The European Commission has proposed a transaction tax. It is a modest proposal which sets a tax on transfers of shares and bonds of 0.1% payable by the buyer and a tax on derivatives of 0.01%. It is intended to encourage what the commission calls more responsible trading and it should make speculation less attractive.
The United Kingdom already has a de facto transaction tax on share transfers of 0.5%, which is called stamp duty. The United Kingdom is one of the 16 member states that will not support the transaction tax and will not implement it. The remaining 11 member states of the EU will support the transaction tax. It is significant that Luxembourg opposed the transaction tax, presumably desperate to avoid any tax which might discourage institutions to use Luxembourg as a centre for financial speculation.
Much of today’s economic woes have been caused be reckless speculation. Buying stocks shares and bonds as an investment is an economic necessity. People need to have somewhere in which to save their earnings and provide for their pensions and that place should be safe and secure. There is an enormous difference between speculation and saving. It is not aa distinction that our tax systems recognise.
We need such a system to apply to all trades all over the world. One type of trade that such a tax would have an impact upon is the system of high frequency trading in stocks and shares. Using super computers some traders (perhaps to call them traders is to insult genuine merchants) places an order and then cancels the order within .001 seconds. The trader places many of these orders, which he then cancels; the cancellation congests the market giving the trader a few microsecons advantage. According to research (http://www.isgtw.org/feature/keeping-eye-superfast-transactions-wall-street) 95% of these orders are cancelled almost immediately after they have been placed.
A transaction tax would make such operations uneconomic and may well bring stability to the process of investing in stocks, shares and bonds. Today there is great distrust among savers. It is hard to know which investments are safe. Even keeping money in the bank is a risky business. The banks have failed once and we cannot be sure whether they have simply papered over the cracks in the structure of fixed the structure itself. Today our savings have the quality of Hardy’s wistful lady.
And once I saw her beckoning with her hand
As I came into sight
At an upper window. And I at last went out;
But when I reached where she had seemed to stand,
And wandered up and down and searched about,
I found she had vanished quite.
Fears have been expressed that the eleven nations that will adopt these transaction taxes will lose out in that their banks will relocate to parts of the EU where there will be no transaction tax. Perhaps. But perhaps those nations will find other ways of preventing such a tax being circumvented by avoidance.
Filed under: climate change | Tagged: business, buying stocks, derivatives, economy, financial speculation, investment, speculation, stocks shares bonds, superfast trades, tax, transaction tax, wistful lady |