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Controversial levy 'will reduce our contribution to EU'

THE controversial Europe-wide financial transaction tax spearheaded by French President Nicolas Sarkozy could reduce Ireland's contribution to the EU budget by €534m in 2020 and provide a lifeline for "cash-strapped" governments, the European Commission said yesterday.

The commission wants two-thirds of revenue from the planned financial transaction tax (FTT) to be siphoned towards central EU funds. The remainder will be retained by individual countries.

The tax revenue from the FTT that's diverted towards the EU budget will result in a reduction in member states' contributions to the budget based on the country's gross national income.

The commission says that using the funds in this way will be an incentive for proper tax enforcement within member states.

The European Commission has estimated that the FTT will raise €57bn in tax by 2020 based on current data.

Of that, €37.7bn would come from a 0.01pc tax rate levied on derivatives and exchanges, with €19.4bn being sourced from a 0.1pc tax on all bonds and stock transactions.

The commission is assuming that growth in the financial sector will mean the tax take will actually rise to €81bn by 2020.

The commission also believes that based on those numbers Ireland's contribution to the EU budget that year will be reduced by up to €566m from about €1.1bn.

The Netherlands and Britain have made it clear that they are against the tax. Ireland opposes the tax unless it is agreed by all countries.

Germany's contribution would fall by €10.7bn, Greece's by €896m, Spain's by €4.7bn and the UK's by €7.7bn, according to the European Commission.

The EU's total voted budget is about €147bn this year.

EU budget commissioner Janusz Lewandowski insisted that the transaction tax was "only fair" due to the fact that the financial sector did not pay VAT and had received massive support from taxpayers.

European Commission president Jose Manuel Barroso has also defended the plan in the face of concerns that the tax could prompt companies to shift their activities out of the EU.

Irish Independent