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Borg warns against new EU bank tax

Sweden has slammed what is sees as a 'detrimental' proposal for higher taxes on banks in Europe, cautioning on Tuesday that institutions would simply relocate to avoid the charges.

Borg warns against new EU bank tax

“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.

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Explained: Why is Sweden so worried about the EU’s minimum wage plan?

EU labour ministers meet in Brussels on Monday to discuss the European Commission's planned minimum wage directive. Why is the proposal causing such unease in Sweden?

Explained: Why is Sweden so worried about the EU's minimum wage plan?
Customers visit a branch of McDonalds in Stockholm. Photo: Stina Stjernkvist/TT

What’s happening on Monday? 

EU ministers responsible for employment and social affairs, including Sweden’s Eva Nordmark, will meet in Brussels for a two day meeting at which they hope to adopt a European Council position on a directive imposing “adequate minimum wages” on all EU countries. Once the Council, which represents member states, has agreed a common position, it will begin negotiations with the European Parliament and the European Commission. 

What’s Sweden’s position on the minimum wage directive? 

Sweden has been, along with Denmark, one of the most vocal opponents of the directive, arguing that it threatens the country’s collective bargaining model, in which unions and employers set wages without government interference. 

But on Friday, the government dropped its opposition, together with country’s umbrella union, the Swedish Trade Union Confederation, arguing that a compromise proposal put forward by the European Commission would protect Sweden’s wage autonomy. 

A majority of the members of the Swedish parliament’s employment committee are backing the government’s new stance, but three opposition parties, the Moderates, the Christian Democrats, and the Sweden Democrats, are opposed to the change in position. 

“I am extremely happy that there is broad support and majority backing for us to continue with the negotiations, to stand up for what we have come to so far, and do everything we can to protect the Swedish wage-setting model,” Sweden’s employment minister Eva Nordmark (S) said after a meeting with the employment committee on Friday. 

READ ALSO: Why Sweden doesn’t have a minimum wage and how to ensure you’re fairly paid

Why did Sweden make its dramatic last-minute u-turn? 

Sweden’s government judges that, after the compromise, the directive will no longer mean that Sweden is forced to bring in a statutory minimum wage. 

“I consider, together with experts in the civil service and experts in the unions and employer organisations, that there is no requirement for Sweden to bring in a statutory minimum wage,” Nordmark told TT. 

She added that agreeing to sign up to the directive would give Sweden the ability to take a deeper part in the negotiations giving it the power to make sure that important exceptions are made for Sweden. 

Denmark, however, is still resolved to say ‘no’ to the directive. 

Surely a minimum wage is a good thing? Isn’t Sweden supposed to be a high-wage economy? 

Sweden is certainly a high-wage economy, but that is largely thanks to its model of collective bargaining, under which wages are generally set by negotiations between employees and employers for each sector. 

If the directive sets a precedent allowing governments, either at a national or EU level, to interfere in this process, or for those who disagree with the result of the collective bargaining agreement to appeal to government entities, it could undermine the Swedish system. 

Who is still worried? 

More or less everyone. While the Swedish Trade Union Confederation is supporting the government’s decision, its vice chair Therese Guovelin, described the European Commission’s compromise proposal as simply “the least bad compromise proposal” the union had seen.

She has previously described the European Parliament’s position that the directive should apply to the entire European Union as “a catastrophe”.

“That would mean that a disgruntled employee who is not part of the union, could take their case to court, and would then end up at the EU Court, and it would then be them who would decide on what should be a reasonable salary,” she explained. “In Sweden, it’s the parties [unions and employers’ organisations] that decide on that.”

Tobias Billström, group leader for the Moderate Party, said he was concerned at the role of the European Court in the directive. 

“There are big risks with this,” he told TT. “The EU court might decide to interpret this directive as applying across the board, and then we might end up with what we wanted to avoid. The Moderates have as a result been against this development, and it’s important that Sweden gets to decide itself on the Swedish labour market.”

What might happen now? 

The European Parliament might try to remove the wording and the exemptions which Sweden hopes will allow its employers and unions to retain control of wage-setting. 

Mattias Dahl, chief executive of the Confederation of Swedish Enterprise, which represents employers’ groups, said that the government needed to stand its ground in the upcoming negotiations, reiterating that he would have preferred that the European Commission had not sought to give itself such a role in the Labour Market.  

Nordmark said that Sweden did not intend to back down to the parliament. 

“These are important red lines for us. If there are demands from the European Parliament that push in a different direction, we can lean on the Swedish opinion and what we stand for,” she said. 

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