Malta maintains opposition to Financial Transactions Tax

Mark Anthony Debono | Published on 13 Oct 2012

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A total of eleven eurozone states have agreed to move forward with the introduction of the financial transactions tax at a European Union finance ministers meeting in Luxembourg held on the 9th October. Despite this growing momentum, Malta chose to retain its persistent resistance to the implementation of the tax – along with Cyprus, Finland, Ireland, Luxembourg and the Netherlands. Britain and Sweden, though not located within the eurozone, are also against the introduction of the tax as proposed.

The initiative promotes a tax based on financial transactions with the objective of making traders partake in the cost of fixing the crisis that has affected the single currency area. It gained strong support from Germany and France, eventually gathering the necessary consent of more than the required minimum amount of nine states to launch the tax. The tax is also commonly known as a “Tobin Tax” originally proposed by U.S. economist James Tobin in 1972 to reduce financial market volatility - a tool to encourage banks, hedge funds and high-frequency traders pay with gathered proceeds dedicated to debt clean-up.

Austrian Deputy Finance Minister Andreas Schieder backed this initiative, remarking that “this is a small step for 11 countries but a giant leap for Europe... the way is now clear for a just contribution from the banking and financial sector for financing the burdens of the crisis.” This enthusiasm was shared by EU Tax Commissioner Algirdas Semeta, who called the transaction tax a source of new revenue from an under-taxed business sector and a means of encouraging more responsible trading.

Notwithstanding the idealistic notions backing the introduction of the tax, Maltese Prime Minister Lawrence Gonzi reiterated that Malta is against the tax in its current proposed form due to the precarious ramifications that it will likely bring about – particularly the undermining of considerable competitive advantages for Malta. That being said, Malta will not object to other countries acceding to its implementation. Malta will also remain open to discuss new ideas, so long as the island’s financial centre is protected from any potential harm.

Critics of the promoted initiative also pointed out that the tax could distort the EU’s single market by giving financial companies multiple incentives to shift their trading activities to European financial centres where the tax is not levied, or away from Europe altogether.

As a result, this divide raised the prospect of a group of European states launching a joint tax without the unanimous support of the 27-nation bloc, a characteristic that might fragment the Union’s single market for financial services – a phenomenon mainly attributable to the fact that EU leaders are contemplating the introduction of a separate budget for the 17-nation eurozone alongside the common EU budget.

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