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Saturday, November 17, 2018
Analysis by Daan Bauwens
BRUSSELS, Mar 18 2012 (IPS) - A recent proposal to introduce a European financial transaction tax was blocked by Britain. But with Germany and France committed to push ahead, many are confident a tax will be implemented before the end of this year.
All of the European Union’s finance ministers gathered last Tuesday to debate the introduction of a financial transaction tax. The meeting was organised by the Danish presidency after nine member states – Belgium, Greece, Portugal, Finland, Austria, Italy, Spain, Germany and France – wrote a letter to Denmark on Feb. 7 insisting on a debate.
Under the current proposal, a tax of 0.1 percent would be levied on bond and equity transactions and a tax of 0.01 percent on derivatives. Other countries such as Brazil, South Korea and India have already introduced a tax on financial transactions.
Last year, approximately 29 billion euros was raised in the 40 countries that have the tax in place. In 1989 the UK government unilaterally imposed a stamp duty on transactions in UK equities of 0.5 percent. The British government annually earns between two to three billion pounds in tax revenue through the tax. The European Commission’s broader proposal would raise up to 57 billion euros per year.
Governments are facing public pressure in Europe to levy the tax after banks and private financial institutions benefited from bail-outs paid with taxpayer money during the global financial crisis. But Britain, although levies taxes on financial transactions itself, is the fiercest opponent of the European proposal. With 80 percent of Europe’s transactions taking place in the City of London, it has argued a tax would drive business away and weaken its economy.
The Czech Republic joined Britain’s opposition before Tuesday’s meeting. At the meeting, the Netherlands did not take any position but declared that Dutch research on the current proposal had produced alarming results. Swedish minister of finance Anders Borg declared that a tax would “increase the lending cost, the cost of capital for companies and the cost for governments. So it is a proposal that is not good for European growth.”
Max Lawson, senior policy advisor at Oxfam’s London office, agrees. “It is clear that a group of European countries will move ahead and ignore the UK’s pointless opposition,” he tells IPS.
Taxation proposals cannot be taken up in the EU without the approval of all 27 member states. However, the Lisbon Treaty specifies that one-third of the EU states can form “enhanced cooperation” to move ahead with a limited version of a proposal that affects only themselves. Many analysts are confident that Germany will take the lead in forming a coalition and that a first version of the financial transaction tax will be put in place before the end of 2012.
The question arises what the tax revenue will be used for once the tax is introduced. “At a time where most European governments are constrained it should be used for fiscal consolidation,” Prof. Griffith-Jones tells IPS. “After that you can increase government spending. The other possibilty would be to raise other taxes less so that aggregate demand is lifted.”
Civil society is demanding the money is not exclusively spent on domestic purposes. “Last year, (German Chancellor) Angela Merkel declared she was open to potentially using some of the revenues to finance climate change and development,” Max Lawson tells IPS.
“Francois Hollande, the socialist opponent of Nicolas Sarkozy in the upcoming French presidential elections, has stated up to three times he would spend the revenue on climate change and development. The big fight for civil society is to hold Germany and France up to their promise.”
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