Hello there. My name is Fraser Reilly-King. I'm with the Halifax Initiative, which is a coalition of 18 development, environment, faith-based, human rights, and labour organizations. We focus on international finance issues, with specific attention to the activities and policies of the World Bank, the International Monetary Fund, and export credit agencies.
I'd like to thank the committee for inviting us here to appear before you. I'm particularly pleased, since I appeared before the committee last October, with another colleague, to represent the 2010 G-8 and G-20 civil society coordinating committee. At that time, we emphasized the importance of discussing these issues among parliamentarians during the lead-up to the 2010 summits. I'm pleased that the committee has taken the initiative again to hear from civil society organizations.
I'm here primarily to speak about one component of the civil society platform that relates to economic and financial issues. I think it really ties together a number of the issues that have been brought to you already. The issue, which several people have touched upon already, is new money, additional funding, from innovative sources of financing, to help fund development and climate change. These are innovative sources that go beyond just aid. They are crucial at a time when the world still faces an economic crisis bill and when countries around the world are freezing their aid budgets.
This issue of innovative financing already has a lot of traction internationally. In the next few weeks, the United Nations leading group on solidarity levies to fund development, which is an intergovernmental body of around 55 governments, including 11 governments from the G-20, will be releasing a new report that looks at various innovative mechanisms for financing development, including a financial transactions tax, which I will be talking about later.
In February, the United Nations also convened a high-level advisory group on financing for climate change, which includes the heads of state from the United Kingdom, Guyana, Norway, and Ethiopia. Again, representatives from 12 G-20 countries--government officials--sit on this panel.
Unfortunately, Canada is not engaged in either one of these bodies.
Finally, the G-20 itself announced last September that it wanted the International Monetary Fund to look into how the financial sector could contribute to the cost of all the bank bailouts. The proposals the IMF made two weeks ago, which I'm sure many of you read about in the media, and others made by European governments, have all been opposed by Canada, some rightly so.
I don't want to go into detail on these proposals. I have a one-pager in English and French on the different proposals being made, which we can circulate.
If we are to address the issues my colleagues have talked about—climate change, the millennium development goals, the child and maternal health initiative—Canada, I feel, needs to play a more constructive and helpful role in terms of thinking about innovative sources of finance. In recent years, Canada, in fact, played a lead role in pushing the issue of advanced market commitment. I believe that Canada can follow suit on a number of other issues.
Climate change mitigation and adaptation, realizing the MDGs--the millennium development goals--which Robert talked about, and now the cost of the economic crisis and burgeoning deficits and debts, all put significant pressures on governments, in both the north and the south.
Bruno Jetin, an economist at the University of Paris, estimates that governments will require $710 billion per year to cover the costs of the millennium development goals, climate change mitigation and adaptation, and industrialized economy deficits and debts.
Innovative finance, in sum, is clearly essential at a time when the world is facing such a daunting set of crises, which Robert just referred to. One of the innovative sources of finance that we on the civil society coordinating committee are most interested in is the financial transactions tax, or FTT. I don't want to go into too much detail about the FTT. I have another one-pager that outlines what it is, both in English and French. For those of you who may not be familiar with it, I'll touch upon what it is very briefly.
The FTT is a tiny tax that would be placed on all financial market transactions, including stocks, bonds, derivatives, and currency exchanges that pass through stock and futures exchanges, but also what is called off exchanges or over-the-counter transactions. A lot of people have been talking about a Tobin tax. This is much broader than a Tobin tax.
Ordinary consumer transactions such as payment for goods, paycheques, or cross-border remittances would not be subject to the FTT, and the FTT could be collected through centralized clearing and settlement systems that exist on all major stock exchanges.
Finally, it's estimated that even with the decline of 60% in the size of financial transactions and financial assets globally, a tax of just 0.05% would generate approximately $650 billion per year, and we feel this money should be used to help tackle climate change mitigation and adaptation, the MDGs, and help governments boost their economies and cover the costs of deficits and debts.
A lot of what you have read in the newspapers is opposition to the tax, and perhaps that's understandable. It's a new issue in a way. I'd like to use the rest of my time to address some of these concerns and why I feel they're wrongly placed.
One of the major concerns is that an FTT can't be done. This isn't true. The IMF definitively put that issue to rest two weeks ago when it released its report and said, and I quote: “The FTT should not be dismissed on grounds of administrative practicality.” We already knew this. The IMF has now confirmed it can be done.
Another argument is that our banks didn't need bailing out. This is true. A lot of the G-20 countries have a lot to learn, I think, from Canada's banking system, from its regulations, and our strong recovery within the G-20 is a testament to our strong banking system. This started as a credit crisis, and the extent to which our banks and financial institutions were well regulated helped us avoid the brunt of that financial crisis. But it's not just a financial crisis; it's an economic crisis. And just a year ago--it seems that we have such short memories--our manufacturing sector, our forestry sector, and our construction sector were all desperately looking for bailouts from the government to help them, and the government provided those.
The unemployment rate is still 2% higher today than it was two years ago, before the crisis in Canada. We have a large deficit. So while it may be true that our banks didn't need bailing out, inasmuch as this is an economic crisis, not just a financial one, we need to address the issues related to the economic crisis and the impact. Eighty-nine million people around the world have been thrown into poverty as a result of this crisis. Thirty-four million more people are unemployed today relative to two years ago.
So for me it's not constructive to say that we didn't cause this crisis and it's not our problem. That is akin to saying you're sitting in a sinking boat and your part of the boat looks fine. The boat is still sinking. So we need to consider not just the financial impacts of the crisis but also the economic ones, and I feel the FTT could help address that.
Another hot topic is that we don't raise taxes. This is true, but these are extraordinary times, and while the government's pledge to not raise taxes is laudable, what are the options? We don't want to raise income tax, either personal income tax or corporate income tax. We don't want to increase employment insurance premiums. We don't want to increase value-added tax. We don't want to increase the GST. It doesn't leave us much.
We could grow ourselves out of this situation, but again that's dependent on our trading partners recovering at the same time. Last week Greece received one of the biggest bailouts in history from the European Union and the IMF, and in eastern Europe and western Europe many countries are still on the brink of a crisis. So while our recovery is looking good today, we don't know what it will look like tomorrow.
Again, this is a tiny tax, 0.05%, that could generate a huge amount of revenue, and I don't think people should see it so much as a tax on Canadians as a tax on globalization. We've all seen the benefits globalization can bring, and now we've seen the costs it can bring.
There is another criticism that the banks will simply pass on the cost to consumers. This is not true. Research has shown that the initial incidence, or who pays for the taxes, will fall primarily on net worth hedge funds investors and employees of hedge funds as well as investment banks, and to a lesser extent on commercial banks. These actors trade a huge amount. There's one company in Toronto that uses algorithms to make between 500,000 and a million trades per day. A relatively small proportion of this tax would go to bank shareholders, pension funds, and corporate customers, all of whom are not making short-term speculative investments but long-term investments.
For example, if you buy $1,000 worth of shares today, with this tax you'd pay 50¢ on that, but if you consider that you're already paying, if you go through a stockbroker, 2%, or $20 to $30, just to make the deal, 50¢ doesn't seem like so much.
And it's not going to address every problem. We don't believe that, so further safeguards do need to be built in by governments to ensure that the costs aren't passed on to consumers.
Finally, it's said that it can't be done unless everyone is on board. Again, this isn't true. The United Kingdom has had what's called a “stamp duty” on all trades of stocks in its stock market. The duty is 0.5%. Japan had a levy on financial transactions for a long time. Brazil had a levy for 12 years on bank transactions, and just last October introduced a levy of 1% on currency exchanges to cool down hot trading. So many countries are already doing it.
I'm happy to respond to other critiques that maybe people have heard and hopefully try to respond to those.
Just to sum up, I would strongly urge that all parties support the idea of a financial transaction tax. We're pleased that the NDP has already come out in support of the idea. I would also—just as Clare has mentioned—urge this committee, perhaps in collaboration with the environment or finance committee, to engage in a study looking at innovative sources of financing for development and climate change. Right now, Canada is nowhere on these international debates, and I'm convinced that can change.