August 1, 2012
France is the first member-state of the European Union to introduce the Financial Transaction Tax to all publicly trade businesses with market value over 1 billion euros. Is this finally a strategic decision with long-term results for public finance or it will stir up harsh debate from the investing parts?
The tax was set to 0.2% over transactions and the French government believes that it would revitalize growth and will bring liquidity to the national market. It is also said that public economy will regain credibility and that public spending cuts will be rationalized long-term.
Controversy over the tax are mounting as investors might get demotivated for buying shares in some of the biggest French companies. The story of Sweden is vital for consideration as a similar tax introduced in 1980s is said to be a disastrous one. Nonetheless, the comparison with the Swedish tax model is rather irrelevant to the French one, as the Swedish tax was implemented to all transactions and with cost higher than the actual one of 0.1% (i.e. 0.4% in 1984 and doubled next year).
On the other hand, Great Britain is a fervid opponent to the introduction of the tax as London is home to Europe’s largest financial sector, contributing an estimated 10% to the country’s economic output. The danger for Britain is that the tax might partially shore up third economies by drawing down investment attention and shakign up private market profits. In this respect, Britain is counter-proposing a unilateral system of tax-imposing regulation where states can bilaterally agree to a certain tax rate of transactions.
It is without doubt that the Financial Transaction Tax can be seen and studied from different perspectives according to specific and conflicting interests. For the largest European economies like France, that are afraid of infiltrating side-effects of overdebted European countries, the tax can be argued to be a significant asset for public finance liquidity. For overdebted states like Spain and Greece the introduction of the tax would be inadequate and timely worthless as credibility gap over the public finance stability is widening. For Britain, a state with huge and binding ties with the European investing, banking and financial sector, the imposition of the tax might be unexpectedly unfavoured.
As European econony is whirling over its center and as growth and public finance are finally inextricably interwoven with tax policies in any possible level, I certainly believe that slow-paced European economies can temporarily profit from such a regulation. For the time being and during a financially tumultuous period, the Financial Transaction Tax can be beneficial as a mere public income.Dimitris Rapidis