By Patrick Brennan
Eleven countries in the euro zone are currently marching toward implementing a tax on financial transactions (also known as a Robin Hood tax or a “Tobin tax,” after one of the first economists to suggest a similar measure, James Tobin) but the largest financial player within the area, despite its typical l’amour des impôts, is pushing back hard. In an interview with the Financial Times, President François Hollande’s finance minister, Christian Noyer, said, “I do not believe it was ever the intention of the French government to do something that would trigger the destruction of entire sections of the French financial industry, trigger a massive offshoring of jobs and so damage the economy as a whole.”
The proposed measure, he said, means “an enormous risk in terms of the reduction of output in the FTT jurisdiction; increased cost of capital for governments and corporates; a significant relocation of trading activities and decreased liquidity in the markets.”
Because of this, France is pushing to limit such a tax, the design of which is still being debated, to certain classes of assets; the tax itself could be in danger and is already behind schedule. France currently has a 0.2 percent tax on the sales of large-company stocks, which is similar to but much smaller and less burdensome than Britain’s “stamp duty.” Britain’s tax hasn’t driven financial activity from its shores, but a few points are noteworthy: It was introduced around the same time as huge deregulation of (and therefore a big improvement in the competitiveness of) Britain’s financial sector, the City of London is a center of world finance in the way that European capitals are not, and there are now many more appealing offshore alternatives (especially in Asia) than there were in the 1990s. (And yet, it’s still driven City of London activity to untaxed alternatives, such as derivatives.) Most of the countries involved in this potential agreement seem more likely to have an experience similar to that of Sweden, which introduced a transactions tax in the 1980s and saw financial activity — and expected revenues — dry up quickly. I wrote more about the topic in the fall of 2011, when it was a favorite proposal of the then-burgeoning Occupy Wall Street movement.
While France’s resistance to this new levy is heartening, the Socialist government isn’t exactly shying away from new taxes per se, as Veronique de Rugy has faithfully documented in this space (for a more formal treatment, see this paper). A tax on financial activity, which is highly mobile, sensitive to pricing changes, and key to saving, may be a more obviously harmful alternative than other sources of revenue France is considering (it also has strong lobbying allies, French fears of “Anglo-Saxon bankers aside), but none of these measures is likely to help France fix its financial situation and restore competitiveness.