Brussels, 30/06/2011 (Agence Europe) - The introduction of an EU tax on financial transactions and a new resource based on current VAT are undoubtedly two major innovations for refuelling the EU budget during 2014-2020. They were proposed by the Commission on 29 June. In an optimistic scenario, each of these resources - to be approved by unanimity of the 27 EU member states, with a view to their being fully operational in 2018 - could bring some €30 billion per year to the EU budget. Together, they should make it possible to reduce national contributions - which currently make up 76% of the EU budget - increasing the share of own resources from around the current 24% to over 40% of the budget by 2020. This would make it possible to reduce EU dependency on member state contributions by as much.
The idea underpinning the proposal for a new financial transaction tax (FTT) would be to extend to EU level what ten member states - including the United Kingdom and soon also Italy - have already set in place, in an uncoordinated manner, to boost money flowing into national coffers. The Commission's detailed proposal will not be presented until this coming autumn, after an impact analysis assessment has been made to define options regarding the framework and taxable base. The most likely scenario is, however, to apply a tax on monetary and financial transactions. The tax rate would be modulated depending on the products concerned and could vary from a minimum of 0.01% on the trade of derivatives (whose transactions may be easily relocated towards financial centres outside the EU) to a rate that could reach 0.1% on the trade in sovereign bonds.
It is a known fact that the Union, particularly within the G20, is piling on the pressure for such a tax to be established at global level, and that efforts to date have come up against the opposition of the United States. In this regard, the Commission's initiative to suggest that, want of anything better, the tax should be applied only in the EU is not to the taste of the United Kingdom, the leading financial centre in the world, which fears banks will leave the City for Asia or the United States.
Another negative reaction to this proposal came immediately from ECB President Jean-Claude Trichet who, when addressing the European Parliament committee on economic and financial affairs, said that a tax imposed by Europe and not elsewhere would entail a major loss of business for Europe and would have devastating consequences at a time when it is important to promote financial activity. Although, as the Commission sees it, one of the aims of the tax is to impose a certain discipline on financial circles and to put a brake on speculation, Trichet indeed underlined the fact that the financial industry must be regulated and controlled but that it remains an important industry for all advanced countries and for emerging countries. Other reactions were voiced from left-wing parties and development NGOs, which welcome the proposal but also underline that part of the tax proceeds should be used to contribute to development cooperation.
Another proposal that is already arousing negative reactions on the British side is that of a new European VAT, which aims to simplify the current mechanism and make it more uniform by directly transferring to the EU budget a uniform portion (one or two points) of the VAT levied in the different European countries - and reducing by as much the contributions currently paid by member states. In parallel, this reform would, moreover, waive all the exceptions and discounts based on the “fair return” principle, which characterise the current regime and make it so complex. The idea would be to generalise the current system of reductions to all states considered to contribute excessively compared to the others (United Kingdom but also, to a lesser extent, Sweden, Austria and the Netherlands). The “cheques” paid to these countries would disappear to the benefit of a reduction paid in one go on their initial contribution. Here too, reactions were immediate, especially from some of these countries which, experts say, could be penalised if discounts were abolished.
In this respect, however, President Barroso was quite clear, giving pride of place to “solidarity” between member states, something which must be at the base of the new budgetary framework. One can expect talks on this to be acrimonious. (F.G./transl.jl)