STRASBOURG, France (Reuters) - Europe could scale down a proposed tax on financial transactions, the EU’s top tax official said on Tuesday, signaling for the first time readiness to soften a scheme which some fear could backfire.
The tax, proposed as a way of making banks contribute to the cost of cleaning up after the financial crisis, resurrects an idea first conceived by U.S. economist James Tobin more than 40 years ago.
Speaking to lawmakers in the European Parliament, Algirdas Semeta, the EU’s commissioner in charge of tax policy, said he would prefer to lower the tax rate for trading in instruments such as government bonds rather than exempting them from the levy.
Semeta’s remarks, which he hopes will inject fresh momentum into flagging talks among a group of states seeking to pioneer the tax, could mark a radical change of tack for a scheme that has divided opinion across the European Union.
“The Commission is ready to examine the suggestions made for an initial introduction of the tax with lower rates for products of specific market segments,” Semeta said in a speech, adding that the rate could later rise.
“Both government bonds and pension funds should remain in the scope of the directive. For those two categories of products, however, a reduced rate ... could constitute a suitable way forward and should be further examined.”
Semeta’s comments signal growing concern in Brussels that an alliance of 11 countries led by Germany and France to start the tax could falter.
Officials recently told Reuters of plans to drastically scale back the levy, cutting the charge by as much as 90 percent and delaying its full roll-out.
It is the first time since outlining his blueprint for a tax that Semeta has spoken about changing the scheme.
The countries supporting the tax, which include Italy, Spain, Austria, Portugal, Belgium, Estonia, Greece, Slovakia and Slovenia, have agreed to press ahead with the levy, having failed to persuade all 27 EU member states to sign up.
Some cash-strapped countries have already begun counting on the new income, a potential windfall. But in a world where billions of euros can be moved at a keystroke, even some of the tax’s backers are having doubts.
Italy and France have expressed concerns about widening the tax beyond shares to government debt as both believe it could discourage investors from buying their bonds.
Banks have lobbied furiously against the tax. It has also hit legal challenges from Britain, which will not join the tax but fears being forced to collect it on behalf of other EU states, driving business from London’s financial centre.
Under the latest model described in May to Reuters, the standard rate for trading bonds and shares could drop to just 0.01 percent of the value of a deal, from 0.1 percent in an original blueprint drafted by Brussels.
That would raise only about 3.5 billion euros, rather than the 35 billion initially forecast, a senior official said.
Officials have said that the tax may now also be introduced more gradually: rather than applying to trades in stocks, bonds and some derivatives from 2014, it may apply next year only to shares. Bond trades would not be taxed for two years and derivatives even later.
Reporting By John O'Donnell; editing by Robin Emmott/Ruth Pitchford