EU calls for &#39;Tobin&#39; tax in a move to raise direct revenue

Wednesday, June 29, 2011

EU calls for 'Tobin' tax in a move to raise direct revenue

European commission unveils trillion-euro budget plan and wants bigger share of its spending to come from tax revenue or other levies that go automatically to Brussels

The European commission has called for Tobin-style taxes on the EU's financial sector to generate direct revenue for its first trillion-euro budget.

Unveiling its blueprint for the EU budget for the seven years from 2014, the commission demanded a bigger share of its spending supplied from "own resources" ? tax revenue or other levies that go auto- matically to Brussels rather than being handed over by the 27 member states.

In the face of stiff opposition from Britain, the commission called for much of the budget to come directly from new financial market taxes and a simplified method of taking a share of member states' VAT receipts. "We are proposing an ambitious and, at the same time, responsible budget," said Jos� Manuel Barroso, the president of the commission. "It is a realistic proposal."

The proposed budget for 2014-2020 amounts to ?971.5bn (�872bn) in payments and ?1,025tn in commitments. "It's a ?1tn budget," said an EU official. It is the opening round in what will be a gruelling 18 months of battle between national governments, the commission and the European parliament.

David Cameron, the British prime minister, has selected the budget issue as the key battleground for his EU policy, heading a group of wealthier countries determined to minimise budget increases. They want to subject EU institutions and its spending to the same sort of austerity measures being implemented in many member states.

Together with German, French, Dutch and Finnish leaders, Cameron has demanded that the 2014-2020 budget spending be frozen at the level of 2013, rising only in line with inflation. That would mean the EU budget would amount to about 0.92% of aggregated EU gross national income. The final proposal being haggled over on Wednesday was believed to come in at 1.02%.

The mountain of documentation that is being released by the commission was preceded by lengthy negotiations within the executive. The EU's foreign policy chief, Lady Ashton, who also sits as Britain's commissioner, was said to have used an 11-hour session this week to win early agreement on the sanctity of Britain's perennially contested rebate, currently worth �3bn a year. "There will always be corrections if there are imbalances," she maintained. The commission said that it wanted to simplify the rebate system through a new practice of annual lump-sum reductions.

Ashton also argued that an EU tax on financial transactions, which is strongly opposed by the British government, would not work unless also levied internationally. Precise details of the proposed taxes on the financial sector remained unclear.

The British government promptly dismissed the commission blueprint. "The European commission's proposal is completely unrealistic," a spokesperson said. "It is too large, not the restrained budget they claim and incompatible with the tough decisions being taken in countries across Europe."

Britain is to resist any idea that the commission could levy direct European taxes to raise revenue. The commission denies that it is demanding direct European taxes.

The government also fears that a financial transactions tax ? a Tobin or "Robin Hood" tax ? would disproportionately penalise the City of London, with traders and banks probably just moving to New York or the far east. "We would lose jobs and revenue," said an official.

Support for such a move, however, is growing among both EU governments. A recent Eurobarometer opinion poll showed 61% support for a tax on financial transactions across the EU, with two- thirds of Britons backing it.

David Hillman, spokesman for the Robin Hood Tax campaign, said: "The British government should wake up and smell the coffee. Other governments are moving ahead with a bank tax, while we are letting our financial sector off the hook.

"A Robin Hood tax on the banks would be the most popular tax in history."