Bloomberg News

EU Transaction Tax Needs ‘National Level’ Design, Re-Define Says

September 30, 2011

Sept. 30 (Bloomberg) -- European Union proposals for a financial-transaction tax would be more likely to succeed if pursued on a country-by-country basis, said Sony Kapoor, managing director of policy group Re-Define Europe.

Reaching an agreement among the 27 EU member states, or even the 17 nations of the euro area, is likely to be impossible, Kapoor said in an interview in Brussels. To have any chance of passage, tax proposals need to be targeted at only those countries interested in such an effort, he said.

“Having a design that deliberately is set up to be possible at a national level is the only sensible thing to do, if indeed you are serious about such a proposal, as at least the president of the European Commission seems to be,” Kapoor said.

The EU this week proposed a financial-transaction tax to start in 2014, saying it could raise 57 billion euros ($77 billion) per year to aid national and regional budgets. “It is time for the financial sector to make a contribution back to society,” European Commission President Jose Barroso told the European Parliament in Strasbourg in announcing the proposal, which requires the approval of all EU member states.

Britain, home to Europe’s biggest financial center, and the Netherlands criticized the plan as unworkable, particularly if it is not enacted on a global basis. It is “no good at all” and would affect the competitiveness of the EU, Dutch Deputy Finance Minister Frans Weekers told lawmakers yesterday.

The proposal would apply a levy of 0.1 percent on trading of stocks and bonds, with a 0.01 percent rate for derivatives contracts, according to the commission, the EU executive.

‘Not Excessive’

The EU is seeking to insulate households and small businesses from the levy by only assessing financial institutions. At the same time, the proposal allows banks to pass on costs to their customers. The EU said these fees would be “not excessive” and gave the example of a 10-euro fee on a 10,000-euro stock purchase.

The tax would “fundamentally change and in some cases destroy the business models of financial institutions within Europe and will put them at a disadvantage unless implemented globally,” Tom Aston, financial services tax partner at KPMG LLP in London, said in an e-mailed statement. He said the cost of the tax “may ultimately be passed on to consumers directly and the wider economy indirectly through lower levels of business.”

A top U.K. banking regulator yesterday backed public discussion about the merits of enacting a transaction tax.

‘Forbidden Thought’

Adair Turner, chairman of the Financial Services Authority and a member of the Bank of England’s Financial Policy Committee, first raised the idea of a so-called Tobin tax in August 2009, when he told Prospect magazine it would help redistribute bank profits to the poor and “public goods” like fighting climate change.

“I thought financial-transaction taxes should be taken out of the index of forbidden thought,” he told an academic conference in the southern U.K. city of Winchester yesterday.

The proposal, if enacted, would put a big dent in the overall economy as its costs were spread throughout the financial system, said Confederation of British Industry Deputy Director-General Neil Bentley. “To press ahead with a financial-transaction tax is completely misguided at a time when it’s clear that Europe needs a relentless focus on growth,” he said in an e-mailed statement.

--With assistance from Simon Kennedy and Jon Menon in London and Fred Pals in Amsterdam. Editors: Andrew Atkinson, Jeffrey Donovan

To contact the reporters on this story: Rebecca Christie in Brussels at rchristie4@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net


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