Monday, 06 February 2012 15:13

Quite Simply Madness?

At the Davos economic forum, Britain's Prime Minister David Cameron once again stated his lack of interest in an EU-wide financial transaction tax. But how crazy is the idea really?

For even a caring couple, close friends can sometimes be a challenge to the relationship. This happened once again to our favourite couple 'Merkozy' at the World Economic Forum in Davos where Britain's Prime Minister David Cameron publicly turned his back on their youngest baby: the introduction of an EU-wide tax on financial transactions.

As with most babies, you have to take a closer look to see why the parents love it so much: France and Germany have come a long way planning this child, starting in 2005 when Jacques Chirac and Gehard Schröder first considered putting charges on the sale of shares and derivates. The idea is not as complex as the tongue-twister might suggest.

There are no value-added taxes on securities, unlike for the trading of goods. So, while consumers pay an extra 15% to 27% on everything they buy within the EU, speculators get off at a rate of 0%. The introduction of a VAT-similar measure for financial transactions would eliminate these differences: each time a share, a bond or a derivate would be sold, a small percentage of the purchase price would go straight to the fiscal authorities. This would slow down short-term speculations: any good citizen tries to avoid taxes and the easiest thing to do would be to make more long term investments. That way, you would have to make less transactions and could avoid losing too much of your precious money to the state.

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