Press release – for immediate release
Hamburg, 09 December 2014 – Today, the Economic and Financial Affairs Council (ECOFIN) is discussing the concrete design of a financial transaction tax (FTT). The European Commission presented its proposal for an FTT in 2013, to make the financial sector contribute to the recovery of the EU economy. The planned FTT was broad based, applying to all financial transactions on financial instruments without exceptions. When the ECOFIN discusses the tax today, however, a number of exceptions are up for consideration. In recent years, financial sector interest groups have been pushing to weaken the tax where it is most effective. High up on their wish list are derivatives and risky repurchase agreements as well as powerful pension funds and government bonds.
“A financial transaction tax is only effective if it covers all derivatives and bonds. On the one hand, the ECOFIN supports measures to curb tax avoidance such as an automatic exchange of information. On the other hand, it considers a financial transaction tax with so many loopholes that high-risk speculation is likely to increase. If the tax excludes certain derivatives, for instance, trading will simply shift”, argues Suleika Reiners, financial expert of the World Future Council.
An exception for government bonds will also threaten financial stability. Financial institutions pledge bonds and use them excessively to repurchase agreements (repos), in order to fund their short-term proprietary trading. “The tax puts a badly needed spoke in the wheel of excessive trading. This explains the protests of the financial lobby”, says Jakob von Uexkull, Founder of the WFC and the Alternative Nobel Prize.
An analysis of a former senior financier, who wants to remain anonymous, confirms: it is a myth created by the financial lobby that rapid trading would decrease the interest rate for governments bonds and cheapen the costs of public finance.
An exclusion or lower taxation of pension funds would also be fatal. “As influential institutional investors they should refrain from rapid trading and provide sustainable long-term financing. For clients, too, pension funds are long-term investments which do not require frequent trading. On the contrary – simplicity has proven to outperform complexity; it also lowers the costs clients are charged for the fund management”, says the financial expert.
“The financial sector’s calls for exceptions are loudest where the tax is most effective. Hence, the ECOFIN must not allow this”, concludes Reiners.
World Future Council
Policy Officer Future Finance
Telefon: +49 (0)40 3070 914-25