Ireland’s contribution to the EU budget could be cut by about 40% through a shareout of a tax being levied on financial transactions, the European Commission says.
The commission came up with this compelling argument for adopting such a tax, showing that it would cut in half member states’ contribution to the EU budget by up to a half.
For Ireland, which contributed €1,264m last year, the reduction would be worth €534m, according to the commission. The country receives €500m more from the EU per year than it contributes, mainly for agriculture.
However, the Government is opposed to the tax, arguing that unless it was applied globally it would encourage bankers to flee Ireland to jurisdictions that did not have the tax. Most member states are opposed to giving it to the EU.
So far the case has been put by taxation commissioner Algirdis Semeta and is fully supported by France and Germany among other states, but opposed strongly by Britain, Sweden, and the Netherlands. He has promised to produce an impact study in the next few weeks showing the tax — as low as 0.01% — would not force companies to relocate.
The fight has been picked up by the budget commissioner Janusz Lewandowski, who says the tax would raise €57bn a year, rising to €81bn in 2020, when he believes two thirds of it should be paid over to the EU.
The sum, which he estimates would be €54bn, would offset more than a half of what the EU’s budget would be then. About 90% of the funds are returned to member states under various programmes.
One third of the tax would be retained by the member states, meaning that based on his calculations the Irish Government would earn about €356m.
The financial sector does not pay Vat and has received massive support from taxpayers, totalling about €4,600bn to date, so levying a tax as low as 0.01% would only be fair, he argued.
The proposal is to have a tax in all member states levied on all transactions of financial instruments, between financial institutions when at least one of those involved is located in the EU.
Shares and bonds would be taxed at a rate of 0.1% and derivative contracts at a rate of 0.01%.
While Ireland and the UK levy a stamp duty on financial transactions, high-frequency trading and hedge funds are not caught. The commission argues that the tax would help discourage risky trading that contributed to the economic crisis, and the money collected would help repay taxpayers losses.
A study carried out by two experts for the European Parliament’s Socialists group showed that many of the world’s most rapidly growing financial centres have had financial transaction taxes for some time while others, like Britain and South Korea have stamp duty.
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