A financial transaction tax on EU members has been proposed by the European Commission to take effect at the start of 2014. This proposed tax is expected to raise about 57 billion euros (US $79 billion) a year, and would be levied at a rate of 0.1% on all transactions between institutions when at least one party is located in the EU. According to Algirdas Semeta, EC commissioner for taxation, customs, anti-fraud and audit, the tax will deliver “a fair contribution from the financial services sector.” This sector is viewed as having contributed to the current “economic crisis” and as “under-taxed” compared with other sectors. Germany, France, Austria, Belgium, Norway and Spain support this tax in order to show their citizens that they are serious about addressing the European financial crisis.
The UK, however, has said it would “any resist” any such tax imposed on its citizens that was not introduced globally. London is expected to be hardest hit by the tax in the EU – with London officials estimating that about 80% of the revenues of the Europe-wide financial tax would come from their city. Further, the tax could prompt banking transactions to be handled outside of the EU in order for financial institutions to avoid the tax.
For more information, see “European Commission financial tax opposed by UK,” available at http://www.bbc.co.uk/news/business-15090761.
I think Europe would be better off worrying about other problems, like the crisis in Greece. Now is not the time to levy a tax that threatens to reduce GDP in a part of the world already reeling from the financial crisis. One of the goals of the tax is to help redistribute banks’ wealth to the poor, but it is unclear how this would work. A tax on banks will be passed on to their customers, and the effect of that would spread throughout the euro zone. Additionally, the tax is likely to make European banks less competitive internationally. If customers are forced to pay a tax on certain transactions, they will find other banks with which to do that business. Traders will decide to do business with American banks like JP Morgan or Bank of America (despite the downgrade) instead of any of the European banks. At a time when European leaders should be focused on fixing Europe’s sovereign debt issues, they instead have decided to levy a tax that will harm, rather than help, Europe’s struggling economies.