have to find a way to carry out its planned development budget increase with a more restricted financial transaction tax. In 2017, 22% of France’s official development assistance (ODA) was funded by the FTT.

But the promise of a boost for the French capital’s financial sector after Brexit has pushed the government to abandon plans to broaden the tax base of the FTT in 2018 to cover high frequency, speculative day trading activities.

France strengthens financial transaction tax to fund development

France will increase its Financial Transaction Tax in an attempt to halt the decline of its official development assistance budget, which has been cut each year since 2012. EURACTIV France reports.

Prime Minister Édouard Philippe announced the planned expansion would be dropped on 7 July at the presentation of a package of measures designed to make Paris an attractive destination for London’s financial businesses.

The broader tax base, agreed after a long struggle in parliament, would have significantly increased the revenues of the FTT. According to Alexandre Naulot from Oxfam France, an FTT that covered day trading would have generated “between €2bn and €4bn” for the state coffers each year, compared to €1bn currently.

A portion of this extra cash was earmarked for France’s public development budget, which is already a major recipient of FTT funds.

Straddling the fence

By making concessions to the world of finance in order to remain competitive against Frankfurt, Paris’ main rival for the City’s exiles, the French government could well be endangering its goal of spending 0.7% of gross national income (GNI) on ODA by 2025 and increasing its climate finance. Today, France’s ODA budget is just 0.38% of GNI.

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“France cannot turn down crucial resources simply to attract the banks. [The government] should explain how it intends to fulfil Emmanuel Macron’s electoral promise of allocating 0.7% of GNI to development. To be credible, the trajectory towards 0.7% must be enshrined in law,” said Friederike Röder, director of the NGO ONE France.

Without a more comprehensive FTT, this target may be impossible to achieve.

According to a report by the Institute for Sustainable Development and International Relations (IDDRI) and the NGO Action Santé Mondiale, entitled ‘Can France keep its commitment to spend 0.7% of national wealth on development aid?’, the FTT is indispensable to any ODA budget increase.

By spending between 50% and 75% of revenues from a strengthened FTT on international solidarity efforts, the French state could increase its aid budget “by 15-28% each year”, the report stated.

France to use 50% of FTT revenue on overseas aid

The French parliament has adopted a proposal to allocate 50% of the Financial Transaction Tax to the country’s development budget, bringing to an end four years of cuts. EURACTIV France reports

At a time when budgets are tight, this would be a considerable boost. It would be very difficult to achieve a similar result without the addition of day trading to the FTT’s tax base.

Since 2010, France’s ODA budget has fallen from 0.5% of GNI to 0.38% in 2016, taking it further from the OECD’s 0.7% target.

In Europe, only the United Kingdom, the Netherlands, Luxembourg, Norway, Sweden, Denmark and Germany have achieved this target.