New EC assessment shows Financial Transaction Tax could boost growth

New EC assessment shows Financial Transaction Tax could boost growth
May 16th 2012 / 
Robin Hood

An updated assessment of the likely impact of an FTT by the European Commission completely undermines the case of sceptics, notably the UK government, that an FTT would significantly reduce future economic growth.

The assessment shows that implementing an FTT would lower growth by an average of just 0.004 per cent per year in the coming decades (-0.28% by 2050). Moreover this figure does not include the benefits of spending the revenue gathered by an FTT. If a significant portion of the revenue was invested in “growth enhancing public investment”, the overall effect of the measure on growth could even be positive. The EC says that spending the revenue from an FTT on growth enhancing investment could boost growth by 0.2-0.4 per cent by 2050.

Commission documents also set out how difficult it would be for institutions to avoid an EU-wide tax. To avoid paying an FTT, a financial institution would have to abandon not only trade on European platforms but also all of its EU-based clients. And the EC rejects the claim that the FTT would have a negative effect on citizens’ pensions.

Nicolas Mombrial, Oxfam policy adviser, said: “This gives the lie to scare stories put about by opponents of the FTT that it would be somehow bad for the economy.

“The fact is that an FTT could have a positive effect on growth at the same time as raising billions to tackle poverty and combat climate change at home and abroad.

“One by one, critics’ arguments are being exposed and European leaders are running out of excuses – it is time the financial sector paid its fair share to society.”

The Commission’s latest assessment follows the recent finding of leading economists Stephany Griffith Jones and Avinash Persaud that an FTT would increase growth by a minimum of 0.25 per cent by 2050.

The Commission’s previous impact assessment, published last year, estimated that an FTT could have a negative effect on growth of about 0.53 per cent by 2050 but made no attempt to quantify the positive effect that could come from spending the revenue.

The Commission’s earlier estimate was based on the false assumption that all investment is financed with the help of issuing new shares and did not include all the mitigating effect included in the EC proposal. 

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