30 July 2013

New Direction: The real economic impact of a European Financial Transaction Tax

The study, by Brussels think tank New Direction, uses the EU’s own economic models to measure the possible employment losses.

The Financial Transactions Tax is becoming increasingly controversial, with the UK government issuing a legal challenge and even the French Government demanding large scale changes to the tax earlier this month.

'The Real Economic Impact of a European Financial Transaction Tax' calls into question the EU’s own analysis of the tax, saying that it ‘wishes away’ any downsides to the measure with a series of naïve and optimistic assumptions about how the money would be spent.

“The European Commission knows that the Financial Transactions Tax will cause serious economic damage, but has hidden this behind some heroic guesswork about how governments might spend the proceeds”, said Tom Miers, the think-tank’s director. “Our study, using the EU’s own methods, shows that more than half a million jobs are at risk from this measure.”

He continued: “The EU needs to do much better if it to convince people that this tax is a good idea. There are growing concerns about FTT, and rightly so. This new analysis is surely the final nail in the coffin. It’s time to scrap this dangerous tax once and for all.”

Geoffrey Van Orden MEP, President of New Direction, commented: “As the report states, this scheme involves governments effectively taxing themselves to raise income in order to pay down debt. The tax will be bad both for those countries participating and for their trading partners. It is right that the British government is mounting a legal challenge. I am not surprised that the US Senate is considering action to protect US securities transactions from excise taxes imposed by foreign powers.”

In summary, the costs of implementing this policy will reduce economic growth, investment and job creation. It will be difficult to repair public finances when the additional sources of income include government bonds and regional development banks. This involves governments effectively taxing themselves. The tax revenues are uncertain and may be undermined by activities relocating outside of the EU11 or outside of Europe altogether.

The Commission needs to do much more work justifying a potentially disastrous loss of employment and output from the FTT.

Summary and link to full report