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BackThe discussion on a Financial Transaction Tax in the EU has been given new impetus. In a letter to the Danish Presidency, the finance ministers of nine Member States, among them Austria, have demanded the speedy implementation of an EU Financial Transaction Tax. The debates in respect of a tax on financial transactions are also at full swing in the European Parliament. On Monday, experts presented the Committee on Economic and Monetary Affairs with their assessments concerning a possible implementation of the tax, its impact on the economy and the distribution of the tax burden. The majority of experts were convinced that a Financial Transaction Tax would significantly lower the risk of future financial crises and thereby benefit the economy as a whole.
The supporters of a Financial Transaction Tax received new backing from a study by economists Stephany Griffith-Jones of Columbia University and Avinash Persaud, Chairman of Intelligence Capital, who presented their analysis at the hearing. In contrast to the European Commission, which works on the assumption that a Financial Transaction Tax would reduce the GDP in the long run by 0.2 percent, the authors of the study expect a long-term increase of the GDP by at least 0.25 percent. After all, such a tax would stabilise the financial markets and thereby lower the risk of future financial crises. The authors also contradict the frequently voiced argument, a Financial Transaction Tax could not be practically implemented or could only be implemented at global level. For example, a stamp duty of 0.5 percent on share and bond transactions in Great Britain has existed since 1986. Forty percent of the tax is paid by people outside the United Kingdom and proves that foreign investors by no means migrate, explains Persaud. Some strongly growing financial centres such as Hong Kong, Seoul, Mumbai, Johannesburg and Taipei have long levied taxes on financial transactions and in doing so generated an annual income of 23 billion Dollars.
Hedge funds and high-frequency trading carry the costs – not savers and pensioners
The question of who would have to foot the bill of a Financial Transaction Tax continues to be an explosive issue. Hence, Richard Raeburn, Chairman of the European Association of Corporate Treasurers, warned against making the wrong entities carry the burden. In the real economy, corporations would use derivatives to hedge against risks, for example through exports. If these would be taxed, the real economy would switch to more cautious Investments, which might slow down growth. Furthermore, many banks would not refrain from shifting the costs of a Financial Transaction Tax to the end-users, that is why these had to be exempt from a possible tax, said Raeburn.
That consumers would have to pay the main burden of a Financial Transaction Tax is, however, met with opposition from the other experts. According to Persaud, the tax would be mainly carried by hedge funds and investors in high-frequency trading with short-term investment decisions, not by savers and pensioners. Pension funds, for example, would on average only pay the tax every two years, as they retain their financial products on a more long-term basis. Sony Kapoor, Managing Director of the Think Tank Re-Define, regards the argument, high-frequency trading would provide more liquidity on the financial markets, as dangerous. After all, liquidity was the product of the diversity of actors on the markets, which would probably be affected by the herd behaviour of many similar acting investors. To raise a fair contribution from the financial sector would be more growth-friendly than increasing value added tax or the taxation of labour. The revenue generated by a Financial Transaction Tax could flow into the necessary budget consolidation and in future-oriented investments such as green energy and the promotion of SMEs, suggested Griffith-Jones. The debate on the Financial Transaction Tax continues to be exciting - and its result will show to which extent the EU will be able to tackle the causes of the financial crisis by its roots.
Hedge funds and high-frequency trading carry the costs – not savers and pensioners
The question of who would have to foot the bill of a Financial Transaction Tax continues to be an explosive issue. Hence, Richard Raeburn, Chairman of the European Association of Corporate Treasurers, warned against making the wrong entities carry the burden. In the real economy, corporations would use derivatives to hedge against risks, for example through exports. If these would be taxed, the real economy would switch to more cautious Investments, which might slow down growth. Furthermore, many banks would not refrain from shifting the costs of a Financial Transaction Tax to the end-users, that is why these had to be exempt from a possible tax, said Raeburn.
That consumers would have to pay the main burden of a Financial Transaction Tax is, however, met with opposition from the other experts. According to Persaud, the tax would be mainly carried by hedge funds and investors in high-frequency trading with short-term investment decisions, not by savers and pensioners. Pension funds, for example, would on average only pay the tax every two years, as they retain their financial products on a more long-term basis. Sony Kapoor, Managing Director of the Think Tank Re-Define, regards the argument, high-frequency trading would provide more liquidity on the financial markets, as dangerous. After all, liquidity was the product of the diversity of actors on the markets, which would probably be affected by the herd behaviour of many similar acting investors. To raise a fair contribution from the financial sector would be more growth-friendly than increasing value added tax or the taxation of labour. The revenue generated by a Financial Transaction Tax could flow into the necessary budget consolidation and in future-oriented investments such as green energy and the promotion of SMEs, suggested Griffith-Jones. The debate on the Financial Transaction Tax continues to be exciting - and its result will show to which extent the EU will be able to tackle the causes of the financial crisis by its roots.