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Malta could 'save' €27m in EU contribution with Tobin Tax, but stands to lose much more

EC tells Maltese government to drop its opposition to the controversial financial transaction tax to ‘save’ up to €27 million in contributions to the EU budget.

Karl Stagno-Navarra
23 March 2012, 12:00am
According to estimates presented by the European Commission, Member States' contributions would be slashed by a total €54bn in 2020.

The report - which has been presented to the Maltese government in an attempt to have the country soften its opposition to the tax which would significantly impact on its competitiveness in the financial services sector - proposes that two thirds of the revenues of the FTT go to the EU budget, reducing by the same amounts Member States' contributions based on their Gross National Income (GNI) with the remaining one third being retained by Member States.

The Commission is claiming that every euro levied with the FTT "will ultimately benefit the Member States, whether through direct revenue collection or through a reduction of contributions to the EU budget."

"The financial sector does not pay VAT and has received massive support by taxpayer's money," said financial programming and Budget Commissioner Janusz Lewandowski.

"Taxing the transactions of all financial institutions at rates as low as 0.01% is only fair. Furthermore, the estimated revenue which the tax would generate by 2020 can only be welcome by cash strapped governments across the EU," he added.

Should the Commission's proposals be adopted, individual Member States could reduce their direct contributions based on GNI to the EU budget in 2020, with Malta saving an estimated €27 million.

But what the European Commission has not presented was the actual financial impact such a tax would have on the revenues for the Maltese government compared to the 'savings' made in its contribution to the European budget.

Financial services in Malta generate billions of Euro's in turnover, with multi-million contributions in taxes to the State coffers.

Introducing such a tax would strip Malta's competitive edge in this market, that is also fast becoming a centre for hedge fund management, which today exceeds the €500 billion mark.



How the calculation was made

Using data for 2010, the European Commission estimates that the Financial Transaction Tax would raise €57bn. Assuming that the volume of taxable transaction will follow the evolution of the EU GNI, that €57bn will become €81bn in 2020. The European Commission suggests that two thirds of that €81bn be used to finance EU expenditure, which amounts to €54.2bn. Based on the Commission's proposal, the GNI national contributions would be €110bn in 2020 without an FTT. With an FTT Member States could therefore save 50% of their GNI contribution for the EU budget. The table on the previous page illustrates how many Euros each Member State would save in GNI contribution in the year 2020.

Countdown

On 29 June 2011 when presenting the proposals for the 2014-2020 Multiannual Financial Framework the Commission argued that the system for financing the multi-annual EU budget should become more transparent and fairer and reduce the Member States' contributions. The financial transaction tax was proposed as a new own resource.

On 28 September 2011 the Commission proposed a directive on a financial transaction tax to be levied on all transactions between financial institutions when at least one party to the transaction is located in the EU. The exchange of shares and bonds should be taxed at a rate of 0.1% and derivative contracts, at a rate of 0.01%. The Commission has proposed that the tax should come into effect from 1st January 2014.

On 9 November the Commission tabled a proposal of a detailed regulation on making the financial transaction tax a new own resource of the future EU budgets as well as other proposals clarifying the possible interaction between the financial transaction tax directive and the own resources provisions.

Following these proposals the Commission estimated the possible impact of the financial transaction tax on the EU budget.

The Financial Transaction Tax

The financial transaction taxation could constitute a new revenue stream which would reduce Member States' contributions to the EU budget, give national governments extra room for manoeuvre and contribute to the general budgetary consolidation effort across Europe. Although some form of financial transaction taxation already exists in a number of Member States, the action at EU level could prove both more effective and efficient than uncoordinated action by Member States given the level of cross-border activity and high mobility of the tax bases.

The EU initiative is a first step towards the application of a FTT at global level.

Revenue to the EU Budget

Own resources provide the EU's main revenue. Currently, there are three kinds of own resources (figures below are forecasts for 2012):

Traditional own resources (15% of the budget, €19.3bn): the oldest kind of resources is collected mainly from customs duties on imports from outside the EU and sugar levies. EU governments keep 25% to cover the cost of collection.

Own resource from value added tax (VAT) (11% of the budget, €14.5bn): A standard percentage is levied on the harmonised VAT base of each EU country. The VAT base to be taxed is capped at 50% of GNI for each country. This rule is intended to prevent less prosperous countries having to pay a disproportionate amount (in such countries consumption - and so VAT - tend to account for a higher percentage of national income).

Own resource based on gross national income (GNI) (73% of the budget, €93.7bn): A standard percentage is levied on the GNI of each EU country. It is used to balance revenue and expenditure, i.e. to fund the part of the budget not covered by other sources of income.

Other revenue (1% of the budget, €1.6bn):The budget also has other sources of revenue, e.g.: taxes on EU staff salaries, contributions from non-EU countries to certain programmes, fines on companies for breaching competition laws, etc.

 

 

 

 

robert rhone
Malta: GDP €6,224,610,000 From the UK's European Scrutiny Committee quoting the European Commission's 1223 page FTT Impact Assessment (even before the damaging relocation effects): a 3.43% fall in EU GDP equates to a fall in economic output worth €421 (£362) billion and a 0.34% fall in employment equates to a loss of 812,000 jobs. That would result in a €213,504,123 loss in Malta's gdp, and a loss of thousands of jobs. But since the financial services sector accounts for around 15 percent of GDP, twice that of Europe, expect a loss of a half billion EUR. That's before the EU Commission raises the tax rates on FTT as they promise they will. The EU Commission brazenly announced the above study will be revised soon to show positive growth.
John Mercieca
Taxes, taxes and more taxes. This is all the EU is interested in. Those who say that we would be better out of the EU are right. Time for a new party to lead Malta to its new freedom from the EU colonialism.
Alex Grech
Financial stability can only occur if countries have discipline and not inventing more taxes.
albert leone
I can see the point that financial transactions are taxed in the same way that other sales and business transactions are. What I cannot understand is why such revenue should go directly into the budget of the EU. Malta should fight the Tobin tax on the principle that such revenue should devolve to the member state where the transaction is generated. Member states would then pay a reasonable standard levy to the EU in the same way that a VAT levy is presently paid. Otherwise such a tax will only benefit countries which do no have an major financial services sector. For countries like the UK and Malta which have a thriving financial business it would seriously damage a major pillar of the economy.