François Hollande, President of the French Republic, Mario Monti, Italian Prime Minister; Minister for Economy and Finance, José Manuel Barroso, , President of the EC and Mark Rutte, Dutch Prime Minister, (from behind) met in Brussels for the European Council of December 2012 (in the foreground, from left to right). The European Council takes steps towards launching enhanced cooperation on a Financial Transactions Tax. (EC Audiovisual Services).
Next Tuesday 22 January, the Economic and Finance Ministers Council (ECOFIN) is expected to meet in Brussels. As a main item in its agenda has being tabled the Financial Transactions Tax (FTT). So far only 11 EU member states out of the 27 have agreed to go through with it. The 11 participating EU countries are Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain. They account for about 90% of Eurozone’s Gross Domestic Product.
The ECOFIN Council is expected to adopt the Commission’s proposal to authorise enhanced cooperation on the FTT. The European Parliament has already authorised the introduction of the tax.
What is the FTT
It is obvious that a financial transaction tax would enable the financial industry, currently under-taxed in relation to other sectors, to make a fair contribution to the public finances. The draft directive would cover transactions relating to all types of financial instruments, including capital market and money market instruments (with the exception of instruments of payment), units or shares in collective investment undertakings and derivative agreements. Transactions with central banks are excluded.
As a result of the current financial crisis, public debt in all 27 EU Member States jumped from below 60% of GDP in 2007 to 80% for the years to come. The financial sector has received substantial financial support from governments. EU Member States have committed € 4.6 trillion to bail out the financial sector during the crisis. In addition, the financial sector has benefited from low taxes in recent years.
The financial sector enjoys a tax advantage of approximately €18 billion per year because of VAT exemption on financial services. A new tax on the financial sector would ensure that financial institutions contribute to the cost of economic recovery and discourage risky and unproductive trading.
The financial transaction tax aims at taxing the 85% of financial transactions that take place between financial institutions. Citizens and businesses would not be taxed. House mortgages, bank loans, insurance contracts and other normal financial activities carried out by individuals or small businesses fall outside the scope of the proposal.
According to the Commission 10 Member States have today a form of a financial transaction tax in place. The proposal would introduce new minimum tax rates and harmonise different existing taxes on financial transactions in the EU. This will help to reduce competitive distortions in the single market, discourage risky trading activities and complement regulatory measures aimed at avoiding future crises.
The Parliament
The European Parliament has long advocated for an FTT to make financial market players take more responsibility for resolving the crisis that they caused and to discourage excessive risk-taking in future.
“It is not a solution to spare the financial sector from a tax, the very same sector which is now even benefitting from the crisis. Delay in implementing this tax is costing money which is being footed by normal people” said the EU Parliament rapporteur Anni Podimata (S&D, EL). Her resolution was adopted on 12 December 2012 by 533 votes to 91, with 32 abstentions.
The text approved by the European deputies stresses that the ultimate goal should still be a worldwide FTT and urges the EU to continue campaigning for it with the G20 council. The next decisive step towards the implementation of such a tax is that the Council of the European Union needs to secure a qualified majority vote to allow the Commission to initiate enhanced cooperation in order to turn the FTT plans into reality.
Once the enhanced cooperation procedure is authorised, the Commission intends to proceed rapidly to the following step of the procedure and will present an ‘implementing proposal’ detailing the substance of the FTT to be applied by the participating Member States. This would then be discussed in the appropriate Council formations, meaning that the tax will be applied only by the participating member states.
In this way it will be avoided the obstacle of a general rule demanding that tax issues are passed by the Council only in unanimity.
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