Unions condemn Commission's choice of financial sector tax

The European Commission was slammed by the unions tonight for backing away from a new tax on every transaction between banks and finance houses in Europe.

The Commission instead suggested a tax targeting the profits of financial sector companies – hitting corporations rather than every individual involved in a transaction chain.

The move was welcomed by Conservative MEP Kay Swinburne, who warned that the tougher “Financial Transactions Tax” would hit the UK and the City of London hardest in Europe.

But the European Trade Union Confederation condemned the Commission’s support for the weaker “Financial Activities Tax” as unacceptable.

ETUC General Secretary John Monks commented: “The Commission’s proposals for the contribution that the financial sector should make to repairing the financial system and contributing to public budgets are unsatisfactory, unambitious, and unacceptable.

“They are unsatisfactory in that they deflect from the aim of taxing short-termist, highly speculative transactions based on high-speed trading that do not serve the needs of the real economy.

“They are unambitious in dismissing the proven feasibility of Financial Transaction Taxes (FTT), preferring a much weaker Financial Activities Tax (FAT) at EU-level.

“They are unacceptable in that they once more defer a much needed policy decision to make the financial institutions pay for the crisis they have inflicted upon millions of working families in Europe. This comes close to letting finance get away with expropriating the taxpayer.”

He said the FAT would merely raise €25bn a year, compared with up to €200bn annually from the FTT.

But MS Swinburne said more than two-thirds of a European FTT would be paid in the UK – four times more than would be raised in Germany and 10 times more than in France.

“This would be a disproportionate and perverse tax on the City of London which would do little to modify behaviour,” she warned.

She went on: “The EU needs to drop this fixation with granting itself tax-raising powers of any kind. The EU must remain subservient to the national governments, and the best way of ensuring this accountability is through the budget process. If the EU has the power to raise its own taxes it becomes the master of the national governments, not their servant.”

The Commission report, to be presented to EU leaders at a summit later this month, says an FTT is a tax best suited to raising revenues at global level, but less suited to the EU alone because “the risks of relocation are high and would undermine the ability to generate revenue”.

The Commission paper says the financial sector needs to make a fair contribution to public finances, and insists that the weaker FAT, “if carefully designed”, could generate “significant revenues and help to ensure greater stability of financial markets, without posing undue risk to EU competitiveness”.

EU taxation Commissioner Algirdas Semeta said:

“There are good reasons for taxing the financial sector, and feasible ways to do so. I believe that the ideas that the Commission has put forward today are the right ones to ensure that the financial sector makes a fair contribution to the most pressing EU and global challenges.”

The report said there were good grounds for introducing financial sector taxes: “Firstly, the financial sector was a major cause of the financial crisis and received substantial government support over the past few years. It should therefore properly contribute to the cost of re-building Europe’s economies and bolstering public finances.

“Secondly, a corrective bank tax could complement regulatory measures designed to enhance the efficiency of financial markets and to reduce their volatility.

“Finally, given that the financial sector is exempt from value added tax (VAT) in the EU, such tax would ensure this sector is not under-taxed compared to others.”

Elise Ford, Head of Oxfam’s EU office, said the Commission’s push for a tax was “a real turning point”.

She went on: “This is a victory for people over profits. It’s good news that the Commission wants to push for a tax on financial transactions at global level to raise money for development and climate change.

“But the big news today is that the Commission wants Europe to move unilaterally on a tax on financial activities, which would definitely also mobilise tens of billions of euros to tackle these pressing international challenges.

“EU leaders must now sign on the dotted line when they meet at the end of the month and push for a speedier timetable for action than summer 2011, as proposed by the Commission.”