Transaction Tax Back On Menu In Europe
Following Francois Hollande’s recent presidential victory in France, it appears that there is a groundswell of support building from some European policymakers to re-assert plans for a continent-wide financial transaction tax.
The new socialist president, who campaigned against austerity measures to save the euro, wants to use the €57 billion per annum the proposed tax is expected to raise to stimulate economic growth across the 27-nation bloc. Voters in crisis-hit Greece have also thrown out politicians associated with austerity measures in the past few days.
And in what appears to be a head-on smash with the UK, who have vehemently opposed such a move as David Cameron, its prime minister, says the levy will negatively impact on the City of London, Europe’s premier financial location, Hollande is keen to push ahead with plans for a financial transaction tax.
“The British have been particularly shy about the issues of financial regulation, and attentive only to the interests of the City—hence their reluctance to see the introduction of a tax on financial transactions and tax harmonization in Europe,” said Hollande.
Despite having similar views to his more right-wing predecessor, Nicolas Sarkozy, on the introduction of a financial transaction tax, it appears that Hollande’s victory may provide the impetus needed from European politicians to finally see a non-watered down levy pushed through the European Union. Any such move would severely curtail the practices of high-frequency trading in its current guise.
However, a recent report published by the Centre For Policy Studies, a UK think tank, says that claims the tax would be paid only by the financial services industry is “contradictory and flawed” and that even if the UK vetoed the tax and the scheme went ahead, it “could cause significant damage to the UK financial services industry”.
“Any legislation for a financial transaction tax, whether on an EU-wide basis or within a set of member states, will be enormously complex; and will be subject to many years of legal dispute,” said John Chown, author of the report. “The resulting uncertainty could only be severely damaging to the UK financial services industry. It is therefore essential that the UK uses every possible method to ensure that a financial transaction tax is not introduced at any level in the EU.”
And a House of Lords committee this week also warned that more than 70% of revenues generated by the European Commission’s proposed tax on financial transactions could come from the UK.
The EU has said that is sees the financial transaction tax as a way of constituting a new revenue stream which would reduce member states’ contributions to the EU budget. The EU says the initiative would be a first step towards the application of a financial transaction tax at global level. Algirdas Šemeta, the EU commissioner for taxation, recently said that he will push for the introduction of the tax with or without unanimous support from the 27-nation bloc.
Previous attempts to introduce a 0.1% tax on all share transactions and a 0.01% levy on derivatives trades after the European Commission first unveiled plans in September last year to set up the continent-wide tax, envisaged to come into effect by January 2014, have come unstuck as nations such as the UK, Sweden, Ireland and the Czech Republic among others, as well as financial industry lobbyists, have managed so far to derail the proposals.
However, the European parliament’s Economic and Monetary Affairs Committee approved a resolution late last month which proposes a better design for the financial transaction tax in order to capture more traders and to make evading it unprofitable.
“The committee has been consistent with what parliament has been pushing for and I now expect member states to show the same consistency with their declarations,” said MEP Anni Podimata, rapporteur of the Economic and Monetary Affairs Committee. “It is time to change the financial services business model, away from high-frequency trading to serving the real economy.”
Concerns, though, have been raised that the tax would hit pension funds and the committee is calling for pension fund transactions to be exempt from the levy.