Lobbyists win as EU financial transaction tax idea drifts away
by Ester Araúzo
Despite promising initial signs, the idea of introducing a financial transaction tax - more commonly known as a Robin Hood tax in the European Union - still seems a long way off. There has been a major lobbying operation by the financial sector. It has implemented a scaremongering strategy - manipulating ideas and figures to persuade the EU institutions, national governments, the media and the public to think that an FTT is a terrible idea that will drive the EU towards economic collapse. It seems that Robin Hood's bow and arrow have been able to do little against the financial sector's power.
The European Commission put forward a proposal for a transaction tax in September 2011 and the European Parliament looks likely to support it. But the plan still has to get through the European Council. Meanwhile, industry has been lobbying member states to block any such thing and despite the damage done by the banking crisis, some countries are still backing the financial industry.
And because taxation issues require unanimity in the council, the Europe's FTT looks destined for the dustbin. The United Kingdom and Sweden have declared their opposition. Some eurozone countries including The Netherlands and Ireland are reluctant, making the chances of the proposal being approved unlikely. Even a eurozone transaction tax looks impossible, if member states do not change their current positions. The financial sector must now be scenting victory. Banks, hedge funds and traders have pulled out all the stops to get governments on board.
Big companies, such as interdealer broker Icap and spread betting firm CMC Markets have used their close links to the UK government to champion opposition to an FTT. International financial collectives including the International Swaps and Derivatives Association and the Association of Financial Markets in Europe have fiercely lobbied EU institutions with letters, media statements and at informal meetings. Both the ISDA and AFME declare spending of more than €1m annually to lobby in Brussels.
They have used privileged access to political power combined with a media campaign to scaremonger about the effects of the tax, manipulating the figures to focus on possible costs; while ignoring the positive impact such a tax would have on increasing financial stability and helping prevent another crisis. Finance ministers met again on Friday but after their last meeting, the signs did not look promising. After the encounter, the German Finance Minister Wolfgang Schaube - who had previously been a champion of the plan - accepted failure. "We just can get it done," he said. "So, as a result, we'll try something else."
The German Minister's statements, which have been echoed by others, have opened the door to the search for alternatives, which will probably mean a watered-down version of the tax; possibly, along the lines of the UK's stamp duty on shares. This is by no means a proper financial transaction tax and would not achieve its main goals. It may give political leaders the opportunity to say something was done in a sense, while the financial sector will be happy to see the prospect of an FTT banished to the dustbin. However, it will be a lost opportunity to forge real change by curbing speculation and regulating the dangerous financial sector, which led the EU to the current crisis in the first place.
Ester Araúzo is a researcher at the Corporate Europe Observatory campaign group
The European Commission's financial transactions tax proposal is clearly targeted to hit the City of London even though the UK is not one of the 11 EU member states taking part, claims Godfrey Bloom
European pensioners, investors, consumers, employers and workers win as EU financial transaction tax idea drifts away.
Robert Rhone - USA
Utter rubbish. The UK governments decision to oppose the FTT was based on good economic sense - hence the conclusions of the multi-party HoL report that the commissions proposals are deeply flawed and will damage the UK economy. The current problems being experienced by EU states are due to high levels of public spending and personal indebtedness, neither of which will be solved by an FTT. There was never going to be unanimity and to blame this on 'privileged access to political power' is wrong.
James - UK
The language in this article is somewhat hysterical. The FTT was a flawed, unviable proposal driven by under-informed, ill-directed revenge motives. Vella and Schmidt-Eisenlohr's November 2011 FTT report to the British tax review pointed to "the danger that the FTT will be sold to the public as a tax that punishes those responsible for the crisis, while the true incidence falls on the consumers of financial services".
"Furthermore as the FTT targets a broad spectrum of financial institutions, it will be also be levied on individuals and institutions who bore none of the blame." Economically sensible, high-level decision makers never entertained this idea. It was never going to be a tax on banks, as would be the IMF-recommended financial activities tax, or Obama's bank responsibility fee. In fact, G-20 Australian Treasurer Swan accurately described the FTT idea as "nuts".
Jan - Sydney, Australia
@Jan. Fortunately for consumers, Financial Transaction Taxes or FTTs are targeted at casino banking and can easily be designed in a way that protects the investments of ordinary people and businesses. The FTT's tax rate is set extremely low (an average rate of just 0.05 per cent) precisely to avoid having an impact on institutions or individuals that carry out very few transactions, such as pensions and savings. Like other taxes, specific exemptions and punitive measures can be built in to protect e.g. lending to businesses or exchanging holiday money. Hedge funds and investment banks are comprised primarily of high net worth individuals, and it is these institutions which will be primarily affected by a Financial Transaction Tax.
The IMF has studied who will end up paying transaction taxes, and has concluded that they would in all likelihood be 'highly progressive'. This means they would fall on the richest institutions and individuals in society. This is in complete contrast to VAT, which falls disproportionately on the poorest people. It's also important to recognise that several G20 countries - including South Korea, India, South Africa, USA and Brazil - already apply some form of effective FTT. The UK's own 0.5 per cent tax on share transactions, stamp duty, is one of the best examples of a successful FTT raising the exchequer more than £3billion each year without a significant loss of business from London.
We need to look at the bigger picture. This small tax could help rebalance the UK's economy. By ensuring the banks pay their fair share in the crisis, we can encourage longer term stability in the financial sector while raising tens of billions of pounds to help those living in poverty in the UK and abroad.
RobinHoodTax - Sherwood
