It's no secret that the financial transaction tax (FTT) has
not been the resounding success the European Commission (EC)
had hoped for.
Although the EC's flagship proposal is scheduled to be
implemented across 11 EU member states, its effects are far
more damaging than that.
In the case of the FTT, it seems, the right to opt-out is
completely illusory and the €35 billion ($55.5 billion)
levy could catch transactions and products in non-participating
Indeed, in an uncharacteristically blunt – although
not legally binding – 14-page opinion, the EC's top
legal advisor recently concluded that the tax exceeds national
jurisdiction and is incompatible with EU treaties.
According to the brief, the FTT – also known as the
Robin Hood tax or Tobin tax – is discriminatory and
likely to lead to distortion of competition to the detriment of
non-participating member states. Many now believe that, instead
of trying to reengineer the much-maligned joint tax to address
the latest concerns about its legality, Europe's policymakers
would be well advised to abandon the shambolic initiative
altogether and focus its energy on looking at different ways to
tax the financial system.
The FTT is certainly not the only solution. There are a
variety of ways to raise money from the financial sector to
make it pay for any past or future bailouts. It wouldn't take a
huge amount of imagination to come up with alternative
Some believe that one of the most workable options would be
to re-evaluate the feasibility of a financial activities tax
(FAT). The FAT is a tax on supernormal wages and profits
equivalent to a value added tax (VAT) for the financial
As well as responding to under-taxation of the financial
sector, introducing a tax on banking sector profits, salaries
and bonuses would discourage the risk-taking behaviour that was
thought to be the root cause of the last financial crisis.
Although introducing a FAT would make the tax system more
complicated, and its scope might be difficult to define, it
represents a far superior solution to doggedly continuing along
the doomed FTT trajectory.