All Hail Mighty Europe!!
As the EU strengthens ties and moves towards an even closer union, recent talk about a Financial Transaction Tax (FTT) has been heralded as the all new EU revenue generator. And while taxation of financial transactions seems logical, where does all the activity take place? Most in the City of London, The Square Mile. Is the City being punished? Most of Europe's opinion is that the City allows little regulation, but close to 80pc of Europe's financial services are based there. As you can image the UK opposes the proposal, which was passed by EU Parliament in December 2012.
To a degree there's financial tax on most transactions....but this is unique.
Regardless, so far 11 countries have pushed forward with the small tax.
(from wikipedia) The European Commission itself expects the EU FTT to have the following impact on financial markets and the real economy:
- Up to a 90 per cent reduction in derivatives transactions (based on the Swedish experience)
- Slightly negative or positive effect on economic growth depending on the design of the EU FTT.A long-run (20 year) reduction in gross domestic product in the EU by 0.53% if "mitigating effects" take hold, or up to 1.76% if they don't. In May 2012 the EU Commission corrected its analysis and now predicts a slightly smaller negative impact on economic growth of 0.3%, and even a positive impact of at least 0,1% or €15bn if the generated tax revenues are spent on growth enhancing public investments. Algirdas Semeta, European Commissioner for taxation, customs, audit and anti-fraud argues that "if the projected €57bn (£47.7bn) per year is put towards consolidating national budgets, reducing other taxes or investing in public services and infrastructure, the direct economic effect of the FTT should be positive for growth and employment in Europe".
- An effective curb on automated high-frequency trading and highly leveraged derivatives
- An increase in capital costs, which could be mitigated by excluding primary markets for bonds and shares from the tax
- The real economy could be protected by ensuring the tax is levied only on secondary financial products, thus not affecting transactions such as salary payments, corporate and household loans. In its latest study from May 2012 the European Commission also dismissed the belief that financial institutions could avoid the tax by moving their transactions offshore, saying they could only do so by giving up all their European customers.
- Up to a 90 per cent reduction in derivatives transactions (based on the Swedish experience)
- Slightly negative or positive effect on economic growth depending on the design of the EU FTT.A long-run (20 year) reduction in gross domestic product in the EU by 0.53% if "mitigating effects" take hold, or up to 1.76% if they don't. In May 2012 the EU Commission corrected its analysis and now predicts a slightly smaller negative impact on economic growth of 0.3%, and even a positive impact of at least 0,1% or €15bn if the generated tax revenues are spent on growth enhancing public investments. Algirdas Semeta, European Commissioner for taxation, customs, audit and anti-fraud argues that "if the projected €57bn (£47.7bn) per year is put towards consolidating national budgets, reducing other taxes or investing in public services and infrastructure, the direct economic effect of the FTT should be positive for growth and employment in Europe".
- An effective curb on automated high-frequency trading and highly leveraged derivatives
- An increase in capital costs, which could be mitigated by excluding primary markets for bonds and shares from the tax
- The real economy could be protected by ensuring the tax is levied only on secondary financial products, thus not affecting transactions such as salary payments, corporate and household loans. In its latest study from May 2012 the European Commission also dismissed the belief that financial institutions could avoid the tax by moving their transactions offshore, saying they could only do so by giving up all their European customers.
