MEPs, NGOs hail Tobin tax proposal

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The European Commission officially presented its proposal for a Financial Transactions Tax (FTT) yesterday (28 September), to the acclaim of the European Parliament's largest political groups, trade unions and development NGOs. The business community and British Conservatives were among those who voiced their opposition in the absence of a global FTT.

Commission President José Manuel Barroso highlighted the proposal during his annual State of the Union address to the European Parliament in Strasbourg saying that "in the last three years, member states – I should say taxpayers – have granted aid and provided guarantees of €4.6 trillion to the financial sector. It is time for the financial sector to make a contribution back to society."

As proposed, the FTT – often known as a Tobin tax or Robin Hood tax – would tax the exchange of shares and bonds at a rate of 0.1% and would tax derivative contracts at a rate of 0.01%. The Commission estimated this would raise €57 billion in revenue each year, to be split between the EU and the member states.

The tax, which would come into effect in 2014, would affect all transactions where one party is within any of the EU's 27 member states.

Though the proposal was praised by a wide variety of stakeholders in Brussels (see 'Positions'), it faces numerous hurdles before it could be adopted. In particular, many in the business community and certain member states, notably the United Kingdom, have made known their opposition to a  European FTT, fearing it would force the financial operations to relocate out of Europe.

Barroso has also been pushing for a global FTT to be considered at the upcoming G20 summit of the world's largest economies this November.

Algirdas Šemeta, European commissioner in charge of taxation, said "With this proposal the European Union becomes a forerunner in the global implementation of a financial transaction tax. Our project is sound and workable."

"I am confident that our partners in the G20 will see their interest in following this path," he added.

In a joint press release, Socialists & Democrats Group MEPs Udo Bullmann (Germany) and Anni Podimata (Greece) said that through the FTT "the EU is giving much needed leadership to the rest of the world on this question."

"We are confident that concerns about the tax impact on competitiveness will prove to be unfounded - and we are convinced that other countries around the world will quickly follow the example given to day by the EU," they added.

The European Conservatives and Reformists Group – of which the British Conservatives are members – was critical. In reaction to Barroso's speech, the Group's leader and Czech MEP Jan Zahradil argued the EU's objectives for growth and competitiveness could not be achieved "within an old and outdated EU framework. So let's stop thinking of Mr. Schumann and Monnet - they were nice guys but their ideas are 50 years out of date. "

"One very bad decision is a Financial Transaction Tax you have mentioned. On the face of it, it sounds fine; a small fee on transactions. But in the real world such a tax will make financial institutions seriously reconsider their location - and they will leave the European market," he said.

British Conservative MEPs also reacted negatively. MEP Kay Swinburne, spokesman on economic and monetary affairs, said "This is not an EU-wide tax but a tax on the City of London."

She warned that in the absence of a G20 deal for global tax "Industry experts believe banks could switch as much as 30% of the value of their trades through Singapore and away from London without running into trouble from the regulators."

"The European FTT is an invitation to go elsewhere, and London will ultimately pay the price," she said.

German MEP and economic and finance spokesperson for the Green Group Sven Giegold said "Although long overdue, the plans announced today to introduce a European financial transaction tax are to be welcomed."

"The EU must push for this at different international fora: the G20, the forthcoming UN climate conference in Durban, next year's Rio +20 summit," he added.

Similarly, British Green MEP and president of Plaid Cymru Jill Evans (the Party of Wales) welcomed the FTT saying "It is time to rein in the banks which have been largely responsible for so much economic turbulence - the cost of which has too often been passed on to ordinary people."

"The ConDem UK government can no longer credibly maintain its opposition to this tax. I call upon them to work with the European Commission in implementing a fair financial transaction tax as soon as possible," she added.

BusinessEurope, Brussels' biggest private-sector representative, complained that Barroso's State of the Union speech sent a "mixed signal on growth". The organisation's president, Jürgen R. Thumann, said "the Commission has blurred its message by presenting a Financial Transactions Tax. Any such a proposal clearly needs to be agreed at G20 level to maintain a level playing field for European businesses and ensure financial services activity remains in Europe under our regulatory supervision."

Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants (ACCA), said the body "would prefer [the FTT] to be global rather than purely limited to one region of the world. Localised implementation would harm the local and regional economies affected."

"We believe that [a European FTT] would lead to even slower growth in the region and the migration of financial institutions to other financial centers of the world such as Hong Kong, Shanghai, Singapore or New York," he added.

Guido Ravoet, chief executive of the European Banking Federation (EBF) said "No taxation measure should be detrimental to growth, impede European competition and end up driving business out of Europe".

"In adopting a Directive, EU legislators need to carefully look at ways to prevent such a tax from seriously damaging the European economy," he added.

The EBF warned that it was "concerned that imposing a Financial Transactions Tax would also have an impact on the liquidity of instruments at a time when any additional cost on funding would be better avoided"

Bernadette Ségol, secretary-general of the European Trade Union Confederation (ETUC), praised the proposed FTT and pledged to "continue to work to ensure that this initiative is accepted by all governments across Europe."

"A Financial Transaction Tax will help crack down on speculation and on the high frequency, algorithm-driven share trading that has led to flash crashes and market volatility. It will make the financial sector pay a fairer share of the costs of the financial crisis that it caused."

Bernd Nilles, secretary-general of the international alliance of Catholic development agencies CIDSE, welcomed the FTT proposal saying "With this firm legislative proposal by the European Commission an important victory for justice and solidarity is in sight. The Commission has made a good serve and now the ball is in the court of EU member states. They must make it game, set, match by backing the tax."

Nicolas Mombrial, Oxfam International's EU policy advisor, said "The FTT is moving from rhetoric to reality but a significant part of the revenues should be used as Bill Gates suggested, to help poor countries facing chilling reductions in aid, trade, and investment - not just shore up the EU budget."

"An FTT is not a 'Robin Hood Tax' unless clear commitments are made to use the revenues for tackling climate change, and poverty at home and abroad," he added.

A Financial Transaction Tax (FTT) 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 IMF have also examined the possibility of a Financial Activities Tax which levies profits and bonuses.

In a bid to lower national contributions to the EU budget, the Commission proposed to tap into an FTT. The Commission will make a full proposal for the tax next week (5 October). 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, structured products and including over the counter derivatives which currently evade stock exchanges.

It would cover all financial institutions except central counterparties and central banks. Day to day activities like payment services and mortgage lending would also not be included.

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