Much of Europe wants a financial transaction tax (FTT). The reason why is obvious: they need the money.
The UK is adamant it will have no such tax. It says it will harm the City of London. Of course that's not true: it's the City of London that harms us, but Cameron ignores that fact and in the process spites the plans for an FTT to be discussed by Nicolas Sarkozy at the G20 later this week.
How can the impasse be broken? Well, let me suggest a simple solution. It's called VAT.
VAT is, of course, an EU tax. And it is an EU tax with a difference: it can be imposed by majority vote. Unanimity is not required here. And that's the critical point. Sarkozy can change VAT with dissent from the UK.
The relevance of that simple fact is this: VAT is not charged on financial dealing and it could be. Of course that is not quite what an FTT is expected to be, but the reality is that most financial dealing is about margin trading. So too are many other trades, such as second hand car dealing, and we have worked out ways to apply VAT to such dealings. OK, financial dealing is more complex - but it is also incredibly well tracked. So, it would be quite possible to apply VAT to the margin on bank dealing.
And they could not get round it easily. First, the rate would be low, and so too would be input tax as a result.
Second, relocating can be overcome - it would simply be deemed that settlements through Europe were located in Europe. And then what are called the 'self supply' rules would apply - the bank would have to register and charge itself the tax and pay it over.
I'm not saying banks would not try to avoid the charge: they would. But quite a lot could be done to prevent that happening.
I haven't worked out all the detail. I don't need to do so. All I need to do is tell Nicolas Sarkozy he has a way of getting what he wants from Cameron. The stick might be enough.
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assuming the banks wouldnt just move their trading to a haven, wont they just flock to the territory with the lowest VAT rate? which isnt the UK as you know.
The rate would not be standard in all likelihood
So you have no way of knowing that
Steve
the effect of an FTT would be to drive financial services away.
Any rational person would see that that can only be positive for the EU & the UK. The difficult bit will be stopping the hedge-funds etc from trying to participate in the EU’s finances even when they are in Kuwait/Singapore/wherever.
Does anyone know Mossad’s number ?
Or maybe the Iranians could do us a good turn ?
As I argue in the Courageous State – finance si squeezing out real business
So getting rid of it beenfits us
In a Federal Europe all taxes will be harmonised…
Without complete fiscal harmony Europe is doomed.
Good news for northern “Europeans”.
Not so good for those in the south.
And if the UK sticks with the GBP they will be kicked out.
Which is not good news either.
Surely it is just the Euro that is doomed without fiscal harmony? Europe was doing pretty fine without it before it was introduced.
@ JJ Lehto
Yes you are right Europe was doing all right B4 the Euro.
But inter-country exchange rates were a nightmare which the concept of a single (harmonious) currency hoped to remedy.
But the progression of “harmonisation” once started is impossible to stop until ALL countries are singing out of the same hymn book — which judging by the “Greek situation” is an impossible task!
Which suggests that the answer to your question is that the Euro is doomed.
Bad news for EVERYONE.
But having exchange rates worked, and works for the rest of the world.
Whilst the demise of the Euro would be tough, for the Euro to survive i’d suggest there needs to be fiscal harmony. And with fiscal harmony would most likely come political harmony. Which I think would be an absolute disaster.
@ JJ Lehto
In pre-Euro days we ran a UK business that exported products assembled from various ingredients sourced from throughout “Europe”.
On a Monday morning we could agree a sale price for a product (made up of at least ten different components) for delivery to a company (for example) in Eire (punts). It could take at least an hour to acquire “spot” and “future” prices (good business protocol demanded prices based on “replacement-cost”) and calculate “spot” exchange rates for up to six different currencies involved in the purchasing materials on a just-in-time basis.
Complex mathematical computer models were used to control and speed costing processes — but a transaction that looked good at 9.00 in the morning could either look terrific or a disaster by 11.00.
The advent of a common currency helped alleviated most of our problems.
Except the UK didn’t join.
@ JJ Lehto
“…with fiscal harmony would most likely come political harmony. Which I think would be an absolute disaster.”
Why would it be a disaster? What would be so wrong with a USofE?
Or is that a completely different thread…? (I suspect it might be)
Probably is for a different thread, but one only has to look at the old Yugoslavia to see how it’s not possible to push different nationalities together into one state. Plus you also have a lack of common language as a further barrier.
Although many citizens of the USA are “European” by ancestry the USA is now united by a common language and strong allegiance to the American flag. The Constitution is the centre of federal government and Congress ensures that ultimately federal law prevails over state law.
The USA also has its own culture (like it or not) and basing a new Europe on the USA model would be problematical because European cultures (often linked to work ethics) do not always “fit”.
The “American Dream”, for what it is worth, is not likely to become the “European Dream”.
Europe should seek a different example.
How about China? Well perhaps not.
sorry, i dont understand your comment (suspect i have misunderstood) – are you saying all EU countries would adopt the same VAT rate for these financial transactions so there is no incentive for anyone to move transactions within Europe?
The EU sets parameters for VAT rates