Last week I created a pioneer moment within the EU. At the request of 11 states, I proposed the first financial transaction tax (FTT) – often referred to as the Tobin or Robin Hood tax – to be implemented at regional level. The proposal had originally been tabled in September 2011 to cover all of the EU, but was opposed by some countries, including Britain. Now 11 member states – including Germany, Greece, France and Spain – have decided to move ahead as a smaller group.
Why are these states so keen to press ahead? First, they are responding to the persistent demands of their citizens, who have long called for a harmonised FTT in Europe. The levy will ensure that the under-taxed financial sector finally makes a fair contribution to the public purse.
Second, the tax offers substantial new revenues. Around €30-35bn (£26-30bn) per year will be generated from this small tax of just 0.1% on bonds and shares and 0.01% on derivatives. This means new resources for growth-friendly investment, stabilising public finances or wider commitments such as development aid.
Finally, it should help to deter the irresponsible financial trading that contributed to the crisis we are in today. It will favour steady financial activity over high-risk speculation and steer the financial sector towards the real economy.
Since the tax will apply to any transactions with an established economic link to the 11 states, the only way to avoid it would be to give up all financial trading with those in the FTT-zone – a highly irrational response to a small tax, especially given the fact that the participating countries constitute two-thirds of the EU economy.
In short, what I propose is fair, sensible and well-designed. Nonetheless, I am aware of the questions and concerns that have been voiced, especially in the UK. Many of these fears are a reaction to the scare-mongering of vested interest groups or a misunderstanding of how the tax will work. So let me address them head on.
Will the tax be borne by ordinary citizens? We have taken every measure to ensure that it isn’t. This is a tax on the financial sector, and 85% of liable transactions are purely between financial institutions. Day-to-day financial activities of citizens and businesses are outside its scope. Even if the financial sector passed on some costs to clients, the outcome would not be disproportionate. For example, anyone buying, €10,000 in shares should be able to afford a €10 tax on the transaction.
Will the tax hamper growth in the EU? No. Our economic studies show that it will have no impact on jobs, and could even have a positive impact on growth if revenues are reinvested wisely. The tax rates proposed are very low, to prevent an increased cost of capital affecting the real economy, and the activities of central banks and public debt managers are exempt.
Will the tax reach beyond its boundaries – into the UK? If there is an economic link to the FTT zone, it will apply, regardless of whether the other parties to the transaction are based in London, Singapore, Copenhagen or New York; there is no extra-territoriality to this. Taxing cross-border services is a well-established principle in taxation and fully in line with international law. For comparative examples, we need only look at how VAT and even UK stamp duty work. The FTT is on sound legal footing and totally proportionate in its scope.
Will the regional FTT have any impact on the UK in the end? Certainly not a negative one. If anything, the UK will benefit from a less fragmented single market and a more stable financial sector, as a result of others applying the tax. In an ideal world, the UK would come on board, so that it, too, could reap the revenues. It has opted not to for now, as is its sovereign right. But the door is always open to join at any time. In the meanwhile, eleven member states march ahead as pioneers with a regional FTT, ready to prove that this fair and robust tax can and should be applied widely.