* Says positions on transaction tax converging
* Says arbitrary tax increases not smart
* Flags concerns on tax breaks for cars
* Merkel says won’t give up on transaction tax plans
By John O‘Donnell and Huw Jones
BRUSSELS/LONDON, Nov 23 (Reuters) - The European Union’s tax chief said there was progress on his draft law to tax financial transactions, with visits planned to Britain and other member states who remain opposed.
“The positions of member states are converging ... particularly among the members of the euro zone,” EU tax commissioner Algirdas Semeta told the EU parliament on Wednesday.
“We have the UK which is currently quite sceptical regarding this tax, but the discussion has just started. Our experts are visiting those countries which are more sceptical on this proposal to explain the technical elements,” Semeta said.
Germany Chancellor Angela Merkel weighed in with strong support elsewhere. “We will continue intensively to discuss the proposal by the European Commission to introduce a financial transaction tax in Europe,” she told German lawmakers in Berlin. “I won’t give up hope.”
“We all agree that a financial transaction tax would be the right signal to show that we have understood that financial markets have to contribute their share to the recovery of economies,” Merkel said.
Semeta said member states should back his proposal, which needs unanimity among the 27 EU countries.
“The under-taxation of the financial sector is difficult to justify when the ordinary citizen is carrying the brunt of austerity measures,” he said. “The financial transactions tax ... would redress this imbalance and deliver substantial revenue, without compromising ... growth.”
Semeta’s proposal, unveiled in September, would tax stock, bond and derivatives trades from 2014, potentially raising 57 billion euros ($76 billion)with much of it from Britain, the bloc’s biggest trading centre which already imposes a levy on banks.
British finance minister George Osborne has dismissed the idea. “Proposals for a Europe-only financial transactions tax are a bullet aimed at the heart of London,” he said earlier this month. “The idea of a tax on mobile financial transactions that did not include America or China would be economic suicide for Britain and for Europe.”
The levy is often dubbed a Tobin tax after the U.S. economist who mooted the idea in the 1970s. Recent attempts to find agreement internationally with the United States and others on introducing such a tax have foundered.
In the EU, the Czech Republic and Sweden are also aligned with Britain in the sceptics camp. Germany has signalled the 17-country euro zone could go it alone at first.
Semeta also said European countries should end tax breaks such as those for company cars, rather than raising income tax when seeking to plug budget holes without stunting growth.
“The quality of taxation will determine whether we sink or swim,” Semeta told reporters.
“Arbitrary tax rate hikes as the only solution (are) neither sustainable nor smart. Shifting the burden away from more distortive taxes on labour, towards more growth-friendly ones such as property and consumption is highly advisable.”
Semeta’s comment come at a time when many European countries have been trying to tackle heavy debts with a mix of tax increases and spending cuts.
He urged a wider application of VAT sales tax and a crackdown on tax-dodging, as well as flagging concerns about tax breaks for cars.
“Company cars currently enjoy favourable tax arrangements in 18 member states, to the total cost of 54 billion euros,” he said. “Is this clever taxation, particularly when we consider the environmental impact?”
Although the EU’s executive has little say over national taxation, it is set to become increasingly influential in how states manage their finances.
Countries receiving assistance from the euro zone, such as Ireland, are already losing leeway in how they set taxes.
Details of Ireland’s next budget, including a two percentage points increase in VAT, were presented to German lawmakers last week -- before their Irish counterparts, sparking a political storm in Ireland.