France pulls punch on financial transaction tax

President Sarkozy champions the FTT

This week France announced its plans to unilaterally impose a 0.1% tax on financial transactions starting in August, regardless of whether it is implemented in other European countries.

The French FTT will cover centrally settled transactions in French shares (possibly options on French shares as well) and will generate €1 billion a year.

The tax is among a series of measures announced by Sarkozy to stimulate economic growth and go towards “cutting the deficit.” Speaking on French television, President Nicholas Sarkozy said:

“What we want to do is provoke a shock, to set an example…There’s no reason why deregulated finance, which brought us to the current situation, can’t participate in the restoration of our accounts.”

The Robin Hood Tax campaign welcomes Sarkozy’s move to impose the tax, made despite heavy opposition from France’s banking industry.  Spokesman David Hillman said:

“Sarkozy has shown he is capable of reining in the banks and ensuring they pay more in tax. Why then is David Cameron so resistant when the idea is backed by the British people?

“If he’s serious about us ‘all being in this together’ he needs to get on and introduce Britain’s own tax to make banks pay their fair share.”

However this is only a small victory, and falls short of expectations of our French campaigners.  The expected €1 billion in revenue raised is disappointingly low. The potential revenue could be increased significantly should the FTT include more financial assets (such as bonds and derivatives) and the tax rate increased (similar to the UK’s Stamp Duty of 0.5%).  More importantly, according to Sarkozy’s statements, the revenue raised would not be used for tackling poverty and climate change – but instead to fill budget deficits.

But this is definite progress and over the next few weeks the campaign will lobby for increasing the revenues and ensure that a proportion is devoted to development and climate change.

The FTT will bring more equity and considerable additional revenues

EU Commissioner Algirdas Šemeta argues that the FTT will bring more equity and considerable additional revenues

In an article in the leading German newspaper Süddeutsche Zeitung, European Commissioner Algirdas Šemeta qualifies the arguments of the opponents of the FTT as “irresponsible.” He goes onto debunk the myths which they build up, particularly with regard to the alleged consequences of the tax on growth,  jobs and retail business.

An all-round great read:

It is irresponsible to instigate fears

Little by little the financial transaction tax approaches its implementation. There is increasing consensus on many aspects of the Commission’s proposal, and with regard to the remaining controversies there are constructive contributions being made.  Simultaneously a massive wave in support for the FTT has emerged among citizens. For them, the benefits of this tax are clear: An equitable distribution of the tax burden, a more stable financial sector and considerable additional revenues.

The more the financial transaction tax approaches implementation, the shriller – hardly by chance – the rhetoric of its opponents. They twist the Commission’s official data and thereby invent apocalyptic scenarios concerning the impacts of the tax on growth, employment and competitiveness.

Instigating such unfounded fears is inexpensive and irresponsible. An open and straightforward debate on the FTT is, of course, of central importance, but it must be based on facts. And it must be conducted with the sense of proportions and really refer to the existing proposal. It is time to get rid of some of the myths surrounding our proposal for a Financial Transaction Tax.

First of all, concerning the economic impacts in the EU, the FTT will neither damage growth and competitiveness nor lead to more unemployment. From an isolated perspective every tax causes economic costs. However, the costs of the FTT are small and, absolutely legitimate, given the enormous support the financial sector has been granted in the recent years.

Furthermore, the costs have to be offset against the positive effects from the use of the revenues of the FTT. If the expected annual 57 billion Euros are used to consolidate national budgets, to lower other taxes or to invest in public services and infrastructures, the financial transaction tax will surely have a positive impact on growth and employment in Europe.

Secondly, forget the argument that ordinary citizens and enterprises will have to shoulder the main burden of the tax. Firstly we must remember that current account operations by citizens and enterprises do not fall under the tax.  85 percent of the transactions affected by the FTT are operated exclusively among financial institutions. Even if the financial sector should pass on a part of the costs to its clients, this would be negligible: for example, if somebody is purchasing stocks for 10.000 Euros, they can easily afford a tax of 10 Euros for such a transaction.

Finally, those who allege that the FTT will lead to a massive flight of financial markets from Europe have either not read or not understood the proposal of the Commission. Precisely in order to prevent tax evasion, the proposal contains measures to mitigate this risk: a low tax rate, a broad tax base and the “home country principle.” If financial actors want to avoid the FTT, they would have to completely give up their European clients. This is rather unlikely to happen.

Those who combat the FTT must be asked, which alternatives exist? Many member states have reached the limit of what they can bear as austerity measures. Should this small tax on the financial sector be worse for growth and competitiveness than a further increase of income and corporate taxes or further cuts in public expenditures?

If the ordinary citizen must accept higher taxes on wages, food and fuels as well as restrictions on basic public services, can it not be expected, that the financial sector too contributes its part?

The FTT opens the possibility to unlock a significant source of revenue and to rebalance the tax burden – and to make it borne by those who can afford it.

Translation: Markus Gaudek and Peter Wahl