10 February 2012

Commissioner Šemeta: Rebalancing the financial transactions tax debate

Debate should reflect the proposal on the table. Those who disagree with the FTT have every right to make their case. But I greatly regret that the Commission's own figures have been systematically misrepresented by opponents. It is simply not true that our impact assessment predicts that the FTT will cost 1.76 per cent of GDP or hundreds of thousands of jobs.

Our proposal itself categorically rejects the option calculated to have that effect. The FTT in the form we are proposing it will not damage European competitiveness. It will not destroy jobs. Neither will it be a backdoor way of increasing the EU budget. Much of the revenue would go directly to Member States. The part for the EU budget would be offset by reductions in national contributions. What the FTT would do is bring a fairer distribution of the tax burden, greater stability in the financial sector, and considerable revenues.

All taxes, when looked at in isolation, carry an economic cost. But there is an urgent need to raise revenue and the cost of the FTT is small compared to the trillions of euros and pounds of support that the financial sector has received in recent years. Moreover, the positive effects of using revenues from the FTT must be taken into account. If the projected €57 billion (£47.7 billion) per year is put towards consolidating national budgets, reducing other taxes or investing in public services and infrastructure, the direct economic effect of the FTT should be positive for growth and employment in Europe. The economic case is even clearer when one factors in the FTT's potential to discourage some forms of socially useless and high-risk trading, and therefore to help prevent future crises.

Arguments that ordinary citizens and businesses would bear the brunt of the tax are not borne out by the facts. For a start, day-to-day financial activities are not included. Of the transactions covered, 85 per cent take place purely between financial institutions. Even if the financial sector passed on some costs to clients, the outcome would not be disproportionate. Anyone buying, say, €10 000 in shares can surely afford a €10 tax on top.

The idea that the FTT would mean the death knell for the City of London has no basis. The financial sector is a vital player in our single market. It is in all our interests as Europeans for the City to be strong and stable. Strong mitigating measures are included in our proposal to prevent financial operators deciding to relocate: the low rate, wide base and, crucially, the "residence principle". If banks and other players want to avoid the FTT, they would have to abandon their European clients altogether – an unlikely response to a small tax of 0.1 per cent on shares and bonds and 0.01 per cent on derivatives. London is the centre for global financial markets because of its excellent infrastructure and economies of scale, among many other things. The FTT would not change that. I have every confidence that the financial sector can adapt its business models to the tax.

Those railing against the FTT should consider the alternatives. There is an urgent need to balance budgets. How could this small tax on the financial sector be worse for growth and competitiveness than further hikes in income taxes, or deeper cuts in public spending? Clearly the FTT cannot alone solve national budgetary problems. But while ordinary citizens face higher taxes on income, food and fuel, as well as cuts in public services, is it unreasonable to expect the financial sector to pay its share?

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