Last week, the European Commission tabled its proposal for the financial transaction tax. This proposal has been the subject of much controversy as less than half of the European Union’s member States support it.
The FTT, also known as the Tobin tax, was first proposed in September 2011. It sets a levy of 0.1 per cent on transactions covering shares and bonds and a 0.01 per cent levy on transactions covering derivatives.
The aim of the proposal is to raise public funds and encourage responsible trading. In addition, the Commission hopes it will increase equity and improve efficiency.
The countries planning to introduce the tax include the eurozone's top four economies, Germany, France, Italy and Spain. Austria, Estonia, Belgium, Greece, Portugal, Slovakia and Slovenia are also on board. The group of states decided to move ahead after attempts to adopt a trading tax at the EU and eurozone-wide level failed in 2011. This group of member States represents about two thirds of the EU’s GDP.
In normal circumstances, decisions in the Council must be made unanimously by all 27 members. However, the 11 member States that are in favour of the Commission proposal applied under the rules of enhanced cooperation to proceed with the proposal on their own.
Enhanced cooperation allows for a minimum of nine member States to move forward on proposals that have not received the unanimous consent of all 27 member States.
The proposal was therefore adopted by the 11 member States in the European Council for Economic and Financial Affairs (Econfin) in January after plans for an EU-wide FTT were dropped in June 2012. This is the first time that enhanced cooperation was used on a proposal that will affect the internal market. Non-participating member States may join the FTT zone at any time. Despite not agreeing to the proposal, non-participating member States may still be affected by the levy. This would occur in instances where one party to the transaction is in the FTT zone, regardless of where the transaction actually takes place. This is seen as the most controversial element of the proposal.
The European Council proposal also includes a clause which is anti abuse. The proposed levy will not be applicable to the daily transactions of European citizens and of businesses. In addition, it will not apply to bodies and member States that are managing public funds.
Finally, the refinancing and monetary policies of the European Central Bank, the European Stability Mechanism and the European Financial Stability Facility will not be subjected to the levy.
The UK, Malta and other supporters of free markets strongly oppose the proposal. One of the reasons for the objection to the tax is that its application on a purely European level will encourage financial traders to redirect their transactions outside the FFT zone and outside the EU. It would therefore require a global application in order to prevent this.
It is also felt that the competitiveness of countries such as Malta will be seriously diluted by this tax. Furthermore, it will negatively affect the mobility of Malta’s financial sector.
Simon Busuttil and I have voted against the introduction of this tax from the very first time it was proposed in the European Parliament.
The Association of Chartered Certified Accounts has also criticised the proposal as it feels it is bad for the eurozone and will lead to banks relocating outside the FTT zone.
The European Commission feels that the FTT is a positive step for the EU as it is a first step in consolidating tax policy and encourages all member States to participate. The Commission feels the introduction of a FTT zone will strengthen the Single Market as it believes it will create a harmonised approach to taxation.
Brussels estimates that €30-35 billion could be raised through this tax. This funding could then be used to further invest in areas of growth potential and areas covered by wider EU policies such as development.
The Commission will present a more substantial and detailed proposal in the coming weeks. It will then be left to the 11 member States that will make up the FFT zone to decide how to proceed. However, I will maintain my opposition to this proposal and will continue to fight against its implementation.
Member States have a deadline for the publication of the new laws relating to financial trading taxation: September 30, 2013. Once the proposal on the FTT has been passed, it will come in effect on January 1, 2014 in all participating member States.