FTT is missing the bigger picture
On the occasion of the Deloitte/Thompson Reuters Horizon conference in Luxembourg, Minister of Finance Luc Frieden pleaded for clearer language regarding the Financial Transaction Tax and the so-called European “banking union”.
“The world where countries only targeted their national markets belongs to the past. The future is for models such as the Luxembourg one, where cross-border thinking becomes more important”, Frieden said. “Therefore, we need to make sure within Europe that the single market is fully compliant in all circumstances. The single market is a chance for Europe and a chance for Luxembourg.”
Luc Frieden sees a risk that the single market will be questioned. The Financial Transaction Tax (FTT) and the banking union would be good examples for these concerns, “Regarding the FTT, I must raise the question whether the European Monetary Union should have a common tax policy or whether this is something that has to do with the single market. This discussion cannot only relate to the FTT. This is a much broader question that deals with taxation.” The Minister of Finance also said that the European Monetary Union clearly agreed on the outcome of its budget, but not on how to finance this budget. “While talking about taxation, we should make sure that, first of all, we agree on the objective of the FTT. Is it to increase the income of state budgets? Then we should introduce this tax on the European scale to every country. Is it to avoid high-risk speculative transactions ? Then we should target those,” he stated.
Frieden regrets the one-sidedness of the discussion, knowing that the majority of people assume that the goal of an FTT would be to help the financial sector contribute to the tax income of the state. Furthermore, he claims that the discussion is missing the bigger picture. “The issue of the single market goes beyond the discussion about FTT and therefore it should have a broad geographical scope. All the G20 countries, all important financial markets, and certainly the EU27 must be involved”.
According to Frieden, a similar idea currently surging is the so-called European “banking union”. “We must first identify the exact needs of such a union. I am surprised that many people are in favour of the banking union, without explaining exactly what it means.” Frieden demands a declaration of the G20 that clearly defines the banking union.
Also, Frieden clarified that he would not be opposed to further integration, because Luxembourg benefits from integration. “We should constantly improve the supervision and the cooperation between the countries, but I have two conditions: I want to make sure that home and host countries are treated equally. Luxembourg is a host country for most of its financial institutions. The interest of these host countries must fully be respected. We should discuss to what extent a closer integration of supervision is relevant to the monetary union. Is this an issue of the single market or of the monetary union?” It has to be guaranteed that host countries where subsidiaries or branches are located will have the possibility to develop in the future and to guarantee a level playing field.
But Luc Frieden did not only talk, he also let actions follow: “I made a concrete proposal for Europe to collect millions of additional Euros. I was surprised that my colleagues in the Ecofin council did not take up this proposal to inform the public audience. We proposed to expand the scope of the savings directive to products other than just interest rate products, and to do the same with the five non-EU countries with whom the European Union has bilateral agreements on the taxation of savings.” Those who say that Luxembourg is blocking further negotiations with Switzerland ignore the fact that by applying the withholding tax to more than just the interest of savings, Europe could get additional income. “Income is needed in lots of countries, but for ideological reasons, this discussion has not been held”, Frieden lamented.
As a founding member of the European Union, Luxembourg should be able to expect that its constructive proposals be analysed and seriously considered by the European Commission. “We want a level playing field. In the single market, it means that borders must be open, people and capital must have the right to move and taxation law must not be an obstacle to free movement of capital. We have made a proposal; we could have improved tax efficiency and not tax evasion as the Commission has wrongly stated” Minister Frieden concluded. EK