Eurozone governments, always searching for new revenue sources, think a trading tax on financial transactions might be just the answer. Finance minister Germany, France, Italy and Spain as well as seven smaller countries voted for this tax. Abstaining were the UK, Luxembourg, and the Czech Republic. Ireland, with a reported 25,000 people employed at the International Financial Services Centre in Dublin, according to the independent.ie, “kept a low profile.”
Under EU rules, a new tax can be introduced if nine or more countries approve to implement the tax, and they have permission from a majority of the 27 members. The tax would apply to only those who voted for the tax.
Elated Algirdas Semeta, the European commissioner for tax policy, said: “This is a major milestone in tax history,” and Benoit Hamon, a French finance minister, added: “We will be able to put it into place quickly,” during the celebration after the vote.
Politicians in developed nations are scrambling to find the funds to pay for the services they have promised their voters. Class warfare and jealousy of the rich make these proposals popular. The transaction tax will take money from the rich, and their agents, the greedy, overpaid bankers. The trouble with this approach is that once the rich have been relieved of their wealth this leaves everybody poor, and poor people do not start new business or spend generously.
Details of this plan are lacking but it would likely be inclusive of equities, bonds, derivatives, and currency trades; the problem is it will not work. Money is fungible and the owners of wealth can move. Only last Tuesday it was reported that former French President Sarkozy is moving to London, to avoid the new French 75% tax.
This is known as the “Tobin tax,” originally proposed by James Tobin in 1972 as a currency tax designed to quell speculation after the end of the Bretton Woods agreement. Tobin was a Harvard-educated Yale professor, and a loyal disciple of John Maynard Keynes. Would Keynes, if still with us, have approved of a tax on speculation and investing? He was reported to be a successful speculator and an outstanding value investor.
Tempting as it might be – to take just a small percentage of some others money when a trade is made – those that have the money and the agents who represent them will furiously oppose the plan. Again, this shows one currency, one policy, does not suit all 27 EU members, and will lead to a noisy squabble.
The simplicity of the Tobin tax on the wealthy is appealing to the bureaucrats, who think the economy is theirs to be managed. If enacted, money centres in London, New York, Tokyo, and Hong Kong would flourish while European markets would contract. Investors, needed for start-up companies, would shun investments in Europe.
Written by CashBackForex.com