Financial transaction tax worries Europeans

At the same time as Australian financial planners resist elements of the Government’s Future of Financial Advice package, financial services companies in Europe are opposing the imposition of a tax on financial transactions to fund European debt.

The level of resistance to the so-called ‘Tobin tax’ has been clear by the EDHEC-Risk Institute, which has warned that the tax will result in a reduction in the trading of securities.

“The Tobin tax reduces speculative activity in financial markets, but this tax also drives away investors who provide liquidity, stabilise prices, and help in the price discovery process,” it said.

The EDHEC-Risk Institute analysis also warned that imposing a tax on financial transactions would present its own challenges, not least of which being the ability of regulators to distinguish between transactions related to fundamental business and those that a purely speculative.

“From the point of view of speculators, unless every country in the world introduced the Tobin tax, it would be easy to circumvent the tax by routing transactions through countries that do not impose the tax,” it said.

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