19 March 2013 : The Financial Transaction Tax with Stephany Griffith Jones and Avinash Persaud

Thursday, March 19, 2015 - 12:00 to 14:00

 

On March 19th 2013, a roundtable on the FTT was organized in the European parliament in the framework of the Next Left Economic Circle. The event was chaired by Liem Hoang Ngoc MEP, with guest speakers Anni Podimata MEP and Economist Avinash Persaud.

As Avinash Persaud put it, the financial sector is very adept of using complexity to explain to the politicians these issues are extremely complex and they often make the issues extremely complicated. The Governments feel that this is too complex to be addressed. Globalization has made the concept of residency, on which our tax systems are based, uncertain. Companies are not national any longer, they are international. Therefore, we need to innovate in our sources of revenues. And one of the most important sources is the financial transaction tax and that is why we need to make it work. In A. Persaud's opinion, the FTT is at the same time a source of disincentives and a source of revenues for public policies since FTT raises a significant amount of money. Thus FTT is another example in this relative debate around taxation. FTT is a good tax for 3 main reasons.

- First, the financial sector has benefited the most from globalisation but remains one of the most under taxed industries, while it has been supported by public subsidies and public support in the recent crisis. The sector should pay its fair share and contribute more.

- Second, low transaction costs are good but zero transaction cost is not good. Indeed, it encourages the financial sector to create opaqueness and the lack of transparency is an important stability issue. Moreover, low transaction costs have made the gross exposures bigger and bigger with very slim net exposures. When the financial system works, economic actors can lend and borrow and only worry about net exposures. But in times of crash, gross exposures matter and the disproportion between net and gross exposures becomes problematic. In that regard, FTT would have a positive effect on financial stability.

- Third, the FTT is a tax on "churning" (occurs when a broker engages in excessive buying and selling of securities in a customer’s account chiefly to generate commissions that benefit the broker) - churning is an incentive for banks to speculate with pension money because they make benefits thanks that. It will also make the finance fit for the purpose of long term financing small and mid-term enterprises instead of being focussed on the fees that they get from short-term investments. In this sense, it is estimated that 70% of the profitability of banks comes from short-terming clients and as a result, they do not invest in their long-term clients. So, this tax will help us reset finance to work more for long-term activities.

The economic impact of the tax is exactly the same impact of a fee, of a charge and the same cost of brokers fees and when you have all together is 1.4% and 1% fees, the additional 0.01% or 0.05% tax is not going to have a great impact. On the other hand, the industry worked better when the taxes were higher than now.

Location: 
Belgium
Photos: 
What we stand for: 
Financial Markets
GPF in the World: 
Europe
Initiatives: 
Next Left Economic Circle