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28/07/2016

Brussels makes new push for financial tax

Euro & Finance

Brussels makes new push for financial tax

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European Commission President José Manuel Barroso said yesterday (22 March) that an EU-wide financial transaction tax could save EU countries as much as half of their contribution to the EU budget.

"We are coming with some striking figures to assist the debate," echoed EU budget chief Janusz  Lewandowski, adding that the FTT will be used to finance part of the EU budget and will allow the EU to fund programmes on jobs and growth.

The Commission may push for a tax among a smaller group of members if agreement by all 27 nations proves impossible, via an enhanced cooperation procedure, which requires a minimum of nine countries to agree.

The FTT proposal which was highlighted in the EU budget plans for 2014-2020 has the backing of nine EU countries, including France and Germany.  But some countries, like the UK, Sweden and the Netherlands oppose the idea. That prompted EU finance ministers to ask the Danish presidency on 13 March to consider compromise alternatives to the FTT.

But the Commission seems to think that there is no alternative and launched a new offensive to defend the FTT and to mobilise new arguments.

"Our proposals would reduce very substantially the member states' gross national income contribution to the Union's budget,” said Barroso, speaking in front of EU and national parliamentarians.

Some preliminary estimates suggest that national contributions could be cut by half.

The Commission estimates that by 2020 a tax on sales of shares, bonds and derivatives could generate €81 billion per year. A third of that would be reserved for member states while Brussels would automatically receive the other two-thirds, some €54 billion.

According to the Commission, the French contribution to the EU budget would fall by €8.8 billion, Germany's by €10.7 billion and Italy's by €6.5 billion.

UK’s data under scrutiny

Some countries do not seem to have the right data when it comes to the EU budget. According to UK Nucleus, an independent advocacy campaign, British people are not told the truth when it come their contribution to the EU budget.

“When the British people are asked what proportion of national income goes to fund our membership of the European Union, the average response is around 24%. That would be a lot of money, if it were true. It would mean that the average wage-earner, on £25,500 a year, who pays around £5,979 in tax, would be handing over some £1,435 to Brussels,” the advocacy group points out.

But looking at the UK tax transparency report, only £28 per citizen goes to the EU – little more than 50p a week. “And a large proportion of that comes back to this country,” says a Nucleus blog.

Danish Prime Minister Helle Thorning-Schmidt, whose country holds the rotating EU presidency, said in a press conference that her government was speeding up discussions on the transactions tax. She confirmed it would be debated by EU finance ministers in Copenhagen next week.

The Commission has long wanted to increase its independent sources of financing. However, some member states believe control of those funds gives national governments greater sway over EU spending and priorities.

Background

A financial transactions tax (FTT) - often called a Tobin tax for American Nobel laureate James Tobin who was amongst the first proponents - is one of many proposals made to tax banks and hinder market speculation. Many countries have already implemented a levy on banks' assets and liabilities.

The European Commission and the International Monetary Fund have also examined the possibility of a financial activities tax which would place levies on profits and bonuses.

In a bid to lower national contributions to the EU budget, the Commission proposed to tap into an FTT. The UK is the staunchest opponent of the tax, arguing that the move will encourage bankers to route their business through tax havens.

The EU's draft tax has been designed to cover the widest possible scope of financial transactions involving stocks, bonds, derivatives and over-the-counter derivatives that currently skirt stock exchanges

Timeline

  • 30h and 31 March: Informal meeting of EU finance ministers in Copenhagen

Further Reading