The question now remains whether, in light of the opinion, the 11 participating member states will continue to support the latest effort to introduce a Tobin Tax. There should really be no question but – from day one – the FTT has been a politically-motivated exercise designed to appease various political expediencies within EU member states. The focus has not been on the best way to reform the financial services sector, or how to strengthen the health of the European economy.
The planned FTT, which hopes to impose a minimum 0.1 per cent tax on share and bond trades, and a 0.01 per cent charge on derivatives transactions, is ultimately a tax on growth that risks damaging the EU’s economic recovery.
With only 11 member states supporting the proposals, the UK is not a sponsor. Earlier this year, Britain made public its concerns about the FTT’s legality, when it issued a protective legal challenge to the decision to authorise enhanced cooperation in the area of FTT. The UK government raised concerns about the disproportionate effect the tax would have on the UK’s financial services sector. Attention was also drawn to the extraterritorial nature of the proposal, particularly in relation to the proposed “deemed establishment rule”, which would infringe the rights and competences of non-participating countries and breach an EU treaty.
The Commission rejected the UK’s legal arguments, but the CLS opinion has vindicated the UK assessment. The opinion even went so far as to conclude that the FTT proposal is discriminatory and likely to lead to distortion of competition to the detriment of non-participating member states. Or, in other words, the UK among others.
This is not the first road block that the proposed FTT has hit. The EU’s own impact assessments suggested that the tax would lead to a reduction in economic output and cause job losses. As European leaders clamour for any signs of growth, such criticism should be a death-knell for the transaction tax.
The proposed FTT is a growth tax that would make the EU a less attractive place to invest in. It would increase the cost of borrowing for small businesses. It would damage the international competitiveness of the Single Market and threaten its status as the global financial capital. Above all, it is diverting valuable attention away from industry and regulators’ efforts to restore financial stability.
Yet despite its evident shortcomings, it feels like the proposal will continue to be pushed. The CLS opinion is not binding, and the EU’s tax commissioner Algirdas Semeta has already made it clear that he believes that the FTT is “legally sound and fully complies with EU treaties and international law”.
Many of the leaders of the 11 member states are using the threat of an FTT to play politics with voters, but understand that it is not a realistic policy. The CLS’s opinion may just be the get out clause they needed.
Anthony Browne is chief executive of the British Bankers’ Association.