WITH the Eurozone economy contracting for six consecutive quarters, and the number of unemployed young people reaching record highs across the EU, many European politicians were elected on promises to promote growth. But now those same politicians are pushing to introduce the financial transactions tax (FTT) – in effect a tax on growth.
Its proponents say it is tiny – 0.1 per cent on shares and bonds and 0.01 per cent on derivatives – which will raise €35bn (£29bn) across the EU every year. But the way it is designed means that the FTT would endanger Europe’s recovery, cause huge damage to the UK, and hit London as a global financial centre (even though the UK is not part of it).
By the European Commission’s own admission, FTT would see economic output fall. Oxera, a consultancy, found that for each €1 raised through the FTT, the European economy would lose €2 of output. This proposal will also see pension funds face rising costs – in turn meaning that you would get less money when you retire. BlackRock estimated that someone saving for retirement over 20 years could end up paying between €2,300 and €15,000 in additional taxes due to the proposed FTT.
This growth tax will also hit businesses. Small firms could find it more difficult to access funding, and that funding will be more expensive. Larger businesses could find it more expensive to hedge their risks. Food prices will be affected because many farmers – big and small – use derivative products to protect themselves against fluctuations in crop prices. There are countless other consumer products – fixed rate mortgages, gas, electricity, petrol and diesel – which will also be hit because suppliers use derivatives to try to hedge against wholesale price rises.
The growth tax will put the EU at a competitive disadvantage because it will deter international investors from coming here and will reduce the value of shares, making it more difficult for EU companies to raise money to fund expansion. Banks from FTT countries will have to pay the tax on every transaction when they trade in the Americas or Asia, but their competitors won’t.
The FTT would not just be levied once, but would be charged at every stage of a transaction process. This would create a “cascade” effect that amplifies the tax many times, due to the fact that transactions may involve a number of intermediaries, and commodities may be traded multiple times before ending up with the customer, in order to control against day-to-day spikes in price.
Jens Weidmann, president of the German central bank, has said that the “unintended side effects… could be considerable.” Sir Mervyn King, Bank of England governor, said “I can’t find anyone in the central banking community who thinks it’s a good idea.” Sweden introduced an FTT in 1984 and abandoned it in 1991, after half of all Swedish trading moved to London. So, I ask you, dear reader, to find a single person who thinks it is a good idea to implement a tried-and-failed growth tax which reduces investment, hits savers and consumers and increases costs for small and large businesses.
We should all be focused on promoting economic growth and creating new jobs. But this tax will do the opposite.
Anthony Browne is chief executive of the British Bankers’ Association.