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

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6 thoughts on “The FTT will bring more equity and considerable additional revenues

  1. AJ says:

    The transactions tax isn’t a tax on the financial sector. It’s a tax on pensions, savings and investment by non-financial businesses. Two IMF studies, the CPB Netherlands report, the Swedish study by Lars Oxelheim, PhD, and others have shown this repeatedly. The financial industry would pay less than 25% of this tax. The rest of us get stuck wth the other 75%.

    • An FTT would have little impact on pension funds. The tax rate is set extremely low (an average rate of just 0.05%) precisely to avoid having an impact on pensions and savings that carry out transactions infrequently. Because they need steady dependable income streams, pension funds tend to hold long-term investments, rather than buying and selling them for quick profits. An FTT would fall most heavily on finance houses that make multiple, rapid trades, particularly computer-generated trading. Since this is predatory and destabilising, slowing it down is a good thing.

      Ordinary citizens will not end up paying the tax. An FTT wouldn’t apply to retail banking or personal money transfers. It is instead targeted at the commercial and investment banking industry. Critics are right that banks as intermediaries won’t pay an FTT – but the customers of their investment banking activities will. Who are these customers? For the most part they are high net worth individuals, financial institutions such as hedge funds and the bankers themselves, meaning the impact would fall on the richest segments of our economy and society, in a similar way to capital gains tax. The IMF has studied who will end up paying transaction taxes and has concluded that FTTs would in all likelihood be ‘highly progressive’. This is in complete contrast to VAT, which falls disproportionately on the poorest people

      • AJ says:

        The Dutch Central Bank report showed that 42% of the transactions tax cost would be borne by pensions and retirement savings, thereby reducing retirement benefits by over 5% for the typical worker. Lars Oxelheim, PhD, reached this same conclusion in a separate study. Almost 8% of the cost would be paid by insurance companies, thereby driving up insurance costs. About 50% of the tax would be paid by banks, but about half of that would be passed onto customers. In the end, the banks only pay about 25% of the transaction tax. That’s why Christine Lagarde, former French Finance Minister and current Managing Director of the International Monetary Fund, recommended against the transactions tax and in favor of direct taxation on banks. Otherwise the banks only pay 25% of the tax and everybody else, including working men and women, get stuck paying the bill.

  2. ftfsos says:

    Other taxes will increase to cover the revenue losses from reduced GDP. FTT revenue will not even cover the costs to collect the transaction tax itself. Those are not problems the EU Commission needs to worry about. It’s a problem for taxpayers.

    Reality: Swedish Finance Minister Anders Borg warns often that a financial transactions tax in his country saw implementation costs of the tax out-run its own revenues. The tax itself achieved 3% of projected revenues-even before subtracting negative revenues from reduced GDP.

    • The idea that an FTT would impact economic growth is a myth. Many of our opponents base these ‘scare tactics’ on the European Commission’s Impact Assessment (IA). However, firstly, they misrepresent the IA’s conclusions. In actual fact, should the tax be designed in a way that the EC proposes, the economic impact would be as low as 0.53% (higher figures cited by the EC reflect the ‘worse case scenario’). Secondly, the IA is itself technically flawed – which it recognises:

      ‘As this new model makes a series of stylized assumptions…its numerical results have to interpreted with some caution; they present tendencies rather than precise values’ (EC Impact Assessment Vol. 1, page 51).

      Therefore any suggested impact on GDP cannot be taken as fact!

      Also what about the positive effects an FTT would have on the economy? By creating a disincentive for short-term speculation and high frequency trading (‘casino’ style banking behaviour which caused the economic crisis in the first place), an FTT would help rebalance the stock market in favour of long-term productive investments. The revenue raised can be used to help protect public services and create substantial employment.

      Opponents of the FTT often cite the Swedish example as proof that FTTs do not work. However, this was due to its poor design. The existence of successful FTTs in many other countries demonstrates that the Swedish experience is the exception and not the rule. Have a look at Stamp Out Poverty’s written evidence submission to the House of Lords (page 215-223) for more detail on the argument.

      http://www.parliament.uk/documents/lords-committees/eu-sub-com-a/FinancialTransactionTax/WOSevidenceFTT.pdf

  3. Beech says:

    Seems reasonable. The banks are driving out the fills and skimming the profits. Its time they wait their turn in line and pay the same fill.

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