France implements Robinhood tax: has the sky fallen in?


9:10 am - August 2nd 2012

by Owen Tudor    


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Yesterday, France implemented its own Robin Hood Tax. It is a small start, covering only shares in larger companies, and at 0.2%, it’s still lower than the UK Stamp Duty on which it is modelled.

But it was only ever intended as a step towards a wider, bigger European tax which the French, German and 10 or more other governments will be negotiating this autumn.

And it is proof that such taxes can be introduced without the financial system crashing down around anyone’s ears (much more likely to result from the finance sector’s own incompetence, immorality or illegality!) and without a mass exodus of financiers from the Paris Bourse to London’s Stock Exchange.

This element of a broader Financial Transactions Tax was originally announced by former President Sarkozy at the beginning of the year, and was taken over (and doubled from Sarko’s 0.1% proposal) by President Hollande.

It will only affect trading on French companies worth above €1 billion. But it will raise over €100 million a year for good causes like combating poverty at home and abroad as well as tackling climate change.

Predictably enough, Sky News has said it will fall foul to the problems of the Swedish tax of the last century (it won’t because, guess what, French tax experts have learnt from the Swedish experience and designed it not to), and that the UK refuses to follow the French example.

If George Osborne did copy France’s new tax, he’d be slashing a tax which already exists in the UK, has done for centuries, and raises over £3bn a year! The important question is why the UK wouldn’t even agree to rolling the UK’s Stamp Duty out across the EU, when the Germans offered that compromise earlier this year? Seems the UK Government gets the vapours every time anyone suggests extra taxes on the financiers who prop up the Conservative Party’s funds, regardless of whether the tax would fall on London or not!

After two and a half years of campaigning which has seen many Governments agree that new financial transaction taxes would be a good idea – the French are the first to actually introduce one in response to our campaigning. “Allons-y!” as some people say.

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About the author
Owen Tudor is an occasional contributor to LC. He is head of the TUC’s European Union and International Relations Department and blogs more regularly at the Touchstone blog.
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Story Filed Under: Blog ,Economy ,Europe ,Foreign affairs

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Reader comments


“And it is proof that such taxes can be introduced without the financial system crashing down around anyone’s ears (much more likely to result from the finance sector’s own incompetence, immorality or illegality!) and without a mass exodus of financiers from the Paris Bourse to London’s Stock Exchange.”

Well I’m impressed with this. I didn’t know that anyone had ever suggested that this scenario not only could , but definitely would, happen within one day of the tax being introduced. However, if it’s only a Stamp Duty Light, then it’s not a “Robin Hood Tax” is it?

I believe that the French (or at least someone) would have the courage of their convictions and introduce a genuine FTT to show the rest of the world how successful it can be. Governments would rush to copy the model.

This is nothing new and is certainly not a Robin Hood tax in the full sense of the word due to its limited application. It is merely the reintroduction of the tax on sharetrading in large corporations which existed in France until 2008 and has existed in the UK for generations, was repealed by Sarkozy before he took steps in January to reintroduce it in order to fill the black hole in his budget.

More nonsense from Owen Tudor.

Stamp Duty is essentially tax on small private investors. Large proeffsional investors already avoid near enough all of it through a combination of CFDs, holding periods and other perfectly legal routes. Hence the relatively tiny amount of tax recieved despite the 600m – 1b ish contracts of the FTSE 100 index trading let alone the underlying….

The French stamp duty is also going to be near enough irrelevent. EUR 100m a year is nothing in comparison to the total volumes traded in French equities, and so again it looks simply like a tax on small non-proffesioanl investors.

Speaking to an equity trading friend, he simply said it will have no effect on his business. Those French shares he doesn’t already trade in derivative form, rather than the underlying, he will (and indeed has already) moved to trading on offshore bourses, like London, for example.

So well done Owen and Hollande, you are managing to tax the man on the street more, and discourage private holdings of shares away from large investment companies who have the means to avoid such duties, or move their trading to CFD accounts like IGindex for example.

What is the point of this article?

As far as I can tell the tax is still hours old. How are we supposed to come to a conclusion as to its effect and viability in a matter of hours. We need a year, possibly two to get past accounting periods to know whether it is actually effective.

Also:

“Predictably enough, Sky News has said it will fall foul to the problems of the Swedish tax of the last century (it won’t because, guess what, French tax experts have learnt from the Swedish experience and designed it not to)”

Firstly, why are you calling it last century? I know that it is technically last century but it was only the 80’s and considering I was born in the 80’s I would rather not be referred to as a centarian, or is it because you are trying to make it sound vastly out of date?

Secondly, when a government designs a tax law to take account of the faults of other governments (and I actually can’t find where in the consultation paper it makes reference to Sweden, perhaps you could direct me) they rarely account for the other unintended consequences that they create.

This tax is not going to do what it says on the tin, its impact is going to be pointless apart from the trades on big multinationals that are now going to be directed through other countries.

Waiting for its necessary introduction here.

” Waiting for its necessary introduction here ”

You are waiting for them to massively cut the rate & number of financial products it is levied on in the UK..why may I ask?

“…and without a mass exodus of financiers from the Paris Bourse to London’s Stock Exchange.”

They are already all in London. Paris as a financial centre is just not that important. Jersey, for example, are above Paris in terms of global financial centre rankings.

” This element of a broader Financial Transactions Tax was originally announced by former President Sarkozy at the beginning of the year, and was taken over (and doubled from Sarko’s 0.1% proposal) by President Hollande. ”

So why do they not levy their taxation at the 0.5% ( 1.5% for some transactions) that applies in the UK? The idea that they are raising revenue and the UK is not is laughable. The UK raises more taxation revenue from their financial sector than France and Germany combined.

“…he’d be slashing a tax which already exists in the UK, has done for centuries, and raises over £3bn a year! ”

Good idea. The stamp duty reserve tax collects 40% of the total from foreigners so it is taxation without representation. Some people used to go to war over such things. A bit ironic that U.S. fund managers contribute most to the 40% taxation without representation.

Contemporary stamp duty reserve tax on shares bears no relation to the stamp duty introduced centuries ago by William and Mary. SDRT on shares is a transfer tax and not a stamp duty at all. The stamp duty that they introduced was on mammal skins used for writing, parchment and paper. Note it was supposed to be temporary for four years. Give them an inch and they will take a mile and sure enough they extended stamp duty to:

newspapers
pamphlets
lottery tickets
apprentices’ indentures
advertisements
playing cards
dice
hats
gloves
patent medicines
perfumes
insurance policies
gold and silver plate
hair powder
armorial bearings

Any muppet knows how to take a punt on equities without being liable for UK tax. The only people who are paying the tax are small buy and hold retail investors and fund managers who represent the ordinary pension contributor. For liquid markets one needs market makers and that means the big investment banks are exempted from SDRT as they take both sides to make the market.

The truth is that if this were such a simple solution, then Governments around the world would have introduced it already. The reason that most Governments have been reluctant to introduce a tax equivalent to Stamp Duty/Stamp Duty Reserve Tax is because the effect on British GDP is estimated to be negative. We shall have to see what the impact is …

The truth is that a tax will only raise money if the transactions exist to tax – if you set a tax at a rate that is a multiple of the margins on the trade (and yes, 0.05% is a multiple of the few pips that is the margin on many of financial transactions that the campaign proposes to tax), then the tax will raise precisely nothing. So much for the ‘billions’ that are claimed to be raised.

Yes, a restricted stamp duty reserve tax or equivalent can raise quite substantial sums when fixed at 0.5% or less. But even raising £4 to 6 billion per annum, it is within the margin of error of Government expenditure. It is intersting to note that the French equivalent will, according to French Government estimates, raise about a fifth of what is raised here.

Finally, the assumption behind the proposal for Tobin type taxes is that it will provide ‘grit in the wheels’ and so reduce volatility. Please will someone provide some evidence, as opposed to polemic, that supports this assumption. I have been asking this question in almost every post I have put up in response to these proposals and no-one has yet responded at all. We have had a transaction tax on most land transfers over the last decade or so – is there any evidence that this has had any ameliorating effect on the asset price bubble that we have seen in property prices in the UK over that period?

I have been posting questions like this on this blog and others where the advocates of FTTs are setting out their polemic for over a year and have yet to have a sensible response … Is anyone prepared to engage?

@8 Evans Price

As an advocate of FTTs – I hope one is levied here and is high enough to deter the kind of wheeler dealing transactions which bring whole economies to the floor.

If the FTT raised £0, that would be fine so long as the spivs are deterred and dispersed elsewhere to do their damage.

Someone said there has been half a million jobs lost in the City since its own insanity brought on the Credit Crunch.

I’d say that’s less than half the jobs that should be lost. Plenty more spivs should look for proper work in my opinion.

10. Evan Price

@9 BenM

“As an advocate of FTTs – I hope one is levied here and is high enough to deter the kind of wheeler dealing transactions which bring whole economies to the floor.

If the FTT raised £0, that would be fine so long as the spivs are deterred and dispersed elsewhere to do their damage.”

Then the answer is not a tax that would increase the cost of transactions that we all depend on – the loan you take out, the currency you buy to go abroad, the investments that your pension fund provider makes with the money that you and many others put in – and discern the transactions that you disapprove of and introduce rules to prevent those transactions occurring.

I suspect that you are referring to ‘high frequency trading’ and ‘derivative trading’ and possibly ‘hedge funds’ – the problem with banning each of these is that the transactions will simply locate elsewhere and here’s why: –

High frequency trading depends on many trades at tiny margins. It is an attempt to use the small fluctuations that exist in the market all of the time to buy and sell shares very often. There is an academic argument that it tends to increase volatility and there is an opposing academic argument that it tends to reduce it – so that’s helpful in deciding whether it is ‘harmful’ isn’t it? Let’s assume that it is harmful – what happens when you ban it? It simply stops occurring here. Does it continue elsewhere? If so, then the transactions are simply transferred there and the people who used to trade here will trade there – but instead of employing the people here to carry out the transactions, they now employ people there. The volume of trades in this kind of trading will continue to grow – as it has proven to be profitable – and it is already a market that exceeeds the value of all British assets combined each year … not sure that banning it here would achieve a thing. So, if you assume that all developed and well regulated markets ban it, what would happen? The market would move to less well regulated markets … and so what little control we have would disappear.

Derivative trading – this includes the sort of trading that we saw highlighted in the film, ‘Trading Places’. Essentially, it is trading on futures, trading on commodities (but without actually requiring the purchase of the commodities) and so on. To some extent, this market developed her as a result of the failure to abandon stamp duty on shares in the 80’s. It is a market that is huge and again, the effects on the UK would be all bad if we banned it. In addition, foreign direct investment would collapse …

‘Hedge Funds’ – never has something that is essentially good been so misunderstood. A ‘Hedge Fund’ is an investment fund that invests in a manner to reduce volatility and risk. By definition where it invests in a particualr segment in the market is assesses the risk of that market and looks to invest elsewhere against the risk of the first investment – to hedge the risk.

Now there is no doubt that people have made mistakes in the financial sector. It appears to me that the mistakes that they have made relate to risk assessments that they have made. Some of these have been entirely the fault of the managers and others in control of the traders – but some are the responsibility of Governments around the world.

Let’s take an example. In the UK, we avoided recession in 2001 by reducing interest rates and increasing Government expenditure. In every year after that, the Government spent more than it received by way of taxes – so creating the deficit. The interest rates set by the Bank of England allowed the property price bubble to grow again – and the Bank of England, following the rules set down by the Treasury and Government, started to set interest rates according to the CPI – thus created further difficulty, because the new measure of inflation did not take into account the inflation in property prices (that had been part of the calculation of RPI). As a result, just as we entered into an asset price bubble in property, debt was too cheap – and those lucky enough to own property were ‘in the pink’! As a result of feeling richer, we spent more, so feeding the appearance of boom and prosperity.

You seem to forget the massive City lobby for deregulation and the snarling of the Tories and their mouthpieces (which still exists today) every time someone attempts to rein in its excesses.

This was a major push – perhaps the single biggest push – for the recklessness we saw in the few years up to 2008.

Labour’s deficit financing for investment (essentially bringing public services back from the years of criminal underinvestment under the Tories) had nothing to do with it.

@ BenM

Nothing like a bit of lefty revisionism is there?

It was under Labour and the rules they implemented (and under the Democrats in the US) that most of the deregulation you talk about happened.

Labour’s deficit financing as you call it was simply a binge on spending, not least because so much of it was taken on balance sheet and GDP growth was artifically pumped up by credit. The result? The biggest budget deficit ever seen, and what is going to be a huge debt overhang for years to come which is going to significantly damage growth and force the government to spend more on interest payments than defence, education or indeed fixed investment. And that’s before you add in all the unfunded/off balance sheet liabilities which dramatically increased under Labour – like public sector pensions (about a trillion for your guide) and PFI.

About the only thing Brown did right was keep the UK out of the Euro.

By all means campaign for an FTT, but please do so knowing that it will reduce tax revenues overall, force financial industry overseas and that the tax will perdominantly be bourne by the man on the street – not banks and other financial institutions. With all that in mind, if you are still in favour you are simply a little bit on the slow side or you are happy for the UK to cut it’s own nose off in spite of it’s face, and you are simply out to punish those you don’t like and blame for the crisis, when this current crisis, Europe wide, is about too much government debt caused by too much government spending.

Never trust a man who has never been punched in the face, for he neither knows what it is like to have adversity inflicted upon him by the unwarranted actions of another, or the damage caused to others by his own unwarranted actions, child like, from a paradigm in which only ones views and wants count for anything, facts may be shifted, bent, even created, conclusions that to develop in reality with any weight behind them require extremely complex calculations and years of observation may be claimed to be fact in an eye blink, simply because one person seems to agree with your stance and implements it in a very very half arsed manner.

Such a person can never admit they are wrong and never takes the facts seriously enough to be truly right, presenting a solid fair case to the world, to be judged upon its own merit, because to such a person its not about the consequences to the world, its about the consequences to there own egos if they are not granted there wish.

The robin hood campaign has been so far under the standard required to take seriously from day one.


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