EU Could Earn Up to $67 Billion on Bank Tax

This tax levy is to be used as an emergency fund, capable of bailing out banks in case of another financial crisis.
EU Could Earn Up to $67 Billion on Bank Tax
4/11/2010
Updated:
10/1/2015
<a><img src="https://www.theepochtimes.com/assets/uploads/2015/09/98162497.jpg" alt="NEW TAX? A man walks past a Bank of Ireland branch in Belfast, Northern Ireland, on March 31. A proposed measure would imposed a tax on European financial institutions for engaging in risky investments, to fund future bank bailouts, and other special projects. (Peter Muhly/AFP/Getty Images)" title="NEW TAX? A man walks past a Bank of Ireland branch in Belfast, Northern Ireland, on March 31. A proposed measure would imposed a tax on European financial institutions for engaging in risky investments, to fund future bank bailouts, and other special projects. (Peter Muhly/AFP/Getty Images)" width="320" class="size-medium wp-image-1821200"/></a>
NEW TAX? A man walks past a Bank of Ireland branch in Belfast, Northern Ireland, on March 31. A proposed measure would imposed a tax on European financial institutions for engaging in risky investments, to fund future bank bailouts, and other special projects. (Peter Muhly/AFP/Getty Images)
MUNICH—A study published by the European Commission (EC) proposing a new tax levy on European banks found that EU governments could gain up to 50 billion euros (US$67 billion) per year on the taxes.

This tax levy is to be used as an emergency fund, capable of bailing out banks in case of another financial crisis. It could also serve as funding for major social and economic issues such as climate change and infrastructure development.

“The financial sector needs to contribute to the costs of financial stability. This should be one of the building blocks in our effort to set up a crisis management framework in Europe,” said Michel Barnier, EU commissioner for Internal Market and Services, in an EC statement.

The tax levy is designed to be implemented on institutions’ risky financial activities, thereby providing a cushion for governments in case their banks default. At the same time, imposing a tax could also prevent certain risk-taking by banks, by setting a price for such activities in the form of a tax.

“Schemes aimed at pricing leverage and risk-taking in the financial sector could raise substantial revenues while limiting undesirable behavior by financial institutions and could be administered at a reasonable cost,” the EC report said.

Sweden has already implemented a tax levy of its own, amounting to approximately 0.04 percent on all risk-taking financial activities. According to reports, if EU implements the Swedish tax levy, it would be able to garner up to 13 billion euros (US$17.5 billion) in 2009.

“A levy on the banking sector could raise an estimated annual 13 billion euros (US$17.5 billion) of revenues when applying the rate of Sweden’s Stability Fee to the entire banking sector, and more than 50 billion euros (US$67 billion) when applying the U.S. rate,” said the report.

Banks Resist

Although most governments see the proposed tax levy as positive, many bankers are quite reluctant to be restrained by yet another tax. The head of British Bankers’ Association (BBA), Angela Knight, has expressed her concern regarding the tax levy.

“If you ask banks if they want to pay more tax, the answer is obviously no,” Knight said in a statement. “But if there is going to be a tax then we need to examine carefully and sensibly how this can be applied without disadvantaging any jurisdiction in particular.”

BBA is an industry trade association for global banks.

“Any banking levy would have to be applied on a purely international basis. Most banks in the U.K. operate across different jurisdictions, with offices in the U.S. and the U.K.—to introduce a tax in one and not in the other will raise all kinds of issues,” she added.

The report sees the importance of the tax levy to be implemented globally in order to reduce the complexity of banking operations and to provide a more stable environment for risk-taking financial activities. However, it doesn’t exclude the chance of EU taking the lead in implementing it without the global support.

“Actions by the EU alone would be less effective but could be considered, particularly if there are good reasons to expect that an EU role of global leadership would be followed by other key countries,” the report said.