28 Feb 2012

Implementing an FTT at European, National and Local levels

You may already know that I have been pushing the idea that we could use a single flat rate Financial Transaction Tax to replace essentially all the current taxes. Today, I would like to discuss the possibility that although there would effectively be only a single tax mechanism, there is no reason why this could not be used to provide separate funding for different levels.

Specifically, I would like to suggest that we could have different components of the tax to provide funds at the European, National, and Local or Regional levels.

Let's take the European level first. In 2010, the EU budget was €110 billion. Each of the 27 countries contributes an amount that depends on a mechanism that depends mainly on Gross National Income, but is complicated by the existence of various refunds such as the one negotiated by Margaret Thatcher.  The current values of the contributions can be found here. Germany contributes 21.11%, France 16.44%, Italy 13.64%, the UK 13.05% and so on.

All of these contributions could easily be replaced by having a variable rate FTT in each country that is adjusted to generate the correct amount of revenue - no more, no less. I previously calculated some numbers showing that in Germany, the FTT rate needed to replace current payment mechanism would be about 0.004%, in France it would be 0.008%, in Italy 0.009% and in the UK 0.001%.

The second level would be the National one. Here, each country would be able to set its own level depending on its own requirements. Countries with relatively highly developed welfare systems would clearly need to impose a relatively high rate, whereas countries that decide to cut back on social programs and other government funded schemes would pay less. Also, there could well be differences depending on whether the governement of the country was attempting to pay off the national debt. All these decisions are ones that can be taken by elected governments in each country. Nothing terrible will happen if the rate in one country is much lower than in another. As I have argued, in most countries, all the current taxes can be replaced with a rate well below 1%, and in some cases, the rate can be well below 0.1%.

Finally, it would also be perfectly feasible to have a third Local or Regional level. In this way, local and regional governments would be able (if they so desired) to add an additional component for financing their own funding requirements. This would be applied to all transactions involving bank accounts for people or companies that are resident within the area covered. Note that it is the address of the individual that is critical - not the bank. For example, I have my main current account at a Bank in Paris although I live near Toulouse. If there was a regional component to the FTT, I would pay that component to the regional government in the Toulouse area.

For the user, this would all be perfectly painless. On your bank statement you might have a statement saying that in the last month, you have recieved €3000 in salary and other payments, you have spent €2500, and you have transferred the remaining €500 euros to a savings account. You might have a summary saying that of these €6000 in transactions, you have paid a European Component amounting to (say) 0.005% (i.e. €0.30), a national component of (say) 0.3% (i.e. €18), and a local component of (say) 0.01% (€0.60). That's a total of €18.90.

Yes, that really is the sorts of numbers that we are talking about. Of course, if you were so disgusted about the obscene levels of European Level taxes, you could always protest, and try to have your tax bill reduced by 30 cents. I doubt that many people would bother.

Importantly, each of these components can be varied independently - on the basis of democratically made decisions at the level of the European Parliament, the National Parliament, and at the level of local assemblies.  Now that's what I call a sensible way of getting people involved in deciding their future.

1 comment:

  1. Hi Simon, 

    Thanks for another interesting take on the issue. Canada does a similar thing with their VAT, with a state level component and national component. So this kind of split tax sovereignty would also embed the concept of Europe much better. Currently it is a confusing mess. 

    And if it were really possible to replace the rest of the taxes with an FTT (we still need to argue a bit about that), then Europe could be the bringer of clarity and simplicity, instead of obfuscation which it is sometimes rightly blamed for. Oh dreams. 

    How does one initiate discussions in the European parliament?