THE COST of trading foreign exchange will soar by up to 18 times if an EU Tobin tax becomes law, according to a damning new report from a leading financial services sector group.
The Global Financial Markets Association (GFMA) said the proposed European financial transaction tax (FTT) would make all FX trades up to seven times more expensive, and more liquid products up to 18 times more costly.
The report – which came as hedge funds led another attack on the tax – warned that extra costs will be passed on to “end-users” such as pension funds, insurers and corporates, thereby damaging the real economy.
James Kemp, managing director of the global FX division at GFMA, which represents the major financial institution trade bodies in Europe, North America and Asia, said: “This study shows that the proposed tax would in effect penalise Europe’s businesses for sensible risk management – by using FX products to manage currency fluctuations – and also threaten to impose further costs on the investment returns of pension funds and asset managers.”
Meanwhile global hedge fund group the Alternative Investment Management Association has warned the EU faces “widespread, unintended [and] damaging” consequences from the tax, including a slump in the trading of shares, bonds and derivatives.
It said: “As well as undermining the EU’s single market, the FTT would be likely to reduce EU taxpayers’ savings and pensioners’ incomes, lead to a reduction in the level of investment in the real economy, send asset prices lower, widen spreads, hinder efficient price discovery and increase market volatility.”
Last week Denmark’s former foreign minister Lene Espersen described the tax as “bullshit” while George Osborne privately doubts whether the tax will work even if it is implemented globally, City A.M. revealed in November.