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City Of London Counts Costs Of EU11 FTT

by Robert Lee, Tax-News.com, London

24 February 2014


A European financial transaction tax (FTT) would be borne by end users such as pension funds, according to a new report.

The study, commissioned by the City of London Corporation and TheCityUK on behalf of the International Regulatory Strategy Group (IRSG), looked at the potential impact of an FTT on household savings in six European Union (EU) member states. Four – Germany, Italy, Spain and Slovakia – are part of the so-called EU11 group of nations willing to participate in the FTT. The other two – the UK and Luxembourg – have expressed their resistance to the plans.

Unsurprisingly, the countries intending to introduce the levy will be the hardest hit. Italy would bear the brunt; the impact could be as large as EUR204.9bn (USD281.8bn), representing a loss of 14.1 percent of the value of the assets being taxed. The cost in Germany could come to EUR150.6bn (equivalent to 5.8 percent of GDP, or 2.3 percent of total holdings); in Spain it could reach EUR79.6bn, and in Slovakia EUR0.1bn.

The report warns that the adjustment would be immediate, due to the expected costs being capitalized into the price of the asset, and would in some cases be a multiple of annual household savings. Researchers calculated that Spanish households would need to save for an entire year to restore the value of their savings to the level prior to the FTT's introduction. In Italy, they would have to save for 18 months.

Luxembourg could expect to see a reduction in the value of equity and debt holdings of EUR0.4bn, the equivalent of 0.9 percent of GDP, or 2.2 percent of total holdings. In the UK, the FTT as currently designed, would reduce the value of equity and debt holdings by EUR4.4bn.

Commenting on the findings, Mark Boleat, Deputy Chairman of the IRSG, said: "This report highlights the negative impact that the FTT could have on economic prospects across Europe by hitting household savings. It is not 'a tax on markets' but rather a tax borne by end users such as pension funds. The tax could also increase the cost of capital for businesses and sovereign governments. This proposal should be revisited by European policymakers so that we do not damage the future economic prospects of our citizens."

TAGS: tax | business | tobin tax | Luxembourg | Slovakia | United Kingdom | Germany | Italy | Spain | European Union (EU) | Europe

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