Sunday 8 December 2019

EU considers taxing bank profits and wages to recoup bailouts

A tax on bank profits and wages could raise as much as €25bn for the European Union and is "worth exploring," the European Commission said.

The so-called financial-activities tax could counter economic “distortions due to the VAT exemption” of banks and help contribute to public budgets, the Brussels-based commission said today.

The commission is considering it as an alternative to a proposed tax on financial transactions.

German Chancellor Angela Merkel has called for a tax on banks’ financial transactions to repair holes in government budgets caused when they had to prop up lenders during the financial crisis that followed the 2008 collapse of Lehman Brothers.

European governments approved $5 trillion in bank bailouts and loan guarantees during the crisis, according to EU data.

A transaction tax “appears less suitable for unilateral introduction at EU-level since the risks of relocation are high and would undermine the ability to generate revenue,” the commission said. “There is greater potential for a financial- activities tax at EU level.”

The commission is also drawing up plans for a series of bank levies to fund national agencies that would wind down crisis-hit firms, without the need to bail out the entire financial system.

Bank taxes should account for “new standards on capital requirements,” European Central Bank President Jean-Claude Trichet said at a press conference in Brussels last week, while a financial-transaction tax would “present a number of disadvantages in terms of its implementation.”

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