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Ex-minister: financial transactions tax 'failed'

Published: 15 Jan 2012 09:08 GMT+01:00
Updated: 15 Jan 2012 09:08 GMT+01:00

As Europe debates whether to apply a tax on financial transactions, a former Swedish finance minister says Sweden's experience in the 1980s was so negative it repealed the tax as plunging trading volumes led to disappointing tax revenues.

"The Swedish experiences were negative, both from the point of view of the state's finances and from a general socioeconomic perspective," former finance minister Bo Lundgren, 64, told AFP.

In 1984, the Social Democratic government introduced a tax of 0.5 percent on each purchase or sale of shares (a level that was doubled two years later) and 1.0 percent on options. The tax on bonds varied depending on the maturity, ranging from 0.03 to 0.001 percent.

The tax was levied on brokerage services.

The Swedish government later introduced a tax on currency transactions in 1989.

But the consequences of both taxes were considered so harmful to the markets that they were soon abolished: the one on currency transactions was removed after just 16 months, in 1990, and the other was removed after eight years, in 1991.

Lundgren, who had the tax on shares, options and bonds abolished when he was finance minister in a centre-right government, told AFP the effects of the currency transaction tax "were so dramatically negative that all currency trading basically moved from Stockholm to London, so the Social Democratic government (in power at the time) abolished the tax."

Meanwhile, the tax on shares, bonds and options "led to share trading moving abroad but the effects were not as dramatic as the currency transaction tax."

"The year we abolished it, in 1991, the tax revenue amounted to around three billion kronor", or about 375 million euros ($476 million) in today's currency.

"But on the other hand the tax had reduced share trades so much that once it was abolished, trading increased and that in turn led to an increase in brokerage fees which led to an increase in corporate tax (revenues) and other tax (revenues) increased."

"When the tax was abolished we estimated that there was no loss (of revenue) involved, because it led to such a sharp increase in trading."

In his proposal to parliament repealing the tax on shares, options and bonds, Lundgren said at the time that "activity on the Swedish stock market has decreased sharply in recent years which has resulted in a series of disadvantages for Swedish industry."

"The tax on shares and other securities has contributed to this development," he said.

He said Swedish companies suffered from reduced liquidity on the stock market and had a harder time raising risk capital.

Lundgren, who is now the head of Sweden's National Debt Office, and Sweden's current Finance Minister Anders Borg -- both members of the conservative Moderate party -- have voiced opposition to the European Commission's proposal to tax financial transactions.

The Commission in September proposed a tax of 0.1 percent on stock and bond transactions and 0.01 percent on derivatives, aimed at pulling in up to 55 billion euros ($70.4 billion) annually.

France and Germany are in favour of the tax and have said the 17-member eurozone could adopt it on its own, while non-euro member Britain is fiercely opposed to it amid fears it could prove devastating to its global financial hub, the City of London.

Paris has gone so far as to say it could begin introducing the tax on its own if a broader agreement is not reached.

AFP/The Local (news@thelocal.se)

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Your comments about this article

11:15 January 15, 2012 by Nemesis
Swedens opposition to transaction taxes and glass-steagal type laws was noted by everyone in Europe during the last round of European negotiations.

Borg's need to parrot for Tomothy Geithner and to attempt to introduce US style financial policy at every oppertunity, should never be under estimated.

The previous Swedish law only collected taxes on Swedish bonds traded internally in Sweden and the government at the time refused to even consider extending it to cover Swedish bonds traded outside Sweden.

The way the proposed new 'Tobin Tax' law would work in the European Union means that traders will not be able to bypass Europe. No matter where an EU countries bond is traded world wide, tax will have to be paid.

It might be an idea for the local when writing articles to actually include the facts :)
12:03 January 15, 2012 by RobinHood
@Nemesis

"The way the proposed new 'Tobin Tax' law would work in the European Union means that traders will not be able to bypass Europe."

Yes they will. They will simply shift billions of Euros of business and investment out of Europe, to countries where they do not have to pay tax on their trades. Exactly as Bo Lundgren said happened in Sweden. Any earnings from the tax will be offset, or worse, by loss of business. Exactly as Bo Lundgren said happened in Sweden.

If France and/or Europe introduce the tax, it will repeal it after a few years. Exactly as Bo Lundgren said happened in Sweden.

As the British have correctly pointed out. The only way for the tax to be implemented successfully is for it to be universal. I wouldn't take too much notice of what France has to say about it anyway. Mr Sarkozy will be gone in a few months, and Mr Hollande agress with the British.
09:04 January 17, 2012 by karex
Sarcokzy (and even Sweden for that matter in the 80s) should have looked first at previously existing examples around the world before making stupid decisions. As usual, politicions don't think before they act. Other countries outside Europe have tried this and failed miserably. If Sweden at the time had bothered to check they would not have needed to use their own economy as a guinea pig. Sarkozy is a double idiot because he has an example staring him in the face in his own back-yard, he doesn't need to look very far.
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