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Once again, the Moloch of bureaucracy is stealing citizens’ money, claiming is for the sake of fairness and justice. Read how Algirdas Šemeta, EU Commissioner for Taxation, Customs, Anti-Fraud and Audit, tries to sell the new tax and convince people it’s for their own good.
Ladies and Gentlemen,
Many are awaiting this tax, for a long time now. 65% of European Citizens are in favour of this tax. And the figure is increasing. The European Parliament is asking for it. Several Member States advocated for such a tax. The 60 countries of the leading group for innovative financing are calling for the introduction of such a tax. NGOs have been asking for it, for years. And the debate is still open, on where to start and how.
Today, a very concrete step is taken.
We are proposing this tax because it’s fair, and because we can do it. Our proposal is concrete, it is detailed, it can be done in the European Union, now. I am confident that when they will have looked at it, Member States will share this view.
It is fair to tax the financial sector.
The financial sector plays a central role in the economy. It makes resources available for productive economy. Its role is to ensure that these resources are available at a fair price.
In the years preceding the crisis, it has somehow abused this central position. It focused on short-term return; it developed excessive remuneration schemes; excessive speculations took place; excessive risk-taking became the rule. Certain forms of trading with no proven economic added value, such as high frequency trading, developed quickly and massively. We know the consequences.
Firstly, States had to intervene to avoid the collapse of the sector and of the whole economy: they injected capital in banks, guaranteed loans and managed to stabilise the system. Member States have granted aid and provided guarantees of € 4.6 trillion to the financial sector.
Secondly, as a result, public finances deteriorated with public debt jumping from 60% of GDP in 2007 to more than 80% for the years to come. This puts an un-precedent pressure on the consolidation efforts of the Member States.
Meanwhile, thirdly, the sector recovered quickly. Bonuses and profits are back to the same levels before the crisis hit. It also remained in a privileged tax situation. Its VAT exemption costs EU Member States €18 billion of income per year.
Setting up a financial transaction tax would ensure that the financial sector pays its fair share of public policy financing. It would discourage some unproductive forms of trading. Finally, it would ensure a better functioning of the internal market which remains the main source of growth in the Union.
Acting at EU level would also avoid that uncoordinated approaches defined or to be defined by Member States fragment the Single Market and impact the competitiveness of the industry.
We can put in place such a tax at the level of the European Union.
In general Member States agree with the idea that banks should be taxed more. Those who disagree, disagree on an instrument, which they do not know yet.
I believe our proposal makes it feasible to put such a tax in place in Europe because a good design of the tax mitigates the risks of market reactions. How?
First, the tax has a wide scope. It will touch most financial products, in order to avoid that the activity would move from one to the other just to circumvent the tax.
Second, it defines low rates. 0.1% for shares and bonds and 0.01% for other products. This will ensure that the cost of the tax will remain low compared to the overall attractiveness of our financial markets.
Third, the tax is imposed on the financial institution at their place of residence. Thus, it will capture all financial transactions related to the European financial market or European economy. It will thereby mitigate the risk of relocation.
And fourth, the tax will focus on transactions that take place between financial institutions. This represents 85% of all financial transactions.
Transactions of individuals, such as credit card payments or private loans, savings or insurance contracts will fall out of the scope of the tax.
Transactions directly linked to the financing of the productive economy, such as the primary issuance of shares and bonds would not be taxed either, loans to businesses and spot foreign exchange transactions will not be taxed. This will preserve the financing capacity of small and medium size enterprises which remain the engine of our economy.
Today, ten Member States have a form of financial transaction tax in place. Introducing such a tax at European Union level will harmonise the way banks are taxed. This will be for the benefit of businesses. It will improve the functioning of financial services in the internal market.
This tax will generate revenue of €57 billion a year, an amount to be shared between the European and national budgets. As a result Member States will get the double dividend of receiving new resources much needed in their consolidation efforts and seeing their contribution to the European Union budget reduced.
Before I finish let me re-emphasise that we are committed to promote a financial transaction tax at global level.
The challenges we face notably in terms of financing development and climate change are global. It is natural that we go global in taxing financial transactions.
In view of the G20 Summit in Cannes, the Commission will continue working for a global agreement on a financial transaction tax. We are looking forward to see this tax adopted first at European level and then at global level.
I am convinced the European Union should take the lead on this project for the benefit of all.