"Financial Transactions Tax"

hatrickpatrick

Been hearing this crop up a lot over the last few years and I've just heard a report that the Bundestag is trying to delay the treaty ratification unless growth measures and a "financial transactions tax" is included.

What does/would such a tax entail, and what would it apply to? Are we essentially talking about a tax on any electronic transfer of money, or is it a tax on share trading, or on moving / selling financial assets between institutions, or what...?

How would such a tax affect the ordinary citizen? How would it affect a shareholder of a company? How would it affect a borrower, and how would it affect a depositor in a financial institution?

Sorry if this should be obvious, but I haven't seen it discussed before and I feel since apparently the German opposition is pressing for it to be included in the growth plans, those of us advocating alternatives to austerity alone should have a decent understanding of the implications of this particular proposal.

Anyone know anything about this?

AlmightyCushion

I think it's only for buying/selling shares.

Geuze

It shouldn't affect ordinary people buying shares, it's aimed more at speculative trading in futures, options and other derivatives.

Ordinary people would not pay it, but investment banks trading on their own accounts would.

Cookie_Monster

Geuze wrote: »

It shouldn't affect ordinary people buying shares, it's aimed more at speculative trading in futures, options and other derivatives.

The sooner the better in that case, make it a massive tax too, anything to discourage those nonsense accounting transactions.

Delancey

Has anyone assessed the impact of such a tax on the many IFSC operations ?

Suryavarman

The financial transaction tax is just a tax on the buying of shares and derivatives.

This would have a huge impact on the ordinary person though. If this tax was introduced in just Europe the 30,000 jobs in the IFSC would be gone with almost immediate effect. This would also mean people employed in the local service industry would lose their jobs as well. All those job losses would result in a lower tax take and a larger welfare bill.

The tax would also increase volatility and decrease liquidity in financial markets. This would have the effect of making stock market crashes and recessions more common and longer.

The financial transaction tax would also decrease investment which would have a negative effect on long term growth.

spank_inferno

Not quite as dooms-day as you might think.

I cant recall the source but I heard a figure doing the rounds of "0.3%" of the value of the transaction.

If so, it would matter very little and would be probably obsorbed by the trading houses in their transaction fees anyway.

The Torys had a fit in the UK over it.... but sure what jobs to Tory MPs do when they are voted out?

I dont see it as being as bad as some make out.
It probably would have negligable impact on existing or new jobs.

I dare say it will end up as a watered down tokenistic stamp duty.

Delancey

True that the Tories and the City are bedfellows on the subject of this tax and that is no surprise.
Were such a tax introduced Europe-wide would it really be all that easy to shift trading overseas ?

Suryavarman

Delancey wrote: »

True that the Tories and the City are bedfellows on the subject of this tax and that is no surprise.
Were such a tax introduced Europe-wide would it really be all that easy to shift trading overseas ?

The City makes up about 2.4% of English GDP, so I think the Tories are more than justified to be wary about the introduction of a financial transactions tax.

High speed trading activities would have to be relocated with immediate effect if this tax were brought into effect. The low margins made on those activities would make them impossible to be undertaken if there was a financial transaction tax.

The two biggest problems standing in the way of relocation would be finding office space and getting visas for experienced employees. Investment banks turn away a huge number of graduates every year so it wouldn't be hard to rapidly expand recruitment at the low levels at any destination around the world.

The places that companies could move their operations to are plentiful. The large finance companies are so in bed with the federal Government in America finding visas for experienced employees mightn't even be a problem. If it was a problem those people could relocate to Switzerland which wouldn't be affected by the FTT as it isn't in the EU. Dubai might also be a possibility as it is only 3 hours ahead of London and it has a lot of office space as well. I'm also sure that some operations could move to Shanghai, Hong Kong, Tokyo and Singapore. China is determined to make Shanghai a major financial center so I think it's highly unlikely that they would enact a financial transaction tax at any stage, thereby making them a viable long term option.

So while it mightn't be possible to move operations literally overnight, I think it would be highly possible to move within a couple of months to 2 years maybe. I'm entirely open to correction on any of the feasibility of any of this.

liammur

Suryavarman wrote: »

The City makes up about 2.4% of English GDP, so I think the Tories are more than justified to be wary about the introduction of a financial transactions tax.

High speed trading activities would have to be relocated with immediate effect if this tax were brought into effect. The low margins made on those activities would make them impossible to be undertaken if there was a financial transaction tax.

The two biggest problems standing in the way of relocation would be finding office space and getting visas for experienced employees. Investment banks turn away a huge number of graduates every year so it wouldn't be hard to rapidly expand recruitment at the low levels at any destination around the world.

The places that companies could move their operations to are plentiful. The large finance companies are so in bed with the federal Government in America finding visas for experienced employees mightn't even be a problem. If it was a problem those people could relocate to Switzerland which wouldn't be affected by the FTT as it isn't in the EU. Dubai might also be a possibility as it is only 3 hours ahead of London and it has a lot of office space as well. I'm also sure that some operations could move to Shanghai, Hong Kong, Tokyo and Singapore. China is determined to make Shanghai a major financial center so I think it's highly unlikely that they would enact a financial transaction tax at any stage, thereby making them a viable long term option.

So while it mightn't be possible to move operations literally overnight, I think it would be highly possible to move within a couple of months to 2 years maybe. I'm entirely open to correction on any of the feasibility of any of this.

Correct. It must also be remembered that the UK govt has no problem with a worldwide financial tax, so you can't really blame them at all.

beeftotheheels

Good grief. Step away from the kool aid people.

1. Different jurisdictions levy different taxes on financial transactions as things stand. Trading Irish shares involves stamp duty of 1%, trading UK shares involves SDRT of 0.5% etc. This tax actually is not sufficient to change investor's behavior, no investor will refuse to buy FTSE 100 shares because of SDRT.

2. In terms of markets it is possible that, if Ireland introduced the FTT and the UK didn't, that activity would move from Ireland to the UK everything else being equal. It is not possible that the majority of the activity would move from London to NY (for example) because the traders and specialists are in London, on GMT/ BST. They won't want to start their working day at midday and continue working into the night.

So we would have a bit of an issue if the tax was introduced in the EZ without being introduced in the UK, if the UK signs up then there is limited downside to the tax.

Fund activities won't move to Swtizerland as would have been previously feared because Switzerland just introduced incredibly strong regulation and oversight of funds, and Switzerland is not actually, contrary to general opinion, one of the easiest places in which to effect financial transactions.

dsmythy

Fear definitely the UK using one of their opt outs they're fond of and leaving us in the lurch.

liammur

beeftotheheels wrote: »

Good grief. Step away from the kool aid people.

1. Different jurisdictions levy different taxes on financial transactions as things stand. Trading Irish shares involves stamp duty of 1%, trading UK shares involves SDRT of 0.5% etc. This tax actually is not sufficient to change investor's behavior, no investor will refuse to buy FTSE 100 shares because of SDRT.

2. In terms of markets it is possible that, if Ireland introduced the FTT and the UK didn't, that activity would move from Ireland to the UK everything else being equal. It is not possible that the majority of the activity would move from London to NY (for example) because the traders and specialists are in London, on GMT/ BST. They won't want to start their working day at midday and continue working into the night.

So we would have a bit of an issue if the tax was introduced in the EZ without being introduced in the UK, if the UK signs up then there is limited downside to the tax.

Fund activities won't move to Swtizerland as would have been previously feared because Switzerland just introduced incredibly strong regulation and oversight of funds, and Switzerland is not actually, contrary to general opinion, one of the easiest places in which to effect financial transactions.

For every 2 financial transactions that are carried out in Europe, 1 of them comes from London. Many of these transactions are robot generated, and carry no stamp duty or tax. These are the transactions that lead to volatility and that's what the Europeans want to target. The man on the street buying €3K's worth of shares is NOT the target!

Dan_Solo

My usual view on these things is if the banks hate it then it's probably a great idea. The poor dears will just have to absorb these charges from their miniscule profits...

Permabear

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Sleepy

Surely even a small tax (say a €1) on each transaction could generate considerable revenue without any major negative effects?

Permabear

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beeftotheheels

Permabear wrote: »

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I just think that the risks being put about are overstated. No one would really not buy FTSE shares because of SDRT. No company would refuse to list on the FTSE because of the impact of SDRT on their shares. What attracts people to a particular market is not just the tax regime, it is also the regulatory environment, the size of the market etc

Yeah, if you're Stockholm so already on the back foot compared to The City introducing such a tax unilaterally could cause capital flight to London. If you're London, on the front foot, and you introduce such a tax in conjunction with the EU I just don't see the same risks. People will talk up the risks and pretend that the tax tail can wag the commercial dog. And for some investors of a low tax ideology that may be the case. Just not for the majority. Tax is only one piece of the jigsaw, and a small tax is a small piece.

Sleepy

That'd be the equivalent of 1.56 million household charges per year.

€156 million a year wouldn't have a major effect on the financial institutions but it'd be a major PR coup for the governments implementing and might help reduce the need for other taxes against the average PAYE worker who seems to being faced with most of the burden of our bloated government.

liammur

beeftotheheels wrote: »

I just think that the risks being put about are overstated. No one would really not buy FTSE shares because of SDRT. No company would refuse to list on the FTSE because of the impact of SDRT on their shares. What attracts people to a particular market is not just the tax regime, it is also the regulatory environment, the size of the market etc

Yeah, if you're Stockholm so already on the back foot compared to The City introducing such a tax unilaterally could cause capital flight to London. If you're London, on the front foot, and you introduce such a tax in conjunction with the EU I just don't see the same risks. People will talk up the risks and pretend that the tax tail can wag the commercial dog. And for some investors of a low tax ideology that may be the case. Just not for the majority. Tax is only one piece of the jigsaw, and a small tax is a small piece.

1 of the reasons spread bets are becoming increasing popular is because there is no tax. It would be financial suicide for the UK govt to bring in a financial tax without there being a worldwide one imo.

Permabear

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liammur

Permabear wrote: »

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It has, there is a huge shift away from people buying shares. CFDs and bets are becoming increasingly popular.

djpbarry

Suryavarman wrote: »

The City makes up about 2.4% of English GDP...

Even higher – it’s about 2.5% of UK GDP.

Suryavarman wrote: »

So while it mightn't be possible to move operations literally overnight, I think it would be highly possible to move within a couple of months to 2 years maybe.

Even though you allude to the UK’s massive (over-)reliance on the City of London, you are, at the same time, drastically underestimating the scale of the operation. There are well over 300,000 people working in the City – over 500 banks have offices there. There is absolutely no way a miniscule tax is going to result in a mass exodus.

Sleepy wrote: »

€156 million a year wouldn't have a major effect on the financial institutions but it'd be a major PR coup for the governments....

Not really – that wouldn’t keep my local council running for 6 months and there are about 325 local councils in England alone. For further perspective, consider that Transport for London’s annual budget is approaching £10 BILLION. In UK terms, £156 million is peanuts.

liammur

djpbarry wrote: »

Even higher – it’s about 2.5% of UK GDP.
Even though you allude to the UK’s massive (over-)reliance on the City of London, you are, at the same time, drastically underestimating the scale of the operation. There are well over 300,000 people working in the City – over 500 banks have offices there. There is absolutely no way a miniscule tax is going to result in a mass exodus.
Not really – that wouldn’t keep my local council running for 6 months and there are about 325 local councils in England alone. For further perspective, consider that Transport for London’s annual budget is approaching £10 BILLION. In UK terms, £156 million is peanuts.

I think we are gone off on complete tangents here. The propsed tax is tiny, (.1% and .01%) but the scale of the tax is huge:

The European Commission in September suggested a tax of 0.1 percent on equity and bond transactions and 0.01 percent on derivatives, which it said could raise 55 billion euros ($71 billion) a year. European Union finance ministers are due to discuss the levy in March

http://www.bloomberg.com/news/2012-01-29/financial-transaction-tax-in-france-to-take-effect-in-august-sarkozy-says.html

Dan_Solo

Permabear wrote: »

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Isn't that also a case of turkeys not voting for Christmas though? The IMF is a bank just like any other. Why would they want any extra costs hitting their bottom line?

Dan_Solo

Permabear wrote: »

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It would hardly be unique as duty on cigarettes would appear to do exactly the same.

spank_inferno

liammur wrote: »

I think we are gone off on complete tangents here. The propsed tax is tiny, (.1% and .01%) but the scale of the tax is huge:

The European Commission in September suggested a tax of 0.1 percent on equity and bond transactions and 0.01 percent on derivatives, which it said could raise 55 billion euros ($71 billion) a year. European Union finance ministers are due to discuss the levy in March

http://www.bloomberg.com/news/2012-01-29/financial-transaction-tax-in-france-to-take-effect-in-august-sarkozy-says.html

well 0.1% & 0.01% are surely a very easy cost to cover.

As mentioned previously, its already much less than the existing stamp duties leveled by the UK & IRE on transactions.

beeftotheheels

Permabear wrote: »

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No, I'm suggesting that with a low proposed tax it is marginal. Swiss tax on share trades is less than UK tax on shares yet FTSE swamps SWX in terms of shares traded. If it was all about the tax then that would be the other way around!

Sleepy

Dan_Solo wrote: »

It would hardly be unique as duty on cigarettes would appear to do exactly the same.

Never heard of black market cigarettes or people stuffing suitcases full of them when returning from countries with lower duty rates?

I don't think I have a single family member who's been abroad in the last few years who didn't bring back cigarettes with them (usually for me).

creedp

Sleepy wrote: »

Never heard of black market cigarettes or people stuffing suitcases full of them when returning from countries with lower duty rates?

I don't think I have a single family member who's been abroad in the last few years who didn't bring back cigarettes with them (usually for me).

Yes but in the case of cigarettes the differentials in the rates of duty are massive making the foregin cigs less than half the cost of those purchased domestically. The rate of tax being suggested here is miniscule in comaprison.

Permabear

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beeftotheheels

Permabear wrote: »

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Oh I'm laughing here. You really want to come into my tax cave and pick a fight with me?

SDRT is a tax levied on uncertificated shares traded through certain platforms. So, for example, if you buy HSBC shares on the LSE you pay the tax, buy ADRs or HSBC shares on the Paris exchange and you don't pay the tax.

Which would suggest that, if the tax was really all that important, all the liquidity in HSBC shares should exit London and resurface in Paris or in NY. Yet that hasn't happened.

One could postulate that the 1.5% charge to SDRT on shares leaving the UK exchange prevented this rush of liquidity. But HSBC won the case relating to Paris in 2009 and NY a few weeks back and still we see no rush of liquidity leaving London.

Ditto RDS where trades in Amsterdam, or Vodafone where trades in Frankfurt are not subject to the tax.

So it is not all about the tax. The tax is not that important.

I haven't missed the fact that SDRT only applies to shares rather than other financial transactions, I'm using it as a perfect illustration of why the world will not come crashing down if you levy any small tax on a financial transaction.

paddy0090

No disrespect to anyone who works there but in the general scheme of things financial isn't the IFSC just a low rent warehouse? Most of what they do is just back office stuff, moving sh*t around a virtual pallet racking system. I've been told by people who work in it if you wanna go up or get any meaningful experience you have to go over seas to one of the "real" trading centres.

Point being I think the effect would largely pass us by.

BTW getting visas for the US even if you are talented isn't that easy. This is one of the main gripes from business driving emigration reform. A friend of mine had to do visa runs for 3 years before he won one of the lotteries.

[Jackass]

Is it the Robin Hood tax referred to in the OP?

Link for info: http://robinhoodtax.org/how-it-works

https://www.youtube.com/watch?v=qYtNwmXKIvM

liammur

[Jackass] wrote: »

Is it the Robin Hood tax referred to in the OP?

Link for info: http://robinhoodtax.org/how-it-works

https://www.youtube.com/watch?v=qYtNwmXKIvM

That's it. This type of thing is what they want to target:

Shares of J.P. Morgan Chase slumped 8% after the blue-chip banking company said it has taken $2 billion in trading losses in the past six weeks, stemming from bad derivatives bets. The company said it could face an additional $1 billion in losses in the second quarter as a result of market volatility.

regi

Cookie_Monster wrote: »

The sooner the better in that case, make it a massive tax too, anything to discourage those nonsense accounting transactions.

Huh? Fine, I'll bite.

I'll use the classic example of the orange farmer, who thinks he'll have 3000 tons of oranges ready for sale in about eight months time. He's got bills and taxes and other expenses all lined up next year, so knowing how much money he's going to raise from the sale of those oranges will give him much reassurance.

He can either choose to take a chance and take whatever market value exists in eight months time, or he can enter into a futures contract to sell his future oranges at a price fixed today.

On the other side of the deal, you have the greengrocer, who knows that customers usually like to buy an orange for a dollar each. Rather than take a chance on the price of oranges leaping around in the mean time, the greengrocer might be perfectly happy to enter into a futures contract with the orange farmer today, so they know exactly how much their oranges will cost in the future.

Would you like explain why you'd like to both tax these people into the ground?

Dan_Solo

regi wrote: »

Would you like explain why you'd like to both tax these people into the ground?

Wow, 0.01% is "into the ground"?

djpbarry

Dan_Solo wrote: »

Wow, 0.01% is "into the ground"?

Maybe you should read the post regi was responding to?