Austrian Government Seeks Tax On Financial Transactions In Europe

by Ulrika Lomas, Tax-News.com, Brussels

07 September 2009

The Austrian government is calling for a tax to be levied on financial transactions in Europe.

During a recent meeting of Austria’s Council of Ministers, the government fully endorsed a paper drawn up by Finance Minister Josef Pröll, outlining Austria’s position on a European tax on transactions, and proposing a strategy for its future implementation.

According to Austrian Chancellor, Werner Faymann, the introduction of such a tax could generate as much as EUR2bn for Austria, and would also mark an important step forward in achieving a greater transparency in the financial markets.

Austria is confident that a tax on financial transactions will rein in dangerous risk taking and speculative activity, thus rendering the financial markets more stable, and creating a fairer tax system.

Austria is not alone in this view. Lord Adair Turner, head of the UK’s Financial Service Authority, has also very recently spoken out in favour of introducing a new tax on financial transactions, which may, he believes, provide the best means of addressing excessive remuneration in the banking sector, while providing revenue to help narrow the global wealth gap and fight climate change.

Taxes levied on financial transactions are popularly known as ‘Tobin’ taxes. The ‘Tobin’ tax was originally proposed by economist James Tobin in the 1970s shortly after the Bretton Woods system of fixed exchange rates was dismantled, and had the very narrow aim of discouraging short-term profit-motivated speculation in the currency markets in a bid to calm periods of volatility.

However, the idea has since been seized upon by politicians as a way of raising billions in revenues to fight global poverty at relatively little cost. According to the Bank for International Settlements, the average daily turnover in the global foreign currency markets is just under USD4 trillion, and it has been estimated by supporters of a Tobin tax that a mere 0.005% levy on transactions would raise up to USD60bn annually.

While many world leaders have been open to the idea – the French have been particularly enthusiastic supporters of a Tobin tax in the past – achieving a global or even European tax on financial transactions may, in reality, prove very difficult.

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