Currently, the EU has a budget of 141 billion euros. This is paid for partly by contributions from VAT (although it turns out that this is actually very minor) and mostly by payments that are made by the different governments on the basis of each countries GDP. The mechanism is pretty opaque, and has been the subject of endless wrangling because of the reimbursement negotiated by Thatcher.
How about the EU saying that they will scrap all the existing payment mechanisms and introduce a new scheme based on the 0.1% FTT that they propose for all 27 European countries. Each country would impose the same minimum 0.1% FTT on all financial transactions, but they would only pay the EU their fair share of the 141 billion euros EU budget on the basis of GDP. They would be allowed to keep the rest of the money raised. I've compiled the numbers in the following table.
As you can see, Germany should pay 28.8% of the 141 billion, France 22.2%, the UK 19.5% and so on down to Malta which would pay 0.05% of the total. This sounds very fair to me.
Now let's look at the amount that countries would be able to keep for themselves. Unfortunately, the Bank for International Settlements only provides numbers for a small number of EU countries, so I can only produce numbers for those, but I have provided numbers for some of the big players - namely Germany, France, the UK, Italy, the Netherlands and Belgium. (Incidentally, I find it astonishing that all EU countries are not obliged to provide the numbers - this is clearly one of the first things that the EU should do).
Anyway, you can see from the table that with the levels of transactions in the countries for which we have numbers, only a tiny fraction of the revenue raised by the 0.1% FTT would be sent to the EU. All the countries would get to keep at least 91% of the money. France is actually the the least well off of the 6. But Belgium would keep nearly 99% of the money, and in the UK, the number is a whopping 98.4%. Surely, the UK government would have to be insane to veto such an easy way to get extra revenue.
Specifically, assuming that transactions in the UK are up at around 1,200 trillion euros a year (which is a reasonable estimate based on the fact that the numbers from the BIS for 2010 are still incomplete), the UK could potentially reap as much as 1,180 billion euros worth of revenue.
Of course, as my son Jonathan would say, the levels of transactions could well drop a lot and this makes it difficult, indeed impossible, to make accurate predictions. And indeed, most of the transactions undoubtedly reflect speculation that is almost certainly very sensitive to the introduction of a Financial Transaction Tax. However, this sort of activity could be seriously reduced without have any adverse effect on the real economy. Nevertheless, I think we can safely assume that imposing a very modest 0.1% FTT will not cause transactions to drop by 99%. In other words, the mechanism is virtually guaranteed to work.
By doing it this way, the FTT could be initially introduced just to replace the current mechanism for financing the EU. There is a serious possibility that the UK (and others) could generate very large amounts of revenue that could be used for paying off national debt, or abolishing taxes. But the fact is that any outcome would be beneficial. And of course, the FTT mechanism would have been introduced... and that's the aim of the game.
Once in place, and once the real numbers are available, countries could increase the FTT above 0.1% (which should be the minimum) to allow the conventional tax systems to be abolished, pay off debt, and relauch the economy. Easy!
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