The Phoenix rises – well, almost

In this world of tax uncertainty it’s no surprise that the EU FTT – or Financial Transaction Tax - is keeping us guessing whether it will or won’t happen. An announcement that there was sufficient political support was generally expected during last week’s EU Finance Ministers’ top. But nothing happened. Not even a formal announcement that nothing had happened.

Greece debt and Brexit It seems that the reason is uncertainty (there you have it again) arising from the Greek debt crisis and Brexit. At least that’s what French Finance Minister Le Maire is reported as having said at the time. One might speculate what role the Greek debt crisis plays in all this but the Brexit factor is an obvious stumbling block with various financial capitals in continental Europe already jockeying to take London’s place post-Brexit. It seems that there is already pressure in Italy to repeal its existing (unilateral) financial transaction tax for the same reason. Still, all is not lost, and this is just a postponement according to Le Maire. But given that neither the Greek debt crisis nor Brexit seems likely to be over any time soon, no one should be holding their breath it would seem.

You either love it or hate it The financial transaction tax is a bit like coriander (cilantro): you either love it or you hate it. While many of its political and economic objectives have long since been countered, there is still a strong political lobby pushing for its introduction, arguably more inspired by romantic notions like that of a “Robin Hood” tax than sound economic conviction/principles. The UK opposition Labour party has even put the tax onto its election manifesto and earlier in the year US democrat DeFazio submitted to Congress a proposal for a US version.

The EU Member States that are nominally supporting the initiative may well be aware of its economic weaknesses but are probably more concerned with saving their political faces in front of their respective electorates. At any rate, just a day before the planned EU meeting Austrian Finance Minister Schelling, who is leading the process, announced that two of the three Member States that had been blocking the initiative (Slovenia, Slovakia and Belgium) were now on board. That would have meant nine of the original ten Member States were agreed - nine being the magic number needed for the initiative to survive.

Agreement on what? Having said that it’s not so clear what that agreement actually would have entailed. Almost certainly it included an agreement on how to mitigate the collateral damage for pension funds. But what else was covered is shrouded in mystery. It seems unlikely that all the points that were outstanding the last time there was an ‘agreement’ (back in October last year), have been resolved. In fact given that that was more in the nature of an agreement to agree, it’s not even clear that the points that were then ‘agreed’ are still agreed. More recently, EU Tax Commissioner Moscovici indicated that a key outstanding issue was the impact of the tax on the real economy, and Minister Schelling later noted another sticking point: how to divide the revenue from the tax between the Member States (the latter he suggested could be resolved by having the tax simply contribute to the EU budget).

So it looks suspiciously like, agreement or no agreement, there are still a lot of issues that need to be resolved before the FTT will finally take to the skies.