| 12 October 2008
How the Finance Ministers must have yawned at the EU's ECOFIN meeting last
week when the embalmed corpse of the global transaction tax was wheeled in
for its periodic inspection. Like Lenin in his mausoleum on Red Square, a check
is necessary every now and again to make sure that the dead body is not showing
any signs of life. Everyone knows that the transaction tax, like Lenin, is a
very bad thing whose time is long past.
Everybody, that is, except for the Ecosocial Forum Europe, a supposedly non-party
but blatantly socialist think-tank, which indeed probably believes in Lenin
as well as the transaction tax.
The Forum claims that a tax of 0.01% across the EU would generate revenues
of around EUR82.7bn which could be spent on helping the poor. How to destroy
European financial markets in one easy lesson! No-one will notice such a tiny
percentage amount, they say. Oh, OK, the foreign exchange markets, which account
for 30% of all European financial transactions, won't notice a tax of EUR24bn.
Ah but then the tax can be made global, say these earnest madmen. Do they suppose
for one second that Hong Kong and Dubai will agree to such a thing? Who will
make them? And what about the Internet?
Of course they're not really that stupid - it's all just another French plot
against the British. Since the turnover of over-taxed French financial markets
is minute in comparison to London's markets, the French have everything to gain
and nothing to lose from a financial transactions tax, otherwise known as a
Tobin tax after the economist who came up with the idea.
The last time the Tobin tax was disinterred was in 2004, when Klaus Liebscher,
a member of the European Central Bank’s governing council, stated that
use of a such a tax on foreign exchange transactions in order to help fund the
EU’s budget would have a negative impact on investment within the community.
"A (so called) Tobin Tax would pour sand in the engines of the financial
markets, scare away investment, affect economic growth and endanger jobs,"
argued Liebscher, warning that global investors would be deterred from participating
in European money markets as a result of the measure.
The European Commission also knows that the Tobin tax is a non-starter. A report
released by the Commission in 2002 dismissed the proposal as unrealistic. An
OECD report in the same year concluded that there is no evidence that a tax
on currency transactions would achieve its desired effect. The study examined
a number of markets where transaction charges have been imposed, and found that
“the effect on volatility is at best mixed."
"In some cases, there was no appreciable reduction - in others volatility
actually rose,” observed the report's authors. The OECD’s analysis
of the tax also concluded that the measure would be unworkable unless imposed
on a global basis.
Anyway, relax, it's not going to happen, so the Finance Ministers can forget about it and go back to throwing money at the markets rather than trying to take away
what little the poor dears have got left.
You have been reading an entry on the following blog:
Jeremy Hetherington-Gore Unleashed
Jeremy tackles the difficult issues head on!
Contact: jeremy@lowtax.net
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