About EU- FTT
What is the Financial Transaction Tax?
The idea to introduce a Europe-wide Financial Transaction Tax (FTT) is not new. The Financial Transaction Tax pursues two goals: to regulate the financial market and to generate public revenue.
Why a European Transaction Tax? – Countering the crisis!
- Fair burden sharing: The financial sector is under-taxed and has caused the financial crisis. It should therefore pay its fair share and contribute to counteracting the negative effects of the crisis it has triggered. Only those who make money with money will be affected by this tax: the speculators.
- Redistributive effect: Raising revenue for progressive policies is a way to relaunch the economy. According to recent calculations made by economists, the tax will create GDP growth of +0.25%!
- Regulatory effect: It will curb speculation by reducing high frequency trading, thus reducing the competitive advantage of the very speculative funds re-orientating money towards more long term investments. This instrument will help to deter transactions that lead to instability.
How much revenue could the Financial Transaction Tax generate?
The implementation of a Europe-wide Financial Transaction Tax would generate massive revenue, which could be spent on progressive policies such as social, global and environmental projects against climate change and would therefore benefit everyone. Hence, even an extremely low tax rate of 0.05% would generate considerable and urgently needed extra revenue of up to € 250 billion per year. Especially during the current financial crisis a bigger financial scope could be sued to fight against poverty and unemployment in Europe.
Who has to pay?
Citizens should not have to foot the bill when the failures of the financial institutions lead to economic and financial crises. The Financial Transaction Tax would ensure that the speculators who caused the crisis will finally contribute their share.
The Commission’s proposal
The European Commission’s proposal is based on two different assessments: firstly, the introduction of the Financial Transaction Tax would be a fiscal goal which might help to generate revenue. Secondly – and this is a fundamental reversal in the opinion of the Commission – the Financial Transaction Tax would fulfil a positive regulating function which might lead to more distributive justice.
The following key points of the Commission’s proposal are being discussed:
- Timeframe: The proposal states 1 January 2014 as the date when the tax shall be introduced.
- The tax rate is of 0.1% on conventional transactions and 0.01% on derivatives in view of the notional value. These values represent minimum tax rates which the Member States can increase autonomously.
- Tax basis: In order to prevent tax avoidance and substitution by other financial instruments a comprehensive approach was chosen. However, exemptions exist for currency dealings as well as for day to day payment transactions of ordinary citizens, so that the consumers will not bear the burden of this tax.
- Country of domicile principle: A transaction will be taxed provided that one of the counterparties has its seat, its permanent address or a branch in an EU country.
The full version of the Commission Proposal is available here.