Press conference by Algirdas Šemeta, Member of the EC, on the Financial Transaction Tax, 14.2.2013. (EC Audiovisual Services)
The European Commission announced today the details of the implementation of the Financial Transaction Tax (FTT), under the procedure of the enhanced cooperation. It must be noted that such a procedure may be launched at the request of at least nine EU member states. Incidentally, the eleven member states actually wishing to introduce a financial transaction tax through enhanced cooperation are Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia. Any other member state may join the enhanced cooperation, if they so wish.
Today’s Commission action comes after the decision of 22 January 2013 by the Ecofin council which regroups the 27 Financial ministers of the EU, to give the green light for this enhanced cooperation, leading to the introduction of an FTT. The European Parliament has already authorised the implementation of the tax, which is expected to be applied as from 1 January 2014.
The Commission announcement notes that, “As requested by the 11 Member States that will proceed with this tax, the proposed Directive mirrors the scope and objectives of the original FTT proposal put forward by the Commission in September 2011. The approach of taxing all transactions with an established link to the FTT-zone is maintained, as are the rates of 0.1% for shares and bonds and 0.01% for derivatives”.
In this way, the EU executive arm introduces the term “FFT-zone”, which describes the application area of the new tax. The FTT will not apply on day-to-day financial activities of citizens and businesses (e.g. loans, payments, insurance, deposits etc.). Nor will it apply to the traditional investment banking activities in the context of capital raising or to financial transactions carried out as part of restructuring operations.
Why a tax on financial transactions?
Algirdas Šemeta, Commissioner responsible for Taxation, said: “With today’s proposal, everything is in place to enable a common Financial Transaction Tax to become a reality in the EU. On the table is an unquestionably fair and technically sound tax, which will strengthen our Single Market and temper irresponsible trading. Eleven Member States called for this proposal, so that they can proceed with the FTT through enhanced cooperation. I now call on those same Member States to push ahead with ambition – to drive, decide and deliver on the world’s first regional FTT.”
Of the three objectives cited by the Commission, to be served by the FFT, the most important one is this: “the FTT will support regulatory measures in encouraging the financial sector to engage in more responsible activities, geared towards the real economy”. For one thing, with this observation the Commission recognises that the financial system does not function in a responsible way towards the real economy.
Unfortunately, it took five years for the Commission to accept that. After 2008, when the great credit crunch broke out and led to the gravest post war economic crisis, no serious measures have been introduced to stop the financial sector from being irresponsible towards the real economy. Banks are still free to go bankrupt and then ask for a government bailout, whenever their risky spinning of other people’s money turn sour. In short, the Commission and all the other regulatory authorities within and without the EU have let the banks free to continue pursuing their unholy practices. Let’s now examine what will happen with the new tax money.
Where the tax money goes?
According to predictions the revenues from the imposition of the FTT will amount to €31 billion yearly. It is important to analyse where all this money will go. Following the time cherished practice, tax collectors keep something for themselves. So the Commission proposes that a not yet defined part of that money “shall constitute an own resource for the EU Budget”.
What about the rest of it? According to the Commissions’ proposal the objective is, “to ensure that financial institutions make a fair and substantial contribution to covering the costs of the recent crisis, and to ensure even taxation of the sector vis-à-vis other sectors”.
If one takes this statement seriously, the financial institutions by paying this tax from their profits and not passing it on to their customers, they need at least 145 years to pay off the €4.5 trillion they have received from society as support. And this, without subtracting the part the EU budget will get out of the €31bn yearly.
Another drawback of this new tax is the possibility that the banks will certainly try to pass on part or whole of it to their customers, thus charging again the real economy. Then it is even more alarming that the larger part of the proceeds may be used to formulate a fund, which will be used for future bank bailouts. If this is the case, taxpayers and the real economy as a whole, will be charged in advance for future imprudence of banks. In short, the Commission with this tax may be planning an additional tool of support to banks on the expenses of the real economy.
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Of course the banks will pass any tax costs to their customers.!!
The only way not to, is to use legislation to FORCE them to reduce the obscene levels of senior staff salaries/bonuses, and also to restrict dividends. Otherwise of course it just falls out of their capacious behinds on to the punters who pay them.
In UK we recently had the Chairman of Bank of Scotland speaking to a parliamentary committee, claiming his chief exec was under-paid on around £2m pa, and almost wondered why he sticks around. These guys are given FAAAAAR too much sycophantic support by ignorant politicians instead of treating them the same way as your gas or water supplier – they do nothing clever for their money, they merely exploit ruthlessly a system of taking a lot of money off businesses very subtly.
oops typo -Chairman of ROYAL Bank of Scotland i meant
“RBS, 82-percent owned by the taxpayer, has faced criticism over a deferred bonus of 780,000 pounds ($1.2 million) that Hester is set to receive in March. But Hampton told lawmakers on Monday that Hester’s pay was modest by the industry’s standards.
Hampton said Hester’s pay was well below the average in world banking. “Relative to other people doing these jobs his pay has been modest,” he told the Parliamentary Commission on Banking Standards.
Hester, who receives a basic salary of 1.2 million pounds, chose to give up his bonus last year after a computer systems meltdown affected millions of customers. This year he was set to receive a share-based payment of 780,000 pounds deferred from three years ago.”
superstars !