EUROPEAN FINANCE ministers have cleared the way for the first EU tax to be introduced in a limited number of member states. The Government is shunning the plan by 11 other euro zone countries to introduce a common tax on financial transactions because it fears the loss of lucrative jobs to Britain, which is also opting out.
In Luxembourg, after two days of talks with his European counterparts, Minister for Finance Noonan said 33,000 people worked in the financial sector in Ireland.
“If we were to accept a financial transaction tax and London didn’t there would be transfer of business from Dublin to London and a lot of jobs could potentially be lost,” he told reporters.
The transaction tax initiative is being led by Germany and France. In the last fortnight, they rallied the backing of Austria, Belgium, Slovenia, Greece and Portugal.
Italy, Spain, Estonia and Slovakia joined up yesterday, triggering measures in the Lisbon Treaty which allow a coalition of countries to sidestep the usual requirement for unanimity in European tax initiatives.
The “enhanced co-operation” procedure can be deployed if requested by a minimum of nine countries.
In the sixth year of the financial crisis, the development of the tax comes as governments seek to encourage responsible trading and compel the financial sector to pay for a debacle it largely created.
Such levies are typically known as “Tobin” taxes, after US Nobel laureate James Tobin, who proposed a tax on transactions to curtail market volatility in the 1970s.
The move could set a precedent for another group of countries to align their business tax systems, something which might erode the benefit of Ireland’s corporate tax rate regime.
The Government has big reservations about the European Commission’s plan for a common consolidated corporate tax base (CCCTB), an initiative which could go ahead via enhanced co-operation procedure.
However, Mr Noonan insisted there was “no crossover” between the new transaction tax plan and the CCCTB initiative.
“You’re writing poetry now when you’re trying to draw a parallel between a financial transaction tax and the common corporation tax base. There isn’t a connection,” he said.
However, EU taxation commissioner Algirdas Semeta held out the prospect of the transaction tax procedure being used again when asked about corporate tax.
“We are in a historic moment,” the commissioner told The Irish Times.
“This development for enhanced co-operation is very important in terms of making progress in tax areas in those member states who wish to go ahead to better co-ordinate their tax policies in order to reduce deficiencies imposed by taxation on the single market.”
Mr Semeta hopes to present draft legislation for the 11-country tax to the ministers at their next monthly meeting. His office estimates that a transaction tax could raise some €57 billion per year if introduced throughout the EU.
While the new laws must be approved by a qualified majority of all EU member states, large non-participants like Britain and Poland signalled that they will not seek to form a blocking minority.
Although there is still potential for politicking over the exact scope of the new tax, Mr Noonan does not plan to object. He said, “There’s no proposal on the table yet. All that’s announced is that they are getting together to design a proposal.” The Minister also made the point that Ireland charges a 1 per cent stamp duty on all share transactions, higher than comparable duties in Britain and France.
He said the Government was not “at present” considering whether to levy stamp duty on transactions in financial derivatives, an area which will be covered by the 11-country tax.
Although many governments are seeking ways of imposing higher taxes on the financial sector in the wake of huge state-funded bank bailout, critics warn that the initiative could harm the economy.
