European Commission president Jose Manuel Barroso’s proposal to introduce the long-debated financial transaction tax (FTT) or what is commonly known as a Tobin tax, has met with stiff resistance from the government here.
The proposal to levy a 0.1 per cent tax on all financial transactions in the European Union and a 0.01 per cent tax on derivative deals in the region was opposed by the UK Treasury. It says it will go along only if it is a globally implemented tax, not just in Europe.
In his speech at the European Parliament, Barroso said the European Commission hopes to raise ¤55 billion a year from this tax that he expects to be implemented from 2014. “Some people will ask ‘Why’? It is a question of fairness. If our farmers, if our workers, if all the sectors of the economy from industry to agriculture to services, if they all pay a contribution to the society, the banking sector should also make a contribution,” said Barroso.
A spokesperson for the UK Treasury said “The Government will continue to engage with its international partners on financial transaction taxes and has no objection to them in principle. But any FTT would have to apply globally and there are a number of practical issues that need to be worked through.”
Financial services experts in London believe about 80 per cent of the revenues of any Europe-wide financial tax would come from London. Sources in the Treasury also said any such proposal would see EU GDP reduced by between 0.17 per cent (€21 bn) to 1.76 per cent (€216 b).
Algirdas Šemeta, commissioner for taxation, customs, anti-fraud and audit at the EU, said: “With this proposal, the European Union becomes a forerunner in the global implementation of a financial transaction tax. Our project is sound and workable. I have no doubt this tax can deliver what EU citizens expect; a fair contribution from the financial sector. I am confident that our partners in the G20 will see their interest in following this path.”
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The proposed tax also faced resistance from Europe’s financial capital, London. “In its latest European context, it has to be seen in relation both to finding someone to blame for the financial crisis as well as payback for the commitment to a greater ‘Europeanisation’ of fiscal policy,” said Richard Reid, Director of Research, at the London-based The International Centre for Financial Regulation.
He said without the UK’s support, the tax could not be implemented. “To go-it-alone in Europe or the euro area would only put greater pressure on the region’s global competitiveness and may even increase the costs of financial intermediation to consumers and businesses. Is that really the desired outcome? In the absence of a truly global application of any transaction tax, it is hard to see the UK backing such a move,” said Reid.
The EC, however believes, it would be able to implement it within the euro zone if the UK vetoes the proposal.
Neil Bentley, deputy director-general of the Confederation of British Industry, said, “The EC’s decision is completely misguided at a time when it’s clear that Europe needs a relentless focus on growth. The Commission’s own official impact analysis shows the proposed tax could dent long-run EU gross domestic product by more than €100 b.
Adding: “The FTT is a crude instrument that would increase the cost of capital for businesses, hold back their growth potential and raise minimal revenue in return. It would be particularly damaging to the UK, as Europe’s leading financial centre, as it would divert activity to other financial hubs like New York or Hong Kong.”