Tobin tax could cost EU billions

Julian Harris
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A EUROPEAN Tobin Tax would knock GDP and end up costing governments billions of euros in lost revenue, accounting firm Ernst &Young will argue today – yet France looks set to press ahead with the tax without waiting for pan-European agreement.

The European Commission’s estimation that a financial transactions tax (known as a Tobin Tax) would raise €37bn (£30.5bn) is “based on overly optimistic assumptions,” Ernst & Young says today.

“The Commission has acknowledged that it did not address the impact of lower GDP on revenue collection from other taxes,” states economic adviser Marie Diron. “Even when modelled against the best case scenario this incurs a €39bn loss, making the net impact on overall tax revenues a loss of €2bn”.

Using the Commission’s worst case scenario, involving a 1.76 per cent hit to GDP, the tax could result in a net loss to public finances of €116bn, the firm calculates.

Yet French politicians last night pledged to go ahead with tabling the tax in parliament, as soon as next month.

President Nicolas Sarkozy said late last week that France would not wait for European Union partners to agree to a Tobin tax across the continent.

UK prime minister David Cameron said yesterday he would veto a Europe-wide tax unless it was adopted globally.