Transaction Tax: Learning from the Swedes
France wants the financial transactions tax to see the light of day, but there is no consensus in Europe on this topic. The Luxembourg Bankers’ Association (ABBL) is against such a tax if it will only be valid in few countries. Its CEO, Jean-Jacques Rommes, fears that business will go to competing finance centres. In an interview with LFF, he spoke about the efficiency of such a tax and the lessons we should learn from Sweden.
What are the motives of introducing a tax on financial transactions?
One of the problems we are facing is the fact that politicians have not stated very clearly why they want such a transaction tax. We know that governments need money and this is a legitimate reason to introduce a tax. However, they also argue that harmful transactions should be discouraged.
What do they want in the end? Do they want to discourage certain types of transactions, which would mean they would not collect the tax, or do they want to introduce a tax knowing that they are taxing transactions that benefit the economy? The lack of clarity regarding the motives of these transaction taxes doesn’t help discussions to move forward.
Whether one is for or against such a tax, is it an efficient means to hamper speculation?
Under certain circumstances the tax would make sense, but it is all about fine-tuning. You have to ask yourself how strongly you want to tax certain transactions. The EU Commission suggested a tax of 0.1 percent on equity and bond transactions, and 0.01 percent on derivatives. Several European Banking Federations have the impression that the proposals made by Brussels are too general to be efficient.
There is no consensus in Europe about a transaction tax. What is Luxembourg’s position?
In the ECOFIN councils, which are composed of the Economics and Finance Ministers of the Member States, Finance minister Luc Frieden has always been very critical and cautious on this topic. He has asked quite a few questions about the goals and the scope of such a tax, but according to him the answers he got were not very coherent. Amongst the countries which want to introduce such a transaction tax, it seems to be easier to reach a consensus to do it rather than how to do it. But this is a very dangerous approach.
If such a tax is said to make sense, where should it first be introduced?
No business sector is in favour of higher taxes. But if a tax were introduced, then its scope would have to be global because the finance industry is global. This means that there has to be an agreement at the G-20 level at the very least for it to work. If this tax turns out to be efficient, then it would be good news for government revenues and we know how much the public sector needs the money.
What is your opinion of the French President’s idea to introduce the tax despite concerns that a unilateral move would isolate France?
I would appreciate such a unilateral move because then we would have a credible impact assessment.
This means that we wait to see what happens in France and then we decide that we do next?
Exactly. This tax would damage the French financial services industry and then even people who are not financial experts would notice that it is necessary to do some thorough thinking before introducing it.
There are countries that think one step ahead. Let’s take Sweden, for instance. Sweden is against the tax because it learned its lesson from a bad experience 20 years ago.
After a severe economic crisis in Sweden, the country decided to introduce a transaction tax in the nineties. It did not take long for the Swedes to realise that they were learning the lesson the hard way. They lost a lot of transactions, which were operated in London and elsewhere. All in all I have the impression that in Northern Europe economic expertise prevails and in Southern Europe the political will does. We will find ourselves in an uncomfortable situation if these two elements are contradictory.
Italy’s Prime minister said that its country would back the transaction tax if introduced in all 27 EU-Member States. Does this proposal go far enough?
Even if the tax was introduced in all 27 EU countries, there is still a risk that transactions would be transferred to other financial centres like New York, Tokyo, Singapore, Hong Kong or Dubai.
Let’s get back to Luxembourg and talk about the impact the local industry would bear. What would be the consequences?
The investment industry would undoubtedly be adversely affected by this measure. A Luxembourg-domiciled fund, which is bought by Asian clients, would then become less attractive than the same investment fund domiciled in the UK or the US because of the higher tax. Another area hit would be the clearing industry- that is to say big players like Luxembourg-based Clearstream, which handles millions of transactions.
Despite a subscription tax the so-called “taxe d’abonnement”, Luxembourg has managed to become the second largest investment fund centre in the world. Does this mean that the impact of a new tax might not be as deep as expected?
As you know, we had to drastically lower this subscription tax to remain more competitive. This proves that it is all about fine-tuning. Your link is interesting in the way that the introduction of a financial transaction tax would mean the abolition of the subscription tax.
What would these tax revenues be used for?
There is no consensus amongst European governments on this topic. The EU Commission’s idea is to feed the European budget with this money. This does not sit well with all the countries. At the moment it is only a discussion about whether or not to introduce such a tax. Unfortunately, no decision has been made so far about crucial points like the scope and level of the tax burden and who should benefit from it. CW