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Economics | The Robin Hood Tax

Money - Seeing the future

Eurozone crisis

You have probably heard of the Eurozone crisis now and have perhaps heard of the so called Robin Hood Tax (Financial transactions Tax) that many European leaders think is the answer. Someone said I explain complex problems simply; I’ll have a go! Is this the answer to the world’s economic problems?

The Eurozone crisis is simply debt and the USA has a similar problem. It isn’t just that countries in the Eurozone owe money, they are now desperate. When we get desperate for money we might go thrifty and frugal and adopt a austere life style. Cut back and cut back, that is what Britain is doing. In Britain we still issue bonds and borrow more money and we are printing the stuff (quantitative easing) but printing money devalues it and basically robs people with savings; many of them elderly people who saved for their retirement. Printing money causes inflation; prices to go up. It tends to hit everyone, so it’s fair; right? No, not really, it hits savers and the spendthrifts tend to get their debts inflated away. This is the solution favoured by David Cameron, austerity and money printing; everyone suffers, especially if you have savings.

The Robin Hood tax is a tax on financial transactions and so every time someone changes Euros for dollars it will incur a tax; a very small tax, less than  1% but every financial transaction will incur the tax. Much like stamp duty is on property transactions and share dealings now. This according to David Cameron would cause unemployment in the City of London. I think it would, because the City would deploy more technology to offset the tax and that would put a few very highly paid dealers out of work, but there is always the wine bar and Starbucks; they will need more staff. The problem is that although there will be a slight increase in efficiency most of the new tax will be passed on to consumers. If you want US dollars for your holiday, the tax will apply. The tax will mean higher insurance premiums for everyone. This is no Robin Hood taking from the rich and giving to the poor. It is the same as quantitative easing, it will take from everyone; but will be slightly fairer. It will cause prices to go up.  That imported computer has to be paid for in a foreign currency, that currency exchange will be taxed. This tax will hit the middle classes who take foreign holidays and buy imported computers more than the elderly who try to use interest from savings to pay their gas bills. It will still hit the elderly though, we import a lot of gas!

Is it fair? It’s better than what we are doing now and the interest rates that countries like Greece are paying on debt will keep increasing unless something is done quickly. The rates that Britain has to pay to sell bonds will increase making our problems worse and Germany couldn’t sell all their bonds this week. If the new tax was at a higher rate than proposed and it was coupled with the abolition of taxes on saving, that would help the elderly. If it was  coupled with the abolition of taxes on savings and a drastic reduction in income tax for the low paid it would transfer some wealth from rich to poor. Transferring wealth from rich to poor would be a true Robin Hood tax.

When some people lose money others gain money. Who is set to lose and who will gain? China won’t like this idea too much because the Euro and US dollar could be devalued against the Yuan. China could lose out, the middle classes throughout Europe will lose out and everyone else will lose out a little. Who gains? The governments will get debt under control and banks will get debt under control. People buying equities now at bargain basement prices like Warren Buffet will make a killing. I confess, I’m buying too… Just a little…

Smile with tongue out

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6 responses

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  3. a very good article….thank you.

    27, November 2011 at 11:43 am

    • Thanks for visiting, you were lucky short comments don’t usually gte past the spam filter!

      27, November 2011 at 11:55 am

  4. Very interesting read. We in South Africa watch with much interest at what is happening in Europe because unfortunately what happens in Europe affects us down here. Thanks for the read!

    27, November 2011 at 1:13 pm

    • Hi Luke,

      I only touched on some of the implications of the tax. I don;t think anyone knows the full implications yet. It will be complex. I read a paper on it from the Council of Europe and they intend to have exceptions to the tax. I’m sure it will have a somewhat adverse effect. We have ‘free banking in the UK and we could say goodbye to that. It will be better than quantitative easing though.

      27, November 2011 at 1:20 pm

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