22 March 2012

European Parliament weighs up cost and benefits of taxing financial transactions

Why the financial sector is being targeted

Public debt in the EU has surged from below 60 per cent of GDP to 80 per cent due to the financial crisis. Member States had to spend €4.6 trillion to bail out the financial sector. The financial sector also enjoys a tax advantage of about €18 billion per year because there is a value added tax exemption for financial services, according to the European Commission.

The proposal

The European Commission proposes to have a financial transaction tax in all 27 Member States to be levied on all transactions on financial instruments between financial institutions when at least one of the participants to the transaction is located in the EU. Shares and bonds would then be taxed at a rate of 0.1 per cent and derivative contracts at a rate of 0.01 per cent. It is believed that this tax could raise up to €57 billion a year.

Benefits

The Commission believes that the tax would help to shift some of the cost of the bailouts to support the financial sector away from tax payers to the companies that have benefited from this support. In addition it could help to discourage risky trading activities, which is believed to have contributed to the development of the current economic crisis. Together with reducing competitive, the tax could assist in defusing future crises. The revenue of the tax could be shared between Member States and the EU, which could use it as an own resource in order to reduce national contributions to the EU budget.

Criticism

Opponents of the tax believe it could lead to traders taking their business outside the EU, which would lead to job losses while the tax fails to meet its aims.

Next steps

The EP's economic and monetary affairs committee will scrutinise the plans before making a recommendation to MEPs, who are expected to vote on the proposal during the June plenary.

Press release

© European Parliament