The FTT is a tax levied on financial transactions (shares, bonds, currencies, derivatives and other financial instruments) making speculative trading less attractive by increasing trading costs. FTTs could raise even more revenue if combined with complementary taxes such as the International Monetary Fund’s (IMF) proposed Financial Activities Tax (FAT), which would compensate for the VAT-exemptions that benefit financial services. 

Rio +20 marks the 20th anniversary of the landmark 1992 Earth Summit. The FTT could pay for social and environmental goals that would lead to a greener, more sustainable and more equitable society. As an example of innovative financing, FTT revenues could contribute to funding the estimated US$156 billion necessary for climate change measures in developing countries and up to US$180 billion so that Official Development Assistance can reach its goal of 0.7% of Gross National Income (GNI). The FTT could help address the new challenges brought on by climate change, the economic crisis and financial institution’s practices. A global FTT could serve as a step towards a new global funding system.

FTT is a very efficient way to raise necessary revenues because it is progressive. The FTT is a progressive tax, the FTT aims to increase the contribution of the financial sector to society, which is often exempted from paying VATs and corporate taxes in the vast majority of countries. The FTT is a fair tax because it addresses inequities in current tax systems whereby the wealthy often pay taxes at a lower rate than other citizens. The FTT can help stabilise countries rocked by the crisis and help revitalise struggling economies. 

Many governments, trade unions, civil society groups, and economists support the FTT. In March 2011, the European Parliament voted to implement an EU-wide FTT; in September the European Commission released a proposal of legislation covering transaction in shares, bonds and derivatives. More than 1,000 leading economists including Joseph Stiglitz, Paul Krugman and Amartya Sen,have endorsed an FTT. Many national governments already have some form of FTT or are seriously contemplating their own FTT. Germany and France champion a Eurozone FTT. Over three-quarters of the G20 countries including the UK, France, Germany, Brazil, South Africa and India, already implement a limited FTT that targets some transactions.

Civil society organisations including labour unions, environmental and development NGOs and other groups, including Oxfam, Barnardos, World Wildlife Fund, Friends of the Earth, 350.Org, the Salvation Army, and the Occupy Movement support the FTT.

Innovative approaches are needed to address both environmental concerns and social inequities exacerbated by financial sector practices. An FTT will be a boon to government revenues, could contribute to alleviating global poverty and fund development and climate action. It would do this not by taxing ordinary people, but by taxing specific financial transactions and the very sector that created the financial crisis.