Finance: The long-delayed and much-debated “Tobin Tax” bill has made it out of a European Parliament committee with only minor changes to the text.
The European Parliament has put forward a slightly revised financial transactions tax to address objections by some EU states and financial firms, while stiffening penalties for those who would try to evade the levy.
The revised version of the bill would see trades made by certain institutional investors and all trades in government bonds charged a reduced rate during the first three years the tax goes into effect.
The FTT, also called a “Tobin Tax”, is currently being implemented by 11 European countries, not including the Grand Duchy, with the aim of inhibiting risky financial maneuverers, and boosting governments facing popular outrage against financial industry malfeasance and budget austerity.
Earlier this year the European Commission proposed a levy of 0.1% for each trade in stocks and bonds and 0.01% for derivatives to go into effect on January 1, 2014, which it projects will raise between €30 billion and €35 billion annually.
Yet in recent months reports have emerged that Italy objected to including sovereign debt; France did not want the levy to apply to corporate bonds; France and Spain opposed including transactions made by pension funds and within the same financial group, although Belgium opposed the exemption; and the European Central Bankwarned about including the “repo market”, or short-term loans between financial institutions.
In May several press reports indicated the FTT would be scaled back, which prompted the Robin Hood Tax campaign group in the UK to write on its website that the FTT: “has some very rich and powerful enemies--some of the very same people who are likely to end up paying it. They are currently mounting a frantic, furious and intense media campaign to spread misinformation about the progress of the negotiations. Their purpose is to discourage campaigners and governments, hoping to shrink our resolve.”
On Tuesday, the parliament’s economic and monetary affairs committee endorsed the commission’s original plan but voted to introduce a lower rate--half--on certain transactions during a transitional period. Until January 1, 2017, trades in sovereign bonds would be taxed at 0.05%, while pension funds would only have to pay 0.05% on stock and bond and 0.005% for derivatives trades.
The FTT will apply to both parties in a transaction, even if only one is located within the 11 country zone, in order to prevent trades from moving outside the FTT zone, a problem experienced by countries that have previously introduced a Tobin Tax, such as Sweden, which ditched the levy in the early 1990s.
Indeed, the committee added language to the bill that it hopes will increase compliance. “The text links payment of the FTT to the acquisition of legal ownership rights,” according to a parliament press statement. “This means that if the buyer of a security did not pay the FTT, he or she would not be legally certain of owning that security and would be unable to clear the trade centrally.”
“Despite very intense lobbying, today’s vote proved that parliament remains consistent and coherent in its approach to this tax”, said Greek socialist MEP Anni Podimata, who chairs debate on the bill.
“Fragmentation” and “cascading effect”
Luxembourg finance minister Luc Frieden has previously stated that the Grand Duchy opposes a regional FTT, but could support one at a global level, due to the risk of capital flight and a “fragmentation” of the single European market.
No exemption is made for financial intermediaries--institutions that handle each of the interlocking steps in trades--creating a “cascading effect” of ever-mounting charges, he noted in May.
Such charges would ultimately be passed to consumers, investment fund executives have repeatedly stressed during industry conferences and press interviews.
The committee’s revised text will now face a full vote by the parliament, which is expected to take place in July. The text will then go back to the commission and then to the European Council of government ministers for final agreement.