The proposal by the European Commission for a Financial Transaction Tax (FTT) may reduce GDP by as much as 0.3 per cent, according to a study by PwC.
The tax may also fail to address the issue of systemic risk in the financial sector, one of the central aims of the proposal. The report noted that the tax could impose a severe burden on households and non-financial businesses. PwC cited a 2011 paper by Tim Worstall, 'The case against the financial transaction tax' in which he wrote:
Those who carry the economic burden of the financial transaction tax would not be the banks but workers and consumers in general, and their burden would be more than 100% of the revenue raised by the financial transaction tax.
The case of Sweden was also cited as reason to believe the tax would have a detrimental effect. Sweden abolished its FTT in 1991 after its failure to produce significant tax revenues and led to the decimation of the Swedish financial sector.
The Commission's initial proposal for an FTT would include the 11 EU countries which have already agreed to implement it.
Reacting to the report, director of Financial Services Ireland, Brendan Bruen, praised the Irish government for opting out of the tax:
The review shows that financial transaction taxes hurt every country that introduces one. In France, the tax raised less than half of what was predicted. Business simply disappeared or left the country.