Published: 11 March 2010
An overwhelming majority of MEPs yesterday (10 March) pushed the EU executive to weigh up the costs and benefits of a possible tax on financial trading to compensate taxpayers for bank bailouts and plug public deficits.
A tax on cross-border currency trading has been considered on many occasions by politicians worldwide after it was first proposed in 1971 by the economist James Tobin, who won the Nobel Prize in 1981 for his work on financial markets.
The tax named after him, the so-called ‘Tobin tax’, is mainly aimed at limiting short-term currency speculation.
Socialists and Greens in the European Parliament recently renewed their call for a tax on capital transactions. “It could be useful to fund the EU budget,” Party of European Socialists leader Poul Nyrup Rasmussen said at a conference at the beginning of September (EurActiv 02/09/09).
At the request of the September G20 summit, the International Monetary Fund (IMF) is reviewing a financial transactions tax as a way of rescuing defaulting financial institutions and removing the debt burden from the taxpayers’ shoulders.
536 MEPs yesterday asked the European Commission to finish its report on ‘innovative financing’ before the June G20 talks, so world leaders can come up with specific proposals on which banks will be taxed and how.
Just 80 MEPs voted against the EU executive’s examination of a bank tax – so far dubbed a financial transactions tax (FTT) in the legislature – amid 33 abstentions.
Plans still ’embryonic’
World leaders will meet in Toronto in June this year and are expected to come to an agreement on how a global tax should be structured.
Though the European Parliament’s vote shows heightened interest in Brussels for a tax on banks, the EU institutions warn that much work remains to be done at both EU and global level on the shape and timing of such a tax.
“Plans for an FTT are very much in the embryonic phase,” a Parliament source told EurActiv.
The European Commission also said that its paper on innovative financing was currently being written and that it was too early to talk of legislation on a bank tax.
The Commission paper, like a parallel paper being drafted by the International Monetary Fund, is not only examining an FTT but also a levy on assets, as is the case with US President Barack Obama’s proposal.
Commission to examine Swedish fund
On Monday EU Taxation Commissioner Algirdas Šemeta was grilled by MEPs on EU plans for a bank tax.
Though Šemeta appeared to back a tax on banks, he warned that any policy would have to include a “distributive mechanism” to ensure that revenues did not end up in the bloc’s leading financial centres.
The EU executive told EurActiv it was examining a Swedish scheme which was introduced as early as October 2008.
The Swedish Stability Fund has been collecting a 0.036% fee from banks and credit institutions, which, if all goes according to plan, should accrue 2.5% of GDP in 15 years.
Academics praise the Swedish fund for targeting a broad range of liabilities but criticise the idea of a flat-rate because it does not send out the right signal that banks should take fewer risks.
“The Swedish levy is a good idea becaues it makes the financial sector pay for its own rescue but ideally it should penalise riskier liabilities more than less risky liabilities,” argues Sony Kapoor from the Re-Define think-tank.
American economist Jeffrey Sachs has also launched a campaign for a broad-based tax on banks, and yesterday encouraged the EU to go it alone if the US moves too slowly (EurActiv 10/03/10).
This may prove unlikely as Brussels-based diplomats argue that the UK will not move without the US on board.
The US and the UK are both waiting for the conclusions of the IMF report, which is due out in mid-April.
“This resolution is not advocating one model or another, but aims to launch work on many questions that need answering,” said Maltese MEP Edward Scicluna (Socialists & Democrats) in a debate with the European Commission on Monday, adding that “there are as many advocates for this tax as there are detractors” and impact assessments would be needed.
“The EU must not have tax raising powers,” UK Conservative MEP Dr. Kay Swinburne said, cautioning against a bank levy.
She added that some kind of levy on financial institutions such as the Obama proposal could have some merit but warned against implementing an EU solution to a global problem.
“To do so would further reduce the competitiveness of the European economy, and raise the cost of capital to businesses,” Swinburne added.
“European citizens expect the costs for the financial crisis to be borne by those on the financial markets who caused it. We cannot therefore be content with a minimalist solution in line with the US proposal, which would generate a few billion Euro – a relatively small revenue considering the huge costs,” German Green MEP Sven Giegold said after yesterday’s vote.