Michael D Higgins (Galway West, Labour)
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Question 126: To ask the Minister for Finance the position regarding discussions in the General Assembly of the UN on a transaction tax; the discussion at UN level and such bilateral discussions at diplomatic level which have taken place on this topic [43145/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Consideration of how to ensure that the financial sector contributes to the cost of dealing with crises is under way in various fora internationally, including the EU and the UN. The European Council in June agreed that EU Member States should introduce systems of levies and taxes on financial institutions to ensure fair burden-sharing and to set incentives to contain systemic risk. The Council called for careful assessment of the main features and issues of level playing field and cumulative impacts and invited the Council and the Commission to take this work forward and report back in October.

The IMF report to the G20 in June analysed various options including a financial transaction tax and proposed two possible contributions from the financial sector: a Bank Levy, or "Financial Stability Contribution" levy (FSC), to pay for the fiscal cost of government support of the sector; and a tax on financial transactions which involved two options, a Financial Transactions Tax (FTT), charged on financial transactions undertaken by financial institutions covering dealings by those institutions in stock, bonds and derivative transactions in exchanges as well as instruments traded "over the counter" rather than in a recognised exchange, but not transactions undertaken by individuals and businesses, or a Financial Activities Tax (FAT), a broader tax levied on the profits and remuneration of financial institutions, which is sometimes described as a form of VAT on financial institutions by targeting the 'added value' of the services they provide (there is no VAT on financial services in the EU).

In a May 2010 Communication, the European Commission supported the establishment of ex ante resolution funds, funded by a levy on the banks to facilitate the managed failure of ailing banks in an orderly manner and suggests that a resolution fund should form part of the toolbox of measures available to Member States in an EU crisis management framework. An objective of the Commission's proposal, in conjunction with its wider proposals on a crisis management system, is to mitigate the burden on the taxpayer arising from financial crises. In its Conclusions of 14 June 2010, the European Union Foreign Affairs Council decided that the EU should "seriously consider proposals for innovative financing mechanisms with significant revenue generation potential, with a view to ensuring predictable financing for sustainable development, especially towards the poorest and most vulnerable countries". To that end, a Taskforce on Innovative Financing for Development has been established at the EU level, with Ireland's participation. The Taskforce is playing a role in assessing innovative financing mechanisms, contributing with concrete and feasible proposals, and coordinating the work on innovative financing within the EU.

This is a complex area and careful consideration is being given at EU and UN level to the issues involved. Ireland is of course participating in those deliberations. At UN level, much of the international discussion on innovative financing is being conducted through the Leading Group on Innovative Financing for Development, a group of interested countries and international organisations and NGOs. The next meeting of the Leading Group is to be hosted by Japan, the current Chair, in December. Ireland is not a member of the group, but will attend as an observer. The Leading Group held a session on the sidelines of UN High Level Plenary Meeting on the Millennium Development Goals (MDGs) in September this year. This highlighted possible new instruments under study for innovative development financing. One of these is the possible introduction of a tax on currency transactions.

The Final Declaration adopted by the UN High Level Plenary Meeting refers to the role of innovative financing to achieve the MDGs, and noted that voluntary mechanisms should be effective and should aim to mobilise resources that are stable and predictable, supplementing and not substituting for traditional sources of finance for development. Following negotiations in the Second Committee of the United Nations General Assembly, it is likely that the General Assembly will adopt a Resolution on the issue of innovative financing in the coming weeks. The Resolution is expected to request that the Secretary General of the UN prepare a report to examine the contribution and potential of innovative mechanisms of financing for development to achieving international development goals.