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As a long-term investment manager, Allianz Global Investors... seriously doubt that the tax can achieve either of its objectives, let alone both. In particular, we are concerned on behalf of clients that the tax – projected by the commission to raise €30-35 billion annually – will actually be paid by individual investors and those saving for their pensions. These are the same people whose prudence is being rewarded with artificially depressed interest rates and government bond yields that offer low to negative real returns.
This is not a fanciful notion. Other transaction taxes are invariably paid by the end client. For instance, while stamp duty in the UK is generally characterised as a tax on the City of London, it is in fact paid by ordinary investors on the purchase of shares. The same is true of value added tax: the consumer ultimately pays.
Admittedly, the Commission has tried to address this by making the tax payable by each financial intermediary in the chain of transactions. But the principal effect will be to complicate collection rather than spread the burden across institutions. The fact that this aspect of the proposal is described as the “cascading effects” is a clue to where the cumulative cost will wash up.
The objectives of the FTT are quite understandable in light of the heavy cost of the financial crisis, but the shortcomings of the proposal itself are a reminder of how far the policy and regulatory agenda has drifted. In the aftermath of the crisis, it was recognised that the scale and nature of the problems required a global response and greater international co-operation among regulators, central banks and policy-makers. There was even hope that some semblance of global governance would emerge from the debris.
But the commission’s proposal has been developed in isolation, with little regard for other jurisdictions, the delicate ecosystem of financial markets, or who will actually pay the price. For the sake of the investors and issuers that financial markets exist to serve, this ill-designed proposal should be dropped.