A new cloud is forming on the skyline of Europe’s financial markets and it could be big enough to overshadow all others.
Last week, the European Commission published a Working Paper entitled “Financing the EU Budget: Report on the Operation of the Own Resources System,” in which it introduced the notion of a Financial Transaction Tax (FTT). The opening gambit reads thus:
“There is the potential for widely differing taxes on financial transactions, from the ‘broad-based FTT’ affecting transactions on stocks, bonds, currencies and derivative products traded on organized markets or over-the-counter, to the simple stamp duty or transfer tax on stocks and bonds – sometimes referred to as the ‘narrow-based FTT.’ FTT benefits from wide popular support, which could facilitate its acceptance.”
In case you think you didn’t read that correctly, think again. Yes, the European Commission is seriously suggesting that a financial transaction tax on all asset classes be imposed to fund the European budget.
The current thinking seems to be that an EU-wide (or broad-based) FTT will be a challenge to get passed in the European Parliament. More likely, a “narrow-based FTT,” imposed at a national level will be pressed forward. This version of the FTT, with its emphasis on stamp duty, will very likely target Contracts-for-Difference (CfDs), which are stamp-exempt in the UK. We estimate that nearly a third of UK equity market activity is CfD-related.