Could An EU Transaction Tax Pose A Bigger Threat To Traders Than Brexit?
The implications of a tax on financial transactions could have far-reaching consequences for the financial markets.
Talks among 10 European countries for a financial transaction tax have dragged on since 2011 as the countries involved have struggled to agree what instruments should be covered and at which tax rate. However, Germany and France continue to lead efforts to create the tax which is supposed to help recover public funds used to bail out banks during the financial crisis, while curbing speculative trading. This has posed the question, could this be a bigger threat to financial markets than the Brexit?
The tax on financial transactions is regarded by some as a prospect so alarming to the continent’s traders that one company in the Netherlands has already prepared contingency plans to relocate to the U.K. or Switzerland.
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Bloomberg cites Flow Traders NV, an electronic market maker, that argued that it would have to move its headquarters if the Dutch authorities impose the tax. A British decision to exit the European Union, however, could actually benefit Flow Traders as it would increase volatility. High-speed traders regularly see their profits climb as market gyrations lead to greater trading volumes.
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Dennis Dijkstra, the co-chief executive officer of Flow Traders, commented to Bloomberg: “We have a plan B ready if the Dutch government would ever adopt these kinds of plans. If the Dutch government imposes a financial-transaction tax that is source-based, we will have to move to the U.K. or Switzerland. We’re prepared.”
Even though the Netherlands is not included in the 10 countries looking to introduce the tax, the country’s traders could still end up paying it depending on the outcome of next year’s parliamentary elections. The present Dutch government does not intend to enforce the levy.
While Flow Traders regards the tax on transactions as a risk, it is relatively comfortable about a possible British vote to leave the EU and that from a trading perspective, it could have positive implications in that it will lead to higher volumes and short-term volatility.
Despite the fact that recent talks held were deadlocked, French Finance Minister, Michel Sapin, last month told a news conference that the European Union’s current presidency had not abandoned hopes of reaching an agreement in June 2016.
At the national level, Edgar Feige’s APT Tax[1,2] would benefit the productive economy by lowering taxes on citizen consumers and lowering taxes on business producers, however some would unwittingly slow down the economy by adding it atop the existing tax system. A transaction tax would have to go hand-in-hand with policies to not bail-in/or bail-out failed businesses or banks and have a poverty level safety net for citizens who lost their positions until capital reformation and job re-skilling completed. It would reduce the distortion between the financial economy and the productive economy. [1] APT Tax | Youtube [2] Taxation for… Read more »