The Financial Transactions Tax (FTT) has the advantages that make a good tax: the FTT has little impact on growth (little distortion), tax revenue is potentially high and collection costs are minimal; it also has a redistributive effect. The generalization of existing French or British taxes would thus have limited effects on global finance. Integrating high-frequency trading (which consists of placing a multitude of orders in record time using superpowered algorithms and computers) into the deck, which is currently excluded, could also significantly increase turnover while improving market transparency.
“Tobin Tax”, “Robin Hood Tax” or “TTF”, whichever name you give it, the idea of taxing financial transactions is very popular and its principle is simple: given the scale of a significant amount of transactions carried out in financial markets, it would be sufficient to apply a micro-tax, at an extremely low rate, to raise significant tax revenues without having any negative effects on the functioning of the markets or on the economy. A wide plate and a low price, two generally attractive ingredients. Furthermore, proponents of FTT see it as a way to curb short-term speculation.
In the UK, stock market transactions have been taxed since the 17th century.e century. More than three centuries after its creation stamp duty (stamp duty) serves as a model. In practice, the UK Treasury levies a tax of 0.5% on the purchase of shares issued by British companies, bringing in around €4 billion each year – without hindering the development of The City. Almost all developed countries have used it, and even today more than thirty countries in the world tax financial transactions, including Switzerland, Hong Kong or Taiwan, as well as France.
In France, the FTT was (re)introduced in August 2012. This tax is mainly aimed at the exchange of shares or the like in companies whose head office is located in France and whose market value exceeds 1 billion euros. Its rate is 0.3%; the rate was originally 0.1%, but was doubled before being implemented in 2012, before being increased again in 2017. Around a hundred companies are subject to it.
Up to 405 billion euros per year
How much can a FTT bring in at the level of the Eurozone, Europe or even the world? In a recent note, we look at two scenarios, depending on whether the FTT only covers transfers of ownership (such as stamp duty or the French TTF) or includes all transactions (including high frequency trading) and for each of these scenarios we look at two rates: 0.3% (as in France) and 0.5% (as in the UK). United). We also assume that two-thirds of the transactions are intraday, which is not the case today. It is also believed that if the FT tax is extended to these intraday transactions, then the volume of transactions will be halved. We also limit to the case of shares (bonds, derivatives, foreign currency are therefore excluded).
Scenario 1. If the French FTT were generalized (at a rate of 0.3%), annual tax revenues would be €17 billion for the EU27, €26 billion for Europe, €86 billion for North America, €48 billion for the Asia-Pacific region. At the global level, the total revenues could amount to 162 billion euros per year, of which 65% for the G7, 22% for the BRICS and 96% for the G20. If stamp duty were generalized (at a rate of 0.5%), annual tax revenues would be €29 billion for the EU-27, €44 billion for Europe, €143 billion for North America, €80 billion for the Asia-Pacific region, for a total of €270 billion worldwide. Euro. The estimates here are very conservative and hardly present a problem, as it is simply a matter of knowing the size of the transactions, the other parameters being well known.
Scenario 2. If the FT tax were extended to intraday transactions, assuming a 50% drop in volume, tax revenues could amount to between €243 and €405 billion per year (for a rate of 0.3% and 0.5% respectively). The estimate here is much more difficult, as we do not know what the effect of a tax on the volume of high-frequency trading would be.
Reluctance despite a very sharp increase in transactions
Since 2012, almost every year, the extension of the FTT has been debated in parliament. As a reminder, it only applies to transfer of ownership, and intraday transactions, which in particular cover high-frequency trading activities, are excluded from the base. The entry into force of this extension to intraday transactions had been adopted and then postponed from 1eh January 2017 to 1eh January 2018. Meanwhile, as a result of the 2017 presidential election, the government has preferred to reconsider this expansion as much as it seems to promote the competitiveness of the financial center of Paris after Brexit, as to avoid any legal risk.
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TTF is also struggling to establish itself in other countries. The European Commission had presented an ambitious project in 2011. It had aroused great enthusiasm, but after many years of bitter debate it has still not succeeded. This project was designed to effectively adapt to financial globalization and limit migration, but it suffers from a lack of cooperation from states on tax matters.
On the whole, economists have been rather reluctant to impose a tax on transactions, whether on foreign exchange or stocks, often judging it to be counterproductive. The most common argument is that, by increasing transaction costs, the FT tax can damage liquidity in the markets and thus cause an increase in volatility. However, impact studies conducted in countries where an FT tax exists (or has existed) show that the tax has no effect on stock liquidity or volatility; at best, the effects are not robust. In France, the increase in the tax rate in 2017 (from 0.2% to 0.3%) has also had no significant impact.
A breath of fresh air for taxation
Above all, the tax must be put into perspective with the significant growth in transactions observed with financial liberalization since the late 1970s. 50, the amount of stock transactions has been multiplied by more than 500! In fifty years, the ratio of the total volume of stock market transactions to GDP has increased from 5% to 200%. These ratios are orders of magnitude, because it has become very difficult today, with the development of several trading platforms, to measure the total number of transactions.
At a time when governments are looking to finance the fight against climate change or development aid, the FT tax therefore appears to be a fiscal lever. FTT is today a significant source of income for many countries: 1.5 billion euros in Switzerland, almost 5 billion euros in the United Kingdom and more than 7 billion euros in South Korea, the South, in Hong Kong or in Taiwan! In France, tax revenues are almost 2 billion euros.
In Europe, the debates about the FTT project today focus precisely on the consideration of intraday transactions, which represent the vast majority of volumes today, but which are exempt from the applicable taxes. And not without reason when you consider the fiscal windfall they represent. But beyond the sum, it is also a question, with the progress of the FTT, to confirm the will to reform the financial system, to abandon the dogma of market efficiency and to breathe new life into taxation in a globalized world.