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03/12/2016

France strengthens financial transaction tax to fund development

Euro & Finance

France strengthens financial transaction tax to fund development

The new FTT could bring in as much as €1.125bn per year.

[Richard Ying and Tangui Morlier/Wikipedia]

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.

Members of the French parliament on Thursday (20 October) voted to strengthen the Financial Transaction Tax (FTT), which has been in place since 2013. The rate will be raised from 0.2% to 0.3% and the tax base extended to cover day trading activities (a speculative form of trading where shares are bought and sold on the same day).

Adopted as part of the parliament’s examination of the 2017 budget, these measures will significantly boost the revenue generated by the tax and reverse the decline of the aid budget. French aid fell from 0.46% of gross national income (GNI) in 2011 to 0.37% on 2015. The international target is 0.7% of GNI.

In real terms, Paris has cut around €800 million from its international solidarity spending since 2012, part of a broader pattern of spending cuts imposed on the French public purse.

But MPs finally decided to force the government’s hand to obtain a meaningful increase to the budget  to give them the means to cover the president’s promises.

French 2016 budget exposes empty promises on development

France’s numerous promises of aid for the Global South do not feature in the government’s 2016 budget bill, which will finally be adopted today (16 December). EurActiv France reports

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President François Hollande pledged a €4 billion increase in official development assistance (ODA) by 2020, half of which would be dedicated to climate action. But the extra funds have yet to materialise.

Several levers for action

NGOs have estimated that the rate increase and the broadening of the tax base will generate an extra €4.5bn per year. In 2015, the tax brought in around €1bn, half of which was allocated to the development assistance budget.

A proposal to spend 25% of the revenue from this new and improved FTT on aid has already passed the committee stage. If it is adopted in the French parliament’s plenary, it could increase the tax’s contribution to the ODA budget from €500m to €1.125bn.

And it may even place France back on track towards meeting its international commitments.

“These sums could allow France to keep its international promises on the fight against poverty and climate change, if they really are allocated to international solidarity efforts,” said Sandra Lhote Fernandes from Oxfam France.

Getting tough

The strengthened FTT adopted by MPs is something of a defeat for the socialist government. Michel Sapin, France’s minister of economy and finance, and Christian Eckert, the secretary of state for the budget, opposed the taxation of day trading, but supported the rate increase from 0.2% to 0.3%.

MPs had initially proposed an increase to 0.5%.

“Our follow-up to the parliamentary debate will confirm our commitment to making a meaningful international solidarity effort and we will be watching closely. Our experience over recent years has shown us that the government can go back on its promises at any moment,” said Pouria Amirshahi, a Socialist MP.

“This debate is not over and we call on members of parliament to stay vigilant. We also ask the government to respect the will of our national representatives and establish an ambitious and responsible FTT,” said Friederike Röder, the director of ONE France.

Hollande does U-turn, increases French development aid

François Hollande has announced an increase to France’s official development assistance budget for 2017, putting an end to several consecutive years of funding cuts. EurActiv France reports.

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The French government has always argued that day trading should only have been covered by the FTT once the European version of the tax was up and running, for fear of diminishing Paris’ attractiveness as a financial centre.

The subject is all the more sensitive this year after the Brexit referendum, as the French capital hopes to seduce London’s bankers.

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France’s Hauts-de-Seine department, west of Paris, has launched a poster campaign at London’s St Pancras railway station and Heathrow airport, in an effort to seduce the City’s bankers across the Channel. EurActiv’s partner La Tribune reports.

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MPs last year voted to include day trading in the FTT, but the move was blocked by the French Constitutional Council.

This year, the argument that France should wait for the implementation of the European-level tax before strengthening its own FTT, appears to have reached the end of the line. After negotiating on the project since 2011, the ten European countries involved have only just reached an agreement. But the tax will not be implemented before 2018 or 2019.