European Report Advocates 'Tobin Tax' On Financial Transactions

by Ulrika Lomas, Tax-News.com, Brussels

08 October 2008

A report commissioned by the Ecosocial Forum Europe, presented to the Council of Economics and Finance Ministers for consideration at yesterday’s meeting, has outlined two new strategies aimed at creating a new system of EU own resources intended to sustain the economy and help the poor: the implementation of a general financial transaction tax and a new European energy tax.

The Ecosocial Forum Europe, a non-party platform seated in Vienna, has submitted what it considers to be solutions to the global financial crisis, resolving problems that are insurmountable at Member State level, by providing flexibility and transparency.

The first concept put forward is a general financial transaction tax, or FTT. Indeed this idea has already been considered by countries such as France, Belgium and Austria.

The Forum maintains that, by levying a FTT at a level of 0.01% throughout the EU, revenues of around EUR82.7bn would be generated - that is almost two thirds of the current EU budget. The Forum suggests that this available money could then be used to finance development aid and projects aimed at helping the poorest cope with problems such as climate change and rising food prices.

Implementation of the general taxation of financial asset transactions across all the major economies would be achieved in stages. Firstly, a tax would be levied solely on spot and derivatives transactions on organised exchanges. Secondly, by extending the tax to include all over the counter (OTC) transactions within the Euro area involving no other currencies, i.e., primarily euro interest rate derivatives. Finally, the tax would be implemented on spot and derivatives transactions in the foreign exchange market.

Negotiations on the implementation of a FTT at the European level may also include Switzerland in order to avoid evasion.

Critics have opposed the idea, countering that, while the basic philosophy behind such taxes may be economically sound, determining how to redistribute the revenue is likely to be politically problematic. Moreover, the concern is that this micro-tax may not be administratively feasible and indeed that the tax revenue may not actually be used for development as intended.

The second idea mooted was the introduction of the European energy tax. The main elements of the EU energy tax policy are an upward revision of the existing minimum tax rates on mineral oils and an inclusion of energy products such as coal, natural gas and electricity in the tax base. The tax would also be extended to all energy products, including kerosene, which is currently not covered by either energy taxation or VAT.

A further suggestion is the conditionality of the minimum tax rates of energy products on the achievement of climate targets: if the targets are met they remain the same level, however, if they are not met the level is to be increased.

The Forum also proposed that a harmonised reduction of the VAT rate for ecology friendly products should be considered in order to mobilise the potential for climate protection in saving energy by enhancing efficiency.

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