The many different ideas put forward at G20 and European Union (EU) level blur the real aim of the proposed introduction of a financial sector tax. The Luxembourg Bankers' Association position paper discusses the issues raised in recent EU consultations, as well as the alternatives.
Under the Financial Sector Tax (FST) initiative, the EU Commission proposes the introduction of two kinds of taxes as well as a bank levy:
- a financial transaction tax or FTT (with two different potential scopes), and
- a financial activity tax or FAT (in three different forms), as well as
- a bank levy aiming at financing resolution funds.
The main reasons given for the introduction of these taxes are:
- need for fiscal consolidation;
- substantial public financing support during the crisis;
- undesirable behaviours of society as a whole (systemic risks), eg excessive risk-taking;
- possible under-taxation of the financial sector.
Referring to the situation that many member states have in actual fact already introduced new taxes, the Commission also states that an uncoordinated patchwork of national measures may:
- create incentives for tax-driven relocation, either within the EU or outside the EU, and distortion of competition;
- create situations of unrelieved juridical double taxation.
However, the above issues fail to indicate clearly whether the Commission's intentions are to prioritise:
- the immediate generation of public revenue to reduce Government debt, or
- the aim to obtain EU competencies in direct tax matters, or
- the restoration, over the long term, of financial stability and economic growth, or
- the setting up and financing of an ex-ante resolution fund intended to avoid public spending in the event of future bank defaults or a more general financial crisis.
The ABBL paper finds that the (one or more) FSTs seem to pursue different or mixed objectives, some of which appear to be adverse.
© ABBL - Luxembourg Bankers’ Association
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