Surely the European Commission would not be recommending a policy which will depress GDP, drive business out of the EU, cost nearly half a million jobs, and arguably achieve no offsetting benefits? Would it? Oh yes it would!
It’s that Tobin Tax on the agenda again — its proponents call it “The Robin Hood Tax”, but I think that “The Sherriff of Nottingham Tax” would be a better name. It would take money from pension funds and give it to fat cats in Brussels, who are already licking their lips in happy anticipation.
This is a case where the Commission has actually done a cost/benefit analysis, and as they’re recommending the tax, you might expect that their analysis would be glowing, or at least positive. But not a bit of it. They actually admit that the tax would “Increase cost of capital and reduce asset prices”. They say that “the collection of these revenues comes at a cost in terms of a decrease in GDP, which influences the tax revenue generated by other taxes”.
In fact, they conclude that the tax would reduce GDP by 1.76% over 20 years, at a cost to the UK of £26 billion. It would reduce derivatives trading by an astonishing 90% (remember these are the Commission’s figures, not mine). Most of that would be lost in London. The tax would increase market volatility (despite the protestations to the contrary of some of its proponents). Unemployment would rise if an FTT were introduced. Estimates in the financial press speak of an amazing 478,000 job losses as a direct result — again, mostly in London. At the margin, the FTT would mean less investment and less output. The tax, if implemented in 2014 as proposed by the EC, would slow down our economic recovery and reduce capital investment. The EC’s long-run projection for this is a 4.5% reduction in investment.
I have given the link to the EC document, but frankly it’s incomprehensible unless you are prepared to spend all day studying it. For those who want a quicker take I recommend the summary by the Adam Smith Institute http://www.adamsmith.org/files/FTT.pdf, which has the merit of being written in language that ordinary mortals can understand.
So we have here a tax which will do a huge amount of economic damage, just as we’re struggling to recover from one of the worst recessions in living memory. It’s proposed by a Commission whose President José Manuel Barroso never misses a chance to mouth platitudes about promoting competitiveness and growth, but again and again introduces measures that do the direct opposite.
So what are they thinking of? They say it will raise new tax revenue of the order of €50 billion (and supporters of the tax argue, paradoxically, that on the one hand it’s too small to notice — a figure of 0.01% of transactions is proposed — while at the same time assuring us that it will raise €50 billion). The real motivation for the initiative seems to be that they are salivating for “own resources” — in other words, taxes raised directly by and for the central institutions of the EU. But they make this calculation without regard to the admitted fact that much — perhaps most — of the financial services business in London and the EU will move out of the EU entirely. There’ll be a loss of corporate taxes and income taxes on those businesses and individuals who relocate, which in all probability will entirely offset the amount of revenue projected to be raised. It is, literally, all cost and no benefit.
I expect monstrous absurdity from the EU institutions, but the Commission has excelled itself with this one. I have accordingly tabled a priority written question to the Commission as follows: “Given that your cost/benefit analysis of the proposed Financial Services tax (Tobin Tax) is negative on just about every dimension, can you please tell me why you’re proposing it?”. I will let you know the answer — but please don’t hold your breath.