Nine European trade associations have co-signed a letter addressed to the Irish Minister of Finance and President of the ECOFIN, Michael Noonan, to warn about the negative effects of the proposed financial transaction tax (FTT) on financial activities, such as government financing, risk hedging and corporate access to finance.
The organisations believe that the negative consequences of the tax will be proportionate to its huge effective magnitude and will dis-incentivise on-exchange trading and clearing, contrary to regulatory reforms implementing the G20 objectives whilst the real economy will mostly have to bear the additional costs arising from the FTT.
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The organisations that have co-signed the letter are: the Association of International Life Offices (AILO), the European Association of Cooperative Banks (EACB), the European Banking Federation (EBF), the European Fund and Asset Management Association (EFAMA), the European Repo Council (ERC), the European Savings Banks Group (ESBG), the Fédération Européenne des Conseils et Intermédiaires Financiers (FECIF), the Federation of European Securities Exchanges (FESE), and the International Capital Market Association (ICMA).
The organisations mention in the letter that they "hold serious reservations that policymakers are persevering in putting forward a measure that can clearly unbalance and even harm the internal market for financial services and distort competition among operators, merely on the basis of their location in (or connexion to) a particular group of Member States."
The letter also mentions that the scope of the proposed FTT is far reaching. "First, it will apply to the broad population of financial institutions, encompassing banks, asset managers, insurers, collective investment vehicles and other savings products, pension funds, and regulated markets with no exemptions available for the different types of activity carried on. Its application to a very wide range of products and transactions is likely to reduce the volumes transacted in the countries concerned, and thus impact the liquidity of secondary markets, which include both regulated trading venues and over-thecounter (OTC) activity."
The letter further mentions: "The proposed FTT would not only lower overall tax revenues, but also unfairly marginalise financial institutions in the FTT jurisdictions, with a consequent detrimental effect on the nonfinancial economy within these jurisdictions. The tax will hamper the ability of companies, borrowers and investors to access finance from capital markets. In the end, we firmly believe that the costs of reduced economic activity in the FTT jurisdictions may far outweigh the perceived benefits of the tax revenues that will be collected under the FTT regime."
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