10 February 2012

ECON Committee draft report on the FTT

The explanatory statement presents the following points:

• The financial sector, being one of the main denominators of the financial crisis and having received important public subventions to overcome the crisis effects, is not contributing in a fair way to the cost of this crisis. At a time when EU citizens are faced with important increases in direct and indirect taxation and severe cuts in wages and pensions, the financial sector is still largely exempted from taxation in its activities and transactions;
• The enormous rise of financial transactions in the last decade and the turn from long-term investments to short-termism and highly speculative and risk-taking transactions, in particular in activities such as the High Frequency Trade (HFT), are clearly demonstrating a switch of the main role of the financial sector from financing the needs of the real economy to operations which have no productive impact and can severely disturb market prices and the function of national economies.
• The current severe fiscal difficulties in the majority of EU Member States are significantly impeding Member States and EU in addressing major challenges ahead, such as financing growth, sustainable and social development, tackling climate change and funding development aid. Increasing the rates and the scope of tradition taxation tools and further cuts in public expenditure can be neither a sufficient nor a sustainable solution to addressing these challenges. Therefore progressive taxation tools are needed that can shift the taxation burden from labour and productive investments to sectors with important negative externalities to the real economy.

In that view, the debate on the introduction of a Financial Transaction Tax (FTT) has become more relevant than ever. In comparison with other traditional taxation tools and different economic policies FTT has the advantage of a multiple function:

• it can generate important new revenues (according to recent estimations, up to €57 billion if implemented at EU level);
• it can become a disincentive for extremely leveraged and harmful speculative transactions and thus contribute, along with appropriate regulation and supervision regime, to stabilising markets and reorientating the sector towards productive long-term investments.

Full report

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