Speaking from experience Anders Borg, Sweden’s finance minister, has advised that a European financial transaction tax, as proposed by the European Commission, would prove problematic for Europe as, rather than bring in the additional revenue that has been projected, it would cause firms to move outside of Europe.
In the 1980s, Sweden imposed a financial transaction tax on firms and the results were undesirable. According to Mr Borg, over 90% of Sweden’s equity, bonds and derivative traders moved from it’s capital to London. This resulted in huge losses in tax revenue and the eventual scrapping of the transaction tax.
Mr Borg fears that if the tax is introduced to Europe there will be a similar result. There are concerns that, as the US and Asia will not consider imposing the tax, firms will have the opportunity to move away from Europe which in all liklihood will be the favourable option to them.
The UK has opposed the tax as it is believed it would not be in the UK’s best interests as most European banking transactions come through London, and therefore the UK will oppose any tax that is not introduced worldwide.
In contrast, several European countries have expressed their support for the tax including Spain, France and Norway as well as Austria and Belgium. Due to the divided opinion within Europe, the commission has stated that it will consider introducing the tax solely to eurozone members.
If the tax was approved and implemented it would mean that any transactions between banks, whereby at least one was based in Europe, would be taxed at 0.1%. It is predicted that this would bring an additional 57Bn euros into Europe each year.
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