Brussels, 07/02/2012 (Agence Europe) - Curbing high-frequency trades and discouraging excessive risk-taking on the money markets would be two ways the mooted financial transaction tax (FTT) in the EU or eurozone might help prevent future economis crises. It might encourage growth despite the slight fall in income it would cause in some segments of the financial industry, argued four international experts at a hearing of the European Parliament's economic and monetary affairs committee on Monday 6 February to discuss the proposed FTT which was unveiled by the Commission in September 2011 (see EUROPE 10547).
Avinash Persaud of Intelligence Capital, Sony Kapoor of Re-Define and Stephany Griffith-Jones of Colombia University strongly advocated an FTT which, they argued, would indeed hit the right players, such as high frequency traders and intermediary financial players, and not the real economy.
A eurozone FTT would not only curb high-frequency and intermediary traders, but could even boost overall GDP, said financial experts at an economic and monetary affairs committee hearing on Monday. MEPs also reiterated their support for the idea, although some said that the Commission proposal needs more fine tuning.
Amidst the current crisis, the income raised by an FTT could be used to reduce other taxes or paid directly into the public budget and used to boost growth by investing in infrastructure or the green economy. In order to be effective, however, an FTT as designed by the Commission, based on where a financial player is officially resident, would have to have as wide a scope as possible. Applied in any less an area than the European Union as a whole, it would be extremely easy to get round it and would not work properly in an individual country, as has already been shown by the experience of Sweden. The Commission's ideas therefore need to be fine-tuned to ensure the tax is not levied on the basis of place of official registration but rather should apply to the transaction itself, like stamp duty in the United Kingdom.
Another objection is that the Commission has taken a simplistic approach that does not cater for the sheer diversity of products and markets. It would hit all players indiscriminately and some of them, like pension funds, disproportionately. A more nuanced approach would set different levels of tax for different products (shares, bonds, derivatives, etc) or types of transaction (over the counter or on the market), argued Kapoor. Richard Raeburn of the European Association of Corporate Treasurers worried that the cumulative impact of the tax, paid by all intermediaries in a transaction, would be too high and warned that end-users could be hit harder than they should be. As expected, the only voice oppposing the idea of an FTT came from the British Conservatives: Syed Kamall (ECR) said he opposed the idea of an FTT because it would damage the real economy. (FG/transl.fl)