Commission seeks to calm fears about FTT

Impact assessment paints positive picture of financial tax.

The European Commission is to increase the pressure on EU member states to accept proposals for a financial transaction tax (FTT) by releasing a study suggesting it would have a far lower impact on economic output than initially forecast.

The impact assessment, yet to be made public, paints a more positive picture of the effects of the tax than the Commission’s initial study, which said that it could lead to a near 2% reduction in the EU’s gross domestic product (GDP) in the long term.

Algirdas Semeta, the European commissioner for taxation and customs, said: “We have not come to the final results yet, but the model [of the new assessment] takes into account more variables and so will reflect reality much better. It is important to emphasise when looking at the impact on GDP that this is the impact over the long term. The model looks at a 40-year period, so on an annual basis it is extremely limited compared with other taxes.”

Losing business?

The first assessment, released when the Commission published its proposal in September, declared that such a levy could lower GDP by 1.8% over the long term, notably because of the “strong risk” that transactions would move outside the EU.

Last week, a study released by the Global Financial Markets Association said that a transaction tax levied across the EU would increase foreign-exchange transaction costs by up to 18 times because it could lead to 75% of transactions moving out of the EU. The UK, where the highest number of financial transactions takes place, is opposed to the FTT proposal, while France said it could implement it within weeks.

The Commission’s plan would see a minimum tax rate for the trading of bonds and shares of 0.1%, and 0.01% for derivative products. Member states would be free to apply higher rates.

Semeta faces a battle to get his other major legislative proposal from last year, the Common Consolidated Corporate Tax Base, accepted by all 27 member states. Ireland, in particular, is sceptical about the idea. Denmark, which holds the presidency of the Council of Ministers for the first half of 2012, has arranged almost monthly meetings to try to break the deadlock.