I was particularly honoured to have been able to accept the invitation to adress your conference as Norway has, for many years, been the forerunner in the work against tax havens and financial secrecy. It is my hope that we can, together with the other Nordic countries, take the lead in the work for better, more efficient and just global governance.
Norway has done an exemplary work as an active member of the international Task Force on Financial Integrity and Economic Development, with five key axis of work:
· beneficial ownership
· country-by-country reporting
· illicit financial flows
· automatic information exchange
· trade mispricing
While many international organisations have been slow in waking up to the problems that tax havens – or more appropriately secrecy jurisdictions – pose to global equity, stability and functioning markets, the Task Force has been quick in developing analysis and policy measures on these issues. The Task Force has done an excellent work in bringing the issue of ”illicit financial flows”, estimated at more than 1 trillion USD per year from developing countries into industrialised nations, to the forefront of international development co-operation. Financial integrity is today a key priority.
In its programme adopted in June this year the new Finnish government committed itself to increasing stability, transparency and responsibility in international financial markets and to stand in the frontline in ”ending international tax evasion” and to ”shut down tax havens.” Now that the new government has started its work, it is time for us to think how to turn these commitments into concrete action.
The Finnish government has been engaged in negotiations with the Tax Justice Network on possibilities to host the 2012 major international tax justice seminar in Helsinki on transfer pricing of multinational companies. We would be looking forward to discussions on whether Finland could join Norway and Denmark in the Partnership panel of the Task Force, and whether tackling the misuse of transfer pricing could become a topic where Finland could start having a higher international profile. Also, given the Nordic countries’ reputation for sound economic policies, good governance and transparency on the world stage, we should discuss the possibility of Nordic cooperation in advancing these themes in other international fora as well.
We would also like to see Finland promoting the European Union framework for a Common Consolidated Corporate Tax Base (CCCTB) which would ensure that corporations would be taxed as single units within the European Union, and would create further tax co-operation within the EU to tackle tax evasion with the EU economies, estimated at 2-5% of GDP by the EU commission.
In addition to companies’ misuse of transfer pricing, another important theme is developing and promoting models for the multilateral, automatic information exchange on tax issues. The OECD is currently preparing the convention on mutual administrative assistance in tax matters. Finland welcomes this development and will promote automatic exchange of tax information in its foreign policy, both through this convention and further means such as enlarging the membership and the scope of the European Savings Tax Directive.
The almost empty OECD black list of tax havens shows that the current model of bilateral treaties for tax information exchange is not enough. We need multilateral, automatic exchange of information. In addition, the situation demonstrates that we need better criterion and lists for defining tax havens and secrecy jurisdictions. We welcome the Financial Secrecy Index of the Tax Justice Network, just published in its 2011 edition, and would like to encourage debate and reactions from multilateral institutions towards independent work carried out by civil society.
The Finnish government explicitly supports the introduction of financial transaction taxes in its programme. The recent proposal from the European commission for a financial transaction tax at the EU level is a welcome initiative. While it has strong support from many Members States and in the European Parliament, it is by no means certain to be adopted as some governments continue to oppose it.
However, some EU member states, including France and Germany, have signalled their willingness to go ahead with the plan even in this case, either as a euro-zone project or in some other ”coalition of the willing” type of arrangement. In the latter scenario Norway could definitely be among the first countries to implement the tax. And even in the event of an EU FTT, Norway should look into the possibility of joining the arrangement. As a respected and influential global actor Norway could also use its leverage to garner support for the FTT among the G20 and other countries.
The FTT works against short-term speculative and flash transactions, as they operate with low margins on huge volumes and frequency. The low tax percentage would make many of such trades less profitable, and thus their volume would be reduced. It is thus similar to a tax on harmful, addictive or dangerous products that are not banned, such as cigarettes or alcohol. A FTT of only 0.05-0.1% of the value of the transaction (depending on type and on proposal), with differentiated rates for different types of financial products to avoid market distortions, would not affect transactions which have a direct link to productive investment, trade or management of risk. We need a financial transaction tax for increasing stability and putting brakes on the ever worsening cycle of bubbles and crises (both ”bull and ”bear” markets are amplified by speculative and automated trading).
Many civil society organisations and political parties in Europe think that parts of the revenues of FTTs (50€ Bn – 200€ Bn depending on the how broad the tax base is), should remain in the countries that introduce the FTT. These revenues could be used to cushion the negative impact of current austerity measures, and cost of bailing out failed financial institutions at the heart of the current financial and economic crisis. However, the economic crisis has also hit countries in the South. It is ordinary people – and sadly most often the poorest – in the North and the South who are paying a disproportionate price for the crisis, while they had no part in causing it. Therefore part of the revenues should be directed towards tackling poverty also in the South.
As welcome as the recent developments in the EU have been, it is noteworthy that the commission’s proposal does not include the traditional Tobin tax on currency transactions which are concentrated in only four financial centres, namely London, New York, Frankfurt and Tokyo and proposes very low tax percentages. While the discussions in the Council of the EU will be based on the Commission’s proposal, the possibility of including currency transactions in the FTT merits further consideration. The stated reason for their exclusion – that a tax on currency transactions would be in violation of the free movement of capital within the single market – would not prevent imposing the tax on non-EU currencies, such as the US dollar, the Chinese renmimbi or the Norwegian krona, for instance.
In the time when even the traditionally conservative IMF has both stated that a FTT is feasible and has started to embrace capital controls as a means for increasing stability, we should be ready to make bold commitments at the EU-level. There is a path worth following for dealing with the global financial crisis, where sentiments against banks are high, and new taxation proposals would be welcomed by the public. A recent eurobarometer poll shows that the majority – 61 per cent – of Europeans are strongly in favour of an FTT. Of those, more than 80 per cent agree that if a global agreement cannot be reached, such a tax should initially be implemented in just the EU.
Transaction taxes are sometimes opposed for the fear that they will drive business out of the country. This is not a feasible argument. For example, the UK has already a Stamp Duty for stock market trade, and some 40 countries already have different kinds of transaction taxes in place. Also, the most often cited example for the negative effects of an FTT, the Swedish experiment of the late 80s and early 90s, is misguided: the reason for the massive flight of financial trade from Sweden was due to the fundamentally flawed design of the tax. In the tax models presently discussed, including the EC proposal, this problem has been tackled.
The Nordic model, based on progressive, effective and relatively high taxation, has proven to be the most competitive and equal in the world, combining economic vitality with social well-being. Norway, Finland and the other Nordic countries should join their forces and take this experience to the global stage and present alternatives to the prevailing ”race to the bottom” mentality. Working together the Nordic countries can make a difference.
Increasing financial transparency and taxing international financial transactions are important in themselves and good starting points for further action. They are merely starting points, because it is clear that we need significantly more reforms to achieve the kind of global governance needed to prevent future crises and ensure an equitable distribution of the benefits.
The Crisis in the Euro-area
In the European Union and the euro group we are still struggling to overcome the sovereign debt crisis. There is no ”business as usual” option. But some of the proposals for dealing with the crisis offer cures that can be worse than the disease. This is the case when proposals are made that would delegitimize Keynesian policies and make austerity the fundamental rule that would be even written into the member states’ constitutions in the spirit of the Neo-Liberal policy agenda, which brought about the crisis in the first place.
The permanent European Stability Mechanism set to come into force in 2013 also has merits. Among other things it includes provisions for debt restruction and for the financial sector to take responsibility for its reckless lending. The ESM together with the so-called six-pack of legislation for financial governance set to be adopted may still need some ”seven-up” to make it functional particularly in the field of market regulation. And while it may reduce the likelihood of new financial crisis in the future, it offers no comfort in the immediate future where urgent measures are called for.
This is an issue where the participation of all states and not only the Euro countries or even EU member states is needed. There is no way Norway can avoid being affected by the crisis if mismanagement leads, in the worst case, to global financial meltdown.
Free and Fair Trade
Finland supports a free and fair trade regime and wants to support the integration of the developing countries into the international economy. The needs of the least developed countries to develop their own economies and to strengthen their influence in trade policy have to be recognized and supported. The commitment of all actors in the global economy to social and corporate responsibility has to be ensured with binding rules and agreements.
The rules governing international trade have to be developed so as to better take into account the exigencies of environmental and consumer protection, human rights and core labour standards. We also want to see a new international mechanism created for debt adjustment and relief.
We also want to see the global rules-based trade regime maintained, improved and strengthened. Whatever the shortcomings of the WTO, a universal trade regime with equal participation from all the countries in the world is surely preferable compared to the present trend of regionalization and bilateralization of trade and investment agreements, which almost inevitably are biased in favour of the strongest party.
In the WTO even the poorest and smallest country can resort to the Trade Dispute Mechanism against the richest and biggest countries to gain justice against their protectionist and discriminatory measures – provided of course that they are adequately resourced, which is why capacity-building for the developing countries has to be part of the Nordic countries’ trade and development policies.
This is why we also want to see a new global agreement on investment. It was right that the draft Multilateral Agreement on Investment of the OECD was abandoned through the action of the NGO community, as it would have drastically altered the balance of rights and obligations between governments and transnational investors in favour of the latter. However an agreement negotiated with full participation of the developing countries, with the right balance safeguarding the rights of governments and taking proper account of the need to ensure respect for environmental, consumer and labour standards as well as corporate responsibility is still very much needed.