Tobin's tax and ČTK

What can we find in the ČTK report, which states that the European Commission has approved a tax on financial transactions? More than many realize. When we are already reading the news, it is worth thinking about them.

Economist and Nobelist James Tobin
Economist and nobelist James Tobin

Strasbourg / Brussels - The European Commission has approved a proposal to introduce a financial transaction tax. Commission leader José Barroso told MEPs today. According to him, it can bring up to 55 billion euros a year. The Czech government has previously expressed its opposition to the introduction of the tax.

With these words he begins CTK report on the approval of a financial transaction tax. Let's discuss that short report a little.

"It is time for the financial sector to make a contribution to society," Barroso told MEPs in a speech in Strasbourg. news on the state of the European Union. He recalled that Member States had approved € 4600 billion in aid or guarantees for the financial sector over the last three years.

Let's start from the end. I knew that the EU states approved financial guarantees sector and I knew that politicians were definitely not cuts. But 4,6 trillion euros? Almost 113 trillion crowns, ie over 100 annual budgets of the Czech Republic?

As I wrote, I knew that politicians have not been worried about moral hazard in the last few years, but this amount is staggering. This is not a moral hazard, this is suicide. Definitely in the long run.

"It's time"? I would not say. The financial sector has already given its responsibility. If someone did not find it useful, this sector would not exist. Those who failed in the market were to go bankrupt. Those who have succeeded in the market should continue to function. This is a real responsibility to society. If anyone resisted, it was politicians. It is time for politicians to make a contribution to society.

"With this proposal, the European Union will become a forerunner in the global introduction of a financial transaction tax," EU Commissioner for Taxation Algirdas Šemeta said of today's decision. "I am convinced that our G20 partners will be interested in following this path," he added.

Yes, Mr. Finanční and his Sector family are moving to Switzerland, China and beyond.

"Of course, we have no doubt that banks would pass on the cost of fees for any financial transactions to end users, ie clients. After all, as banks in the Czech Republic are already doing thanks to their fee policy, "said Nečas.

Of course. Let me tell you a secret: no company in the world has money other than the money given to them by its current clients or by its future clients. Thus, there is no tax in the world that would be paid by anyone other than the consumer. Either the consumer pays it directly: these are, for example, income taxes, social or health taxes. Or it pays indirectly: these are, for example, excise taxes, corporate income taxes or various state corporate fees.

The mechanism of payment of indirect taxes is insidious: the tax will worsen the possibility of entering the sector or reduce the profits of entrepreneurs to such an extent that competition in the sector will decline. In the long run, this will lead to either increased nominal prices (the number on the price tag will be higher) or a reduction in quality and innovation (in both cases an increase in real prices compared to the tax-free situation) due to low competition. The difference between a possible market price without "state costs" and a price with "state costs" (taxes) is precisely this indirect tax.

Germany supports the plan to introduce a financial transaction tax. Britain and a number of European banks, for example, have strongly opposed it, saying the tax will have no effect on stabilizing markets.

Banks are right. The financial sector is a sector with a predominantly variable costs (the volume of costs increases with the volume of production). Compared to fixed-cost industries, they have the advantage of adapting better to price changes (they do not hold the burden of fixed costs), on the other hand, they drown their costs worse in production. If we artificially impose a fixed cost (regulation) on a variable industry, its ability to adapt will be reduced. In the case of speculation, this means that speculators will find it harder to compensate for large price differences for end consumers (which is otherwise the de facto work of a speculator), which is paid for by a fixed - cost industry (for example, Automotive), which may drown costs in production but is more sensitive to market fluctuations.

Regulation of the financial sector then liquidates mainly industries.

However, the Tobin tax increases variable costs, which is a bit trickier. It is again the same, but indirectly. Higher variable costs in the variable industry simply mean a lower profit, which is paid for by smaller speculators in particular, who then have more possible more advantageous business opportunities (sacrificed opportunity costs). However, lower competition in the market leads to cartelisation in the market, with large ones remaining on the market who also have large fixed costs.

And, as has been said, fixed-cost industries are more vulnerable to price fluctuations and are thus dependent on the work of speculators (who moderate these fluctuations in normal situations, but do not work in the current situation). Thus, both the financial sector and, as a result, industries will be less stable.

A secondary effect will be that lower competition leads to higher real prices. Revenues from investments (for example, pensions and others) will then be lower through these large companies.

A similar concern was expressed by his People's Fellow Jan Březina. "The announced revenues of 55 billion euros when introducing a tax on financial transactions are a chimera," he said. By moving transactions outside the EU, banks are said to be "elegantly avoiding" this tax liability.

Sure. As has been said, the financial sector is a variable sector, so the principle of its operation is in the ability to adapt to new conditions. Dealing with Tobin's tax will then not be a problem for the banks. Once again, EU citizens in particular will become poorer.

So, for example, all this is hidden behind a short message from ČTK. When we read the news, it pays to think about them.

0 comments

  1. Mr. Kubec,
    maybe you should write something about yourself instead of copying someone else's work.
    Title: "How I became a virtual informant"
    There you could explain how you slam your opponents and delete their comments as long as they don't let them offend you.

  2. It wants to get the economy under the democratic control of the workers.

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