Institute for Research in Economic and Fiscal issues

IREF Europe - Institute for Research in Economic and Fiscal issues

Fiscal competition
and economic freedom

Absurd tax on financial transactions

A few years ago, the so-called Tobin tax, designed to hit financial operations, was called-for by anti-globalization groups such as ATTAC. Today, in Europe, some parties claiming strangely to be liberalist, including heads of State, support the introduction of this new compulsory levy. Of course, politicians vie currently in the art of proposing new taxes and increasing those already existing. As though the ills which befall the European Union were not due precisely to the excessive taxes which feed obese and insatiable states.

The arguments for such a tax show a misunderstanding of financial markets. To discourage market intervention by introducing taxes is to prevent transactions from taking place, thus distorting the market. "Fighting against speculation” is no other than preventing the expression of true cost. The term "speculate" - which means "mirror"- does not designate a player but one who acts in a thoughtful way. When such thought leads someone to the conclusion that a value, even a State debt, is overrated and so he sells it, that is the result of true “reflection”. Speculators have understood this economic reality: Greek debt involves a risk, but not Swiss debt.

Most surprisingly, however, opponents of this new tax contest it weakly, and on the basis of arguments that do not question its legitimacy.

They merely maintain either that this tax is impossible to implement because it should be everywhere in the world at the same rate, or that it would be ineffective. However, no-one has heard a politician saying that this tax would be unfair. As though a fiscal levy can be justified by the theory that a State can hunt everything that crosses its territory...

It is a sad observation that the tax on financial transactions will be as unfair as customs duties – levied by the mere fact that a (commercial) transaction crosses the border.

At a time when the virtues of free trade have provided prosperity to large classes of the world population, the popularity of a possible Tobin tax cannot find any explanation in the old refrain according to which we should “tax the rich”. Moreover, we should not forget that a tax on transactions - even if publicly disgraced because “financial” - has no link to the taxpayer’s contributory ability and does not satisfy any requirements of justice.

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