A new report by respected City figure and former senior banker Avinash Persaud challenges the arguments used by some of his peers and the Government to oppose a Financial Transaction Tax (FTT).
Professor Persaud, who was previously head of Currency and Commodity Research at JP Morgan & Co says: “What draws me to this subject is not the 'bashing bankers' party, but the disproportionate, inconsistent and disingenuous arguments used by my fellow bankers against this proposal.”
The report – 'The Economic Consequences of the EU proposal for a 0.1% Financial Transaction Tax' - published by Intelligence Capital, is timed to coincide with the ECOFIN meeting in Brussels later today (Tuesday), where finance ministers will discuss implementation of an FTT.
The report's key points include:
- The European Commission's FTT proposal would raise the UK Exchequer £8.4bn a year.
- Critics' analysis of an FTT is 'dangerously incomplete'. Whilst an FTT has some economic costs, a loss of 500,000 jobs and 1.76% of GDP vastly overstates the case. The benefits of an FTT must also be taken into account. Increasing transaction costs will reduce the severity of booms and crashes and help stabilise growth.
- The report concludes that the net effect of an FTT is likely to add 0.25% to GDP, equivalent to 75,000 jobs.
- An FTT will only increase transaction costs to levels seen ten years ago. The amount is moderate when compared to commissions, exchange, administration and other transaction costs.
- The same banks and fund managers that complain loudest about the costs of an FTT skim considerably more from transactions themselves. Annual management costs of pension fund assets for example are 23 times higher than the proposed rate of an FTT.
- Seven countries already raise £15.3bn annually through long-standing financial transaction taxes. Almost half of this revenue is raised by the UK and South Korea where both have a 0.5% stamp duty on shares.
- Stamp duties provide a good FTT model since they are almost impossible to avoid and would not lead to a loss of business from the UK. A Chinese investor, using a French bank in New York, to buy a UK security will still have to pay the tax. Far from driving trade away from the UK, it is estimated that 40% of the UK stamp duty is paid by non-UK-residents.
- Complex derivatives do not offer an escape route for avoiding an FTT since the majority are now centrally cleared. Market participants would take on a huge risk by operating outside these frameworks designed to make transactions safer.