Mixed reactions to a financial tax in the Union
State of the Union:
In his state of the Union speech Commission President, José Manuel Barroso advocated for the implementation of a tax on financial transactions in the EU, the so called Tobin Tax. The European Central Bank, however, is sceptical towards the idea.
By: Sajeev Shankar and Peter Sharples
Two weeks ago, in a time of deep economic problems in many of the EU-member countries, the President for the Commission José Barroso held his state of the union speech. Naturally the speech was very much influenced by the serious and difficult economic questions that are being asked at this moment. The speech, however, also looked at the prospect of implementing a tax on financial transactions.
“In the last three years taxpayers have granted aid and provided guarantees of 4.6 trillion Euros to the financial sector. It is time for the financial sector to make a contribution back to society. That’s why I’m very proud to say that today the Commission adopted a proposal for the ‘Financial Transaction Tax’ that, if implemented, may generate a revenue of about 55 billion Euros per year”, Barroso said in his speech.
Concern from the financial sector
In his speech in front of the European Parliament, Jean-Claude Trichet, president of the European Central Bank, criticized Barroso’s proposition of the Tobin tax. Jean-Claude Trichet said that the tax is not an effective solution unless it is a global tax.
The commission on the other hand believes that the rest of the world will follow their example.
Algirdas Šemeta, Commissioner for Taxation, Customs, Anti-fraud and Audit says.
“With this proposal the European Union becomes a forerunner in the global implementation of a financial transaction tax. I have no doubt this tax can deliver what EU citizens expect; a fair contribution from the financial sector. I am confident that our partners in the G20 will see their interest in following this path,” she said in a statement on the Commission’s website.
The leading libertarian think tank in the UK, The Adam Smith Institute, is very critical towards to the idea of the new tax. According to them the new tax will cause more volatility in the market and they do not believe it can raise the kind of money the Commision has proclaimed. In a blog on its website one of it writers, Sam Bowman, writes the following.
“Will it raise money? Probably not: the projections for revenues are based on market volume which would probably fall considerably. When Brazil tried a financial transaction tax (now abandoned) it didn’t raise much. Tobin himself rejected the idea that a Tobin tax would raise any money and explicitly distanced him from groups that did”.
The Tobin tax is supposed to take effect from 2014 and it is supported by Germany and France but The United Kingdom and Sweden oppose it. All member countries have to approve of it before it can be implemented.