tax

AGAINST a financial transactions tax

FOR a financial transactions tax

1. TAX INCIDENCE

Tim Worstall, one of our commenters, published a report for the Institute of Economic Affairs in which he argues that it won’t be banks and financial institutions that end up paying any Financial Transactions Tax. The burden of the tax could be passed down to consumers of financial services – households, pension funds, etc.

1. IT’S FAIR

As European Commission President José Manuel Barroso argued in his State of the Union speech, the financial services sector should be made to pay its “fair-share” to help repair the damage that they helped cause.

2. FINANCIAL SERVICES WILL MOVE

If we tax financial services, the risk is that they will flee to Hong Kong, Singapore, New York, Zurich or anywhere they don’t have to pay such a tax. The economies of European member-states (and, in particular, that of the United Kingdom) would suffer.

2. IT WOULD RAISE BILLIONS

Even a modest EU Financial Transactions Tax of around 0.1% on equity and 0.01% on derivatives could yield 55 billion euros annually. At a time when national governments are heavily in debt, this is a very attractive prospect.

3. IT WILL LOSE MONEY

Even by the EU’s own estimates, the tax could potentially raise less money in revenues than is lost in terms of lowering of economic output. Accounting companies have warned that the net effect of a tax could be a loss of between 2 billion euros and 116 billion euros, due to lower economic activity and falling revenues from other taxes.

3. DECREASE MARKET VOLATILITY

An FTT might discourage short-term trading, thereby helping bring about less volatility in what have been very choppy markets recently.