At at his press conference with German Chancellor Angela Merkel in Paris today, French President Nicolas Sarkozy announced that he plans to introduce the Tobin tax; a tax levied on financial transactions.
This isn’t the first time leaders have looked to the Tobin tax, to boost revenues but it has never received much favour.
In the 1980s, Sweden implemented heavy taxes on share, bond and derivative trades which the country abandoned in 1991 when trading volumes fell.
Merkel pushed for the reform in 2009, but failed miserably. Former UK prime minister Gordon Brown had argued for it in 2010, and was dismissed by Mervyn King, the governor of the Bank of England, who said, (via The Telegraph):
“I don’t know anyone on the international circuit who’s enthusiastic about it … Of all the measures being considered, the Tobin tax is probably at the bottom of the list.”
It is also expected to hurt massive Wall Street bonuses which is why lobbyists are not in favour of it says investment banker and writer Martin Hutchinson on MoneyMorning.com. He takes issue with the reasoning that it would hurt liquidity, but concedes that it would slow down profitable, high-speed trading
Those not in favour of the tax argue that it was devised to curb speculative behaviour in the markets, but there is no proof to show that it actually does reduce risk-taking behaviour or prevent bubbles.
It is also reportedly hard to put in place, from The Financial Times:
“If the tax is just on equity and bond trading, it will move most of the trading to the futures and options markets. If it extends to all traded derivatives, it will favour derivatives contracts that are not traded or new contracts created to avoid it. Second, if not applied homogeneously throughout the world, it will divert trading offshore. Do we really want all trading to move to Bermuda? Finally, the idea that such a tax would avoid a repeat of the crisis has not been proved.”
Given the track record then, the odds are against Sarkozy pushing the tax through.