“We don’t want a new transaction tax,” finance minister Anders Borg said on arrival for talks with European Union counterparts at which a series of different plans aimed at making banks pay for their part in the recession were being explored.
“We think it could be detrimental to tax revenues,” Borg spelled out, in a damaging intervention considering Sweden was one of the first countries to tax its banks, only to find its financial sector haemorrhaging as a result.
Borg warned that a tax on turnover — another possibility is one on profits, but he did not draw any distinction — could spur banking flight to Switzerland or other more favourable territories.
The minister said it was “obviously something that would be bad” for general corporate taxation income.
EU experts who drew up alternatives for ministers to debate themselves cited the Swedish experience last week, saying that the country’s financial sector went into meltdown within days of a tax being introduced — an argument that has raised hackles among supporters of a ‘Robin Hood’ style approach.
The European Commission warned of “considerable unintended effects” including tax avoidance, companies fleeing to non-EU markets such as Switzerland and increased administration costs, with the bill ultimately being passed back to consumers and small businesses.
Taxation commissioner Algirdas Semeta is said by his staff to be “neither for nor against” Franco-German efforts to get the proposal accepted.
A group of NGOs, political organisations and trade unions nevertheless sought simultaneously on Tuesday to step up pressure on ministers to reconsider the merits of such a tax, citing Austrian research to claim that some €200 billion ($255 billion) could be raised.
“It is simply not feasible for conservative finance ministers to complain about the deficit and then to refuse an entirely feasible way of generating new revenue,” said the leader of the Socialist coalition in the European parliament in a statement.
EU leaders ordered an exploration of different tax ideas following a public backlash against banks that were bailed out by taxpayers who suffered heavily in recession.
They have failed to gather support for coordinated action at the Group of 20 major developed and developing economies, although the International Monetary Fund has shown some interest in a tax on profits.
Separate plans to charge a levy on banks, in the commission’s eyes to store up funds for future crises, have also run into problems because some tax regimes — notably Britain’s — insist that the proceeds go into general revenue at a time of massive post-recession public sector cuts.