Financial transactions tax sparks debate

As we have seen in the media this week, EU proposals for a tax on financial transactions have created a storm of debate in the last 24 hours – mainly focusing on political issues. While the full details of the proposed tax are still unclear, it is obvious that a tax on financial transactions – or payments between banks – would be detrimental for a number of reasons.

While it is important that we all pay taxes to ensure proper funding of public services, a financial transactions tax on banks is bad news for Europe as a whole. With the growth of electronic payments, banks have been able to reduce their costs and help their customers get access to funds quicker and more cheaply than ever before. By taxing this process, we run the risk of reducing the liquidity of the European economy as banks look to minimise their exposure by conducting fewer transactions. And a lack of liquidity was ultimately a prime cause of the financial crisis. With banks only just starting to post profits, we should not jeopardise the recovery in Europe.

It is also important to note that this tax may also hamper the ability of nations to adopt SEPA – the Single Euro Payments Area initiative – which the EU is itself pushing. It seems that the EU is seeking to promote the growth of payments with one hand through SEPA, only to put the brakes on with the other by threatening a tax on SEPA transactions.

I’ll be watching the news closely in September when Janusz Lewandowski, EU budget commissioner, makes his full recommendations about whether such a tax will be introduced.