The financial sector is ‘under-taxed’ and an EU-wide financial transaction tax would ensure that it makes a fair contribution at a time of fiscal consolidation in the Member States, according to the European Commission.
The EC’s proposal announced today was ‘completely misguided’, said the CBI’s Deputy Director-General Neil Bentley, at a time when ‘it’s clear that Europe needs a relentless focus on growth’.
The UK government has said a financial transaction tax would need to be applied globally to prevent the relocation of financial services. The government was ‘willing to engage in further international discussions of such taxes,’ said Mark Hoban, Financial Secretary to the Treasury, in a Commons written answer on 20 June.
The BBC News website quoted a Treasury spokesman today as saying the Treasury would ‘absolutely resist’ any tax that was not introduced globally. ‘We would not do anything that is not in the UK's interests,’ he said.
‘This is not an EU-wide tax but a tax on the City of London,’ said Kay Swinburne, Conservative MEP and spokesman on economic and monetary affairs, according to The Times. ‘Any European financial transaction tax which included the UK but not the rest of the G20 group of leading economic nations would simply lead to a draining-away of business to other parts of the globe.’
The paper reported that opposition from Britain and others ‘can ensure that the tax never materialises’.
Last week the Financial Times reported that ‘early indications’ of a report by Microsoft founder Bill Gates, to be presented to the G20 in November, suggested that ‘a tax on financial transactions could generate nearly $50bn for development aid if applied across the G20 grouping of leading economies’.
A discussion note circulating at the International Monetary Fund meetings in Washington ‘suggested [Gates] thought the tax was feasible and capable of raising huge revenues’, FT columnist John Plender wrote yesterday.
The proposed financial transaction tax (FTT) would be levied from 2014 on ‘all transactions on financial instruments between financial institutions when at least one party to the transaction is located in the EU’. The exchange of shares and bonds would be taxed at 0.1% and derivative contracts at a rate of 0.01%.
The tax could approximately raise €57bn a year, the Commission said. The proposal would be discussed in the Council of Ministers and presented to the G20 Summit in November.
The EC said the FTT – the subject of consultation earlier this year – was being proposed for two reasons:
‘First, to ensure that the financial sector makes a fair contribution at a time of fiscal consolidation in the Member States. The financial sector played a role in the origins of the economic crisis. Governments and European citizens at large have borne the cost of massive taxpayer-funded bailouts to support the financial sector. Furthermore, the sector is currently under-taxed by comparison to other sectors. The proposal would generate significant additional tax revenue from the financial sector to contribute to public finances.
‘Second, a coordinated framework at EU level would help to strengthen the EU single market. Today, 10 Member States have a form of a financial transaction tax in place. The proposal would introduce new minimum tax rates and harmonise different existing taxes on financial transactions in the EU. This will help to reduce competitive distortions in the single market, discourage risky trading activities and complement regulatory measures aimed at avoiding future crises. The financial transaction tax at EU level would strengthen the EU's position to promote common rules for the introduction of such a tax at global level, notably through the G20.’
Revenues would be shared between the EU and Member States, the Commission said. ‘Part of the tax would be used as an EU own resource which would partly reduce national contributions. Member States might decide to increase the part of the revenues by taxing financial transactions at a higher rate.’
Public debt in all 27 EU Member States ‘jumped from below 60% of GDP in 2007 to 80% for the years to come,’ it said, as a result of the financial crisis.
‘The financial sector has received substantial financial support from governments. EU Member States have committed €4.6 trillion to bail out the financial sector during the crisis.
‘In addition, the financial sector has benefited from low taxes in recent years. The financial sector enjoys a tax advantage of approximately €18 billion per year because of VAT exemption on financial services. A new tax on the financial sector would ensure that financial institutions contribute to the cost of economic recovery and discourage risky and unproductive trading.’
‘Citizens and businesses would not be taxed,’ the Commission added.
The detailed proposal, a series of ‘frequently asked questions’ and an impact assessment are available on the EC website.
The financial sector is ‘under-taxed’ and an EU-wide financial transaction tax would ensure that it makes a fair contribution at a time of fiscal consolidation in the Member States, according to the European Commission.
The EC’s proposal announced today was ‘completely misguided’, said the CBI’s Deputy Director-General Neil Bentley, at a time when ‘it’s clear that Europe needs a relentless focus on growth’.
The UK government has said a financial transaction tax would need to be applied globally to prevent the relocation of financial services. The government was ‘willing to engage in further international discussions of such taxes,’ said Mark Hoban, Financial Secretary to the Treasury, in a Commons written answer on 20 June.
The BBC News website quoted a Treasury spokesman today as saying the Treasury would ‘absolutely resist’ any tax that was not introduced globally. ‘We would not do anything that is not in the UK's interests,’ he said.
‘This is not an EU-wide tax but a tax on the City of London,’ said Kay Swinburne, Conservative MEP and spokesman on economic and monetary affairs, according to The Times. ‘Any European financial transaction tax which included the UK but not the rest of the G20 group of leading economic nations would simply lead to a draining-away of business to other parts of the globe.’
The paper reported that opposition from Britain and others ‘can ensure that the tax never materialises’.
Last week the Financial Times reported that ‘early indications’ of a report by Microsoft founder Bill Gates, to be presented to the G20 in November, suggested that ‘a tax on financial transactions could generate nearly $50bn for development aid if applied across the G20 grouping of leading economies’.
A discussion note circulating at the International Monetary Fund meetings in Washington ‘suggested [Gates] thought the tax was feasible and capable of raising huge revenues’, FT columnist John Plender wrote yesterday.
The proposed financial transaction tax (FTT) would be levied from 2014 on ‘all transactions on financial instruments between financial institutions when at least one party to the transaction is located in the EU’. The exchange of shares and bonds would be taxed at 0.1% and derivative contracts at a rate of 0.01%.
The tax could approximately raise €57bn a year, the Commission said. The proposal would be discussed in the Council of Ministers and presented to the G20 Summit in November.
The EC said the FTT – the subject of consultation earlier this year – was being proposed for two reasons:
‘First, to ensure that the financial sector makes a fair contribution at a time of fiscal consolidation in the Member States. The financial sector played a role in the origins of the economic crisis. Governments and European citizens at large have borne the cost of massive taxpayer-funded bailouts to support the financial sector. Furthermore, the sector is currently under-taxed by comparison to other sectors. The proposal would generate significant additional tax revenue from the financial sector to contribute to public finances.
‘Second, a coordinated framework at EU level would help to strengthen the EU single market. Today, 10 Member States have a form of a financial transaction tax in place. The proposal would introduce new minimum tax rates and harmonise different existing taxes on financial transactions in the EU. This will help to reduce competitive distortions in the single market, discourage risky trading activities and complement regulatory measures aimed at avoiding future crises. The financial transaction tax at EU level would strengthen the EU's position to promote common rules for the introduction of such a tax at global level, notably through the G20.’
Revenues would be shared between the EU and Member States, the Commission said. ‘Part of the tax would be used as an EU own resource which would partly reduce national contributions. Member States might decide to increase the part of the revenues by taxing financial transactions at a higher rate.’
Public debt in all 27 EU Member States ‘jumped from below 60% of GDP in 2007 to 80% for the years to come,’ it said, as a result of the financial crisis.
‘The financial sector has received substantial financial support from governments. EU Member States have committed €4.6 trillion to bail out the financial sector during the crisis.
‘In addition, the financial sector has benefited from low taxes in recent years. The financial sector enjoys a tax advantage of approximately €18 billion per year because of VAT exemption on financial services. A new tax on the financial sector would ensure that financial institutions contribute to the cost of economic recovery and discourage risky and unproductive trading.’
‘Citizens and businesses would not be taxed,’ the Commission added.
The detailed proposal, a series of ‘frequently asked questions’ and an impact assessment are available on the EC website.
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