News out today from the hotbead of economic competence that is the Eurozone is that France and Germany have found 11 other countries to jump with them into the pit of financial suicide that is the Financial Transactions Tax. Obsorne, who’s ailing economy is set to benefit from this shocker of a move must be rubbing his hands with glee.
As you can tell, I am not a fan of the financial transactions tax, it is an incredible economically damaging idea. But don’t just take my word for it.
Shanghai daily report that it will raise at most 500 million Euros for France, a tiny sum seeing as the cost it will bring and loss of jobs and money in the Economy.
Gemma Godfrey, chairman of the investment committee at Credo Capital notes that the cost of such a tax will mainly fall on the poor. She argues that ‘banks will be charged the tax, but they will pass on the cost to the end customer via reduced returns on pensions and higher fees to do business’. After all no business ever pays tax, only individuals pay tax. All taxes on businesses either hit employees or consumers (usually both) and of the employees it hits its rarely top management
Godfrey further notes the case of Sweden that tried such a tax in 1984 ‘60% of the trading volume of the 11 most actively traded stocks migrated to London.’ Furthermore the tax was revenue neutral ‘With a lower base on which to charge capital gains tax, the revenues from the transaction tax were offset.’ They lost all that business and didn’t make any money
Another big risk of a FTT she notes is volatility, charging to perfom trades will mean less trades are performed. The number of hedging positions taking will be reduced which increases risk, while less trades will mean more volatility (each trade having more of an impact)
She then looks at what would happen if it were brought in in the UK, I quote in entririty
‘’Revenues’ for the UK are expected to be even worse. With estimates of up to 90% of the trading of certain instruments (derivatives) at risk of moving to the United States or Asia, this could end up costing £25.5bn. Without international adoption, the tax would be costly.
Job losses could amount to almost one million. These would not be isolated to the financial sector but far more widespread.
For every 10 jobs cut in finance, up to 4 jobs could be lost in sectors either supporting the finance industry or merely providing services to its former employees, such as restaurant workers etc.’
Owen barder further elaborates on these points as can be read here http://www.owen.org/blog/309