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The proposal is targeted at the financial services sector but would impose direct and indirect costs to the real economy. Despite ambitions to grow their own financial centres, states have signed up to a tax that encourages off-shoring of activity. Most importantly, at a time when the cost and availability of capital in the EU is sometimes problematic, the FTT would raise it for households, firms and even states.
Proponents of the FTT point to stamp duties in financial centres like Ireland and Britain as proof that an FTT can work without too many damaging side effects. Significantly, however, these stamp duties do not cascade, i.e. they do not tax intermediate transactions, only the end-user. By contrast, the FTT, with its explicit aim of curbing high frequency trading, would apply to all legs of the transaction – from broker to bank to end user – resulting in costs that are multiples of the 0.1 per cent.
Finance does need reform, but the FTT is the wrong solution. The rules on liquidity, capital and derivatives that have been introduced since 2007 and which are still being implemented, are more sensible. This is a bad law and should be scrapped.