Quote from ZeroSigma:
This "Resolution" is far from "resolved", because it is once again merely a "Question for oral answer with debate" (a similar one having been answered already once by Commissioner Covacs for Taxation in September 2009), only directed to the new Commissioner, Mr. Semeta The Quant, under the Rule 115 of the "Rules of Procedure of the European Parliament":
"1. Questions may be put to the Council or the Commission by a committee, a political group or at least 40 Members with a request that they be placed on the agenda of Parliament. " [ source: http://www.europarl.europa.eu/sides...EXT+RULES-EP+20091201+RULE-115+DOC+XML+V0//EN ]
It is a next stage of this year's "impact assessment" pressure of the pro-Tobin lobby on the Commission, exerted through a populist yet weak Parliament devoid of any legislative initiative. It was initiated in late February (a repeat of last year's similar attempt), and we already reported it here: http://www.elitetrader.com/vb/showthread.php?s=&postid=2743612&highlight=commissioner#post2743612 .
So now the European Parliament merely "Considers, [..] that the Commission should elaborate, sufficiently in advance of the next G20 Summit, an impact assessment of a global financial transaction tax, exploring its advantages as well as drawbacks;" (see the motion's main text: http://www.europarl.europa.eu/sides/getDoc.do?type=MOTION&reference=B7-2010-0133&language=EN ).
This particular Resolution asks the Commission for a rather fair assessment of all pros and cons of the taxation of financial transactions, including a direct request to address nearly all disadvantages associated with such FTTs ("Urges the Commission to carefully consider in its assessment, the following aspects:")
- previous experience with stock transaction taxes (e.g. the failed Swedish and Australian experiments, etc.) and no experience whatsoever with currency ones ("(a) past experiences with financial transaction taxes, especially in terms of tax avoidance behaviour and migration of capital or service provision to alternative locations, especially the impact of such taxes on individual investors and SMEs;"),
- drawbacks (such as widespread capital flight) of unilaterally imposed EU-only FTTs (i.e. assuming no cooperation from the US), ("(b) the benefits and drawbacks of the introduction of financial transaction taxes in the European Union alone, as compared to their introduction at global level and to the current situation;"
- relative revenue raising potential (compared with e.g. carbon tax, which could raise an order of magnitude more, and is therefore recommended even by pro-Tobin researchers such as Schmidt and also favored by the Commissioner himself) ("(c) the potential to generate substantial revenue in comparison to other sources of tax revenues, collection costs and distribution of revenues among countries;")
- market impact, i.e. a comparison with the existing transaction costs such as spreads and commissions, thus expressing a preference for volume-neutral tax rates (which would not raise much revenue) "(d) "..when assessing the potential revenues from financial transaction taxes at global or European level, account should be taken of different design options, whilst quantifying the increase in transaction costs in all markets potentially concerned.."),
- the impact on volatility, liquidity, and asset price levels (here research evidence is unanonymously against FTTs) "(e) the fact that the assessment should also take into account the potential of the different options to affect both price levels and stability in the short term and long run, as well as financial transactions and liquidity;" and "(g) to what extent a financial transaction tax would contribute to the stabilisation of the financial markets in terms of its effect on excessive short-term trading and speculation and on transparency;")
- the increase in the cost of raising capital, which makes such taxes prohibited under the Council Directive 2008/7/EC of 12 February 2008 concerning indirect taxes on the raising of capital ("I. whereas, unlike other forms of taxation, indirect taxes on the raising of capital, such as capital duty, the stamp duty on securities and duty on restructuring operations, give rise to discrimination, double taxation and disparities which interfere with the free movement of capital," and " (f) how a financial transaction tax needs to be designed in order to mitigate the negative side effects usually associated with indirect taxes on the raising of capital;"), (see also http://www.elitetrader.com/vb/showthread.php?s=&postid=2726020&highlight=indirect#post2726020 ),
- whether the Tobin theory is correct, or if a FTT tax can curb "speculation", i.e. restrict "long term overshooting" (which is a non-falsifiable concept and even Schulmeister et al admit that there is no evidence in either direction) ("(h) whether a financial transaction tax could prevent a future financial crisis by targeting certain types of 'undesirable' transactions; which should be defined by the Commission;"
All in all, the "impact assessment" method has been tried before, and given what we know about Commissioner Semeta The Quant (see: http://www.elitetrader.com/vb/showthread.php?s=&postid=2755403&highlight=Semeta#post2755403 ), I think it unlikely that his answer would be any different than that of his predecessor, Commissioner Kovacs The Former Communist (given to a Parliamentary Committee and cited earlier here: http://www.elitetrader.com/vb/showthread.php?s=&postid=2726020&highlight=European#post2726020 ). But in practice, even if his job has been specifically designed to prevent such situations, an inexperienced Commissioner can easily yield to heavy political pressure (especially if you guys manage to break down the Euro. It would be fun reading his justification, but less fun bearing the consequences!
Good post. How many hours did that take?