The introduction of a financial services transaction tax within the EU has opened divisions across the board.
This levy, also known as a ‘Tobin tax’, is being mooted as a way of helping the Eurozone and the wider EU out of its current debt ridden crisis.
The French president Nicolas Sarkozy has said that France may press ahead and implement the levy independently.
Germany takes the view that it should be introduced EU wide, something last Friday that the Italian prime minister, Mario Monti, said he was open to supporting.
But on the other side of the coin, the UK’s prime minister, David Cameron, is set implacably against the financial services transaction tax. The UK believes that such a tax would damage the City’s position as a world leading financial centre.
The EU believes that such a tax would only cost 0.1% per stock and bond trade and an even lower 0.01% for each derivative transaction. This would then raise annual revenue somewhere in the region of â‚¬37 billion.
But Ernst & Young (E&Y) say that far from making money, the EU public finances could suffer a â‚¬116 billion black hole as a result of introducing this levy.
E&Y says that the claim that the tax could see revenue of â‚¬37 billion a year was “…based on overly optimistic assumptions”.
Economic adviser to E&Y, Marie Diron, said “The Commission has acknowledged that it did not address the impact of lower GDP on revenue collection from other taxes. Even when modelled against the best case scenario this incurs a â‚¬39b loss, making the net impact on overall tax revenues a loss of â‚¬2b. Importantly, these figures do not take into account the likely fall in capital gains tax nor the full extent of the decline in revenues from the financial sector itself, which will significantly increase the loss in total revenue.”
She went on to say that the EU figures were not misleading as they had made quite clear what they were assuming and what they had left out of the calculations. But added that “…the publicized â‚¬37b revenue figure definitely masks the true effect of the tax on EU public finances.
Some members of the EU have identified a Tobin tax as a further revenue raising opportunity that will possibly help fill a financial black hole as well as inflicting some pain on the currently unpopular bankers. In the UK some also see it as a way for the EU to gain further control over the City.
But whatever the arguments it looks like David Cameron is set to veto any attempt to implement the levy across the EU. But individual nations can of course impose one internally should they so wish. That would then be between the individual state and the EU to ensure the tax was fair when viewed from an EU perspective.