24/04/2102 I’m in favour of an EU Financial Transaction Tax (FTT), and I’m not alone. Just last week, nine EU Member States including France, Germany, Italy and Spain signed an open letter to the Danish Presidency calling for progress on the introduction of the tax before the end of its EU Council Presidency.
The European Commission’s FTT proposal, as it stands, would see a tax levied at 0.1 per cent on share and bond transactions and 0.01 per cent on deals involving complex securities, such as derivatives. Banks and financial businesses residing in participating countries for tax purposes, such as a French bank trading in London, would be liable to pay the tax, and the revenues raised would be shared between the EU budget and national treasuries. The Commission estimates that such a tax could raise up to £48 billion a year; a huge sum of public money that could be put to great use as Europe’s economies struggle with punishing ‘austerity’ drives and round after round of devastating public spending cuts.
Supporters of an EU Tobin Tax aren’t just confined to a select group of EU Finance Ministers. International economists such as Stephany Griffith-Jones of Columbia University argue that, rather than squandering vital revenue and damaging delicate, emerging shoots of economic growth as opponents of the FTT would have us believe, a transaction tax could, in fact, increase and protect GDP in the long term by preventing financial crises from happening in the first place.
Development charities are also massively in favour of a ‘Robin Hood’ tax. Oxfam has estimated that a tax of 0.5 per cent on share and bond transactions could raise up to £300 billion, almost ten times the cost of meeting the United National Millennium Development Goals; international targets which are crucial for tackling poverty ranging from halting the spread of HIV and providing universal primary education by 2015.
This isn’t just a cause celebre for charities, academics and decision makers. The issue of an EU FTT is ultimately about fairness; reigning in those morally irresponsible financial practices such as short selling that have led to perhaps the gravest financial crisis since the 1930s. For hundreds of millions of people around the world, this has been a social crisis, brought to life by the fear of losing their jobs or their ability to house and feed their families. With this in mind, it is perhaps not surprising that a 2011YouGov poll for Oxfam found that 51 per cent of those polled in the UK supported a tax on financial transactions as a way of raising revenue to protect public services and tackle poverty both at home and abroad. The same poll carried out in France, Germany, Italy, Spain and the Netherlands showed that a least four fifths of those polled in each country believed that financial institutions should repair the damage they caused by presiding over years of reckless trading.
The Commission’s proposal has been met with fierce opposition since unveiled in November 2011, not least here in the UK. Initially, the Prime Minister’s outright rejection seems a little surprising; after all, the UK Treasury already imposes a higher 0.5 per cent stamp duty on share transactions. However, what really lies behind the Prime Minister’s concern is the belief that an EU-wide FTT would give other global financial centres a competitive edge over London and trigger a mass exodus of experienced and talented bankers and traders.
Yet, research by the HedgeFund Intelligence group finds that managers in the financial services industry are, in fact, choosing to stay in London, despite misplaced fears that higher taxes and regulations may make them relocate. London continues to remain the largest centre for hedge fund managers outside the US, with over 50 firms managing at least $1 billion in assets. Also, as already highlighted, financial transactions in the UK are already subjected to a much higher levy than the 0.1 per cent proposed by the Commission. In this instance, the statistics do not support the view that London would be negatively impacted by an EU-wide FTT.
This point was reinforced by Algiridas Semeta, the Lithuanian European Commissioner who is presiding over the Commission’s proposal, at a recent House of Lords hearing on a possible EU FTT. Commissioner Semeta argued that financial institutions choose to operate in London not because of the level of taxes and regulations found here, but rather because of its “efficient trading platforms, smart and talented workers and the quality of life here.”
Opponents of the tax also like to point to the experiences of Sweden in the late 1980s, where the imposition of a 0.5 per cent FTT saw a decrease in bond trading and a trend in financial institutions simply moving overseas to avoid the new levy. Economists broadly agree that the failure of the Swedish tax was down to the fact that it only taxed local brokerage services, making it easy for companies to evade the tax by moving operation overseas. However, the Commission’s proposal would create a tax which would link transactions to the residence of financial institutions at the EU level and which would cover third-country based institutions where there is a link with an EU Member State, helping to curtail evasion.
An EU-wide FTT could help to raise much needed revenue for public investment and international development, help to stabilise the market by forcing firms to pay some of the costs of their damaging activities and go some way towards protecting the global economy from the fall out of future financial crises. It also has the support of the public. In light of such obvious benefits, the real question is why does an EU FTT continue to be the subject of such fierce opposition?
This article was published on eGovMonitor on 24th April 2012:http://tobintax.theinformationdaily.com/archive/2012/04/23/EU_Tobin_Tax_Opposition_is_Senseless