MEPs push forward with financial transaction tax plan

Despite the opposition of Conservative MEPs, plans for a financial transaction tax (FTT) at either European Union or global level moved a step closer after the European Parliament’s economic committee overwhelmingly backed a report by Greek Socialist Anni Podimata MEP which suggested that such a tax would raise billions of extra revenue, reduce government deficits and fight speculation.

by Ben Fox
Friday, February 11th, 2011

The Podimata report on “innovative financing” suggests new measures of financing at EU level to combat the austerity measures and public spending cuts being made by most European countries.

Her report was backed in the economic committee by 30 votes in favour to four votes against with six abstentions.

The decision by Conservative MEPs to vote against all aspects of the report – including the FTT – marks a distinct shift. Although, in private, Chancellor George Osborne has outlined his opposition to an FTT, he has not spoken out against it in public.

Following the vote in Parliament, it is clear that the Tory-led Government will oppose an FTT even if there is widespread support for it.

Responding to this, Labour’s Arlene McCarthy attacked the Tories’ refusal to support campaigns for a financial transaction tax, which has been backed by charities including Oxfam and ActionAid, accusing them of again voting “in favour of their friends in the financial sector”.

The Government “talks tough on making the financial sector pay its way, but bottle out when it comes to taking action”, she added.
The EU has the largest financial market in the world meaning that an FTT, as proposed in the Podimata report, could raise well over £100 billion per year at EU level if levied at between 0.01 per cent and 0.05 per cent on every type of transaction.

Although the European Commission supports further development of an FTT at a global level, the Podimata report suggests starting implementation in Europe arguing that the “introduction of a tax on financial transactions ought to be as broadly based as possible or, failing that, should be introduced as a first step at EU level.”

The report will now be voted on by the full Parliament in March. Support for a global FTT is expected to pass with a large
majority. The vote on a specific EU FTT is expected to be much closer following a tied vote on the issue in the Economic committee.
But with both the centre-right EPP group and the Liberal group split on the issue, the Socialist group remains optimistic that it will be carried.

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  • http://pulse.yahoo.com/_RHDNMXGQ7BM2DUDBDDVJUJ3TZY Tom

    Support for the Financial Transactions Tax (FTT) comes primarily from Europe. However, they’ve been unable to enact the FTT because unanimous consent is required to legislate a tax across the entire EU. Sweden is against the FTT because of their bad experience when they tried it back in the 1980s (see Note #1).  The UK is against it because, as Europe’s largest financial center, they have the most to lose. (see Note #2). Other countries, such as Poland, the Czech Republic, the Netherlands and Denmark, have said they support the FTT, but only if it’s imposed world-wide.

    ECB (European Central Bank) president Jean-Claude Trichet, and his apparent successor Mario Draghi, had similar reactions to the FTT proposal. Draghi said, “A financial transaction tax would not work unless it was introduced on a global level.” Trichet told the European Parliament that introducing such a measure in the EU would “drive out investors.” The Netherlands echoed that criticism, saying that an EU-only FTT would result in an exodus of their financial expertise and investment capital to non-FTT countries. Canada, though not an EU member, showed an early interest in supporting the tax. After conducting an extensive study, Canada now opposes the FTT saying that it would irreparably damage their financial centers.

    Switzerland, Singapore, Hong Kong, Dubai and a dozen other countries have stated that they won’t impose the FTT and would welcome the business from taxed jurisdictions.

    …………………………..

    Note #1: Sweden enacted a Financial Trading Tax (FTT) in 1984. Futures trading volume fell 98%, options trading fell to zero, bond trading fell 70%, and most other markets’ trading volume fell by at least 50%. A large segment of the Swedish financial industry either left the country or went out of business. Total tax collections (both capital gains and related income taxes) fell so dramatically that those tax losses wiped out all the gains from the FTT. The total FTT taxes collected were only 3% of what the Swedish Finance Ministry had originally projected (a source of considerable embarrassment), and what was promoted as a way to raise billions in taxes to support social services ended up being a net loss to the Swedish Treasury. The FTT was repealed in 1991. Sweden cites this experience as their reason for opposing the FTT.

    Note #2: The UK currently has a transaction tax (aka, “stamp tax”) and it doesn’t seem to have harmed their huge financial market. However, government data shows that over 75% of all UK financial transactions are exempt from the tax. Many large banking and investment firms are fully or partially exempt under the law, and many London traders do their business on US or other exchanges to avoid the tax entirely. If capital flees Europe, London is projected to lose thousands of financial jobs, tens of billions in economic activity, and billions more in in
    taxes (both income and capital gains taxes). The UK cites these projected losses as their reason for opposing the FTT.