10 JANUARY 2012

German Chancelor Angela MERKEL reiterated her agreement with President Nicolas SARKOZY's proposal for a financial transaction tax at a press conference yesterday in Berlin following the leaders meeting  in preparation of the European Council Summit scheduled on January 30th.

Last November at the G20 Cannes Summit hosted by France, the financial transaction tax, or polluter payer principle, failed to be agreed upon unanimously although several countries and official representative bodies, among which France, the European Commission, Germany, Spain, Argentina, South Africa, the United Nations General Secretary, Brazil, Ethiopia and the Union of African Nations, thumbed up the tax and count on « public opinion » to pressure countries to implement the tax. President SARKOZY had declared the tax to be « a moral obligation » for those who are « responsible for the state we are in now ». He had added that among options proposed in the Bill GATES report, the transaction tax remains most promising « to support development ». 

The European Parliament Economic and Monetary Affair Committee various political groups « all advocated such a tax » yesterday in Brussels although « many deplored France's weekend hint that it could go it alone » according to the Parliament's communication. During the Berlin press conference, president SARKOZY had declared « unless we (France) go ahead, it won't happen ». The Parliament's large majority  consider the tax to be « necessary » and say they think the tax « would need to be implemented by at the very least all the Euro zone countries ».   Dissenting voices during the Committee's meeting included the UK and the Czech Republic.

The draft report is scheduled to be presented on 28 February, and presented to a committee vote in early April and a plenary voting session in June.

A financial transaction tax, equal to 0.1% of any exchange of shares, bonds and derivative contracts in the 27 Member States of the European Union, was proposed by the European Commission in Brussels in September last year http://ec.europa.eu/index_en.htm and « could approximately raise €57 billion every year«  according to the Commission communication.

To date, about 10 member states, among which Austria, Belgium, France, Germany, Hungary, Portugal, Sweden, and the UK  have some type of a financial transaction tax in place and the proposal aims to « introduce new minimum tax rates, harmonize different existing taxes on financial transactions in the EU, to reduce competitive distortions in the single market, discourage risky trading activities and complement regulatory measures aimed at avoiding
future crises. »

The proposal impact assessment concludes that VAT exemption of financial services would be compensated by the tax and reduce « excessive risk taking » as well as « market distortion ». On the place of taxation, the assessment deems that « the residence principle is suggested as the best option«. If the rate is increased to 0.1%, total estimated revenues range from € 73.3 and € 433.9 billion. The assessment reads that a financial transaction tax «  may increase
the cost of capital faced by firms » and as regard employment bears the potential « to reduce future GDP growth in the long run by 1.76% of GDP and of 0.17% at a rate of 0.01%. » 

The Commission aims for the proposal to be in place 1st January 2014 in  a « polluter-payer » principle introduced by Internal Market and Services Commissioner Michel BARNIER, in May 2010. That same year, coordinated bank levies within a European Network of Bank Resolution Funds were proposed at the G20 Summit in Toronto in June with the aim to prevent tax payers from footing the bill for failed financial institutions. The proposal had remained theoretical.