December 10, 2019 / 5:27 PM / a month ago

Too much, too little: German finance levy plan draws wide censure

BERLIN (Reuters) - German Finance Minister Olaf Scholz’s plans for a 1.5 billion euro financial transaction tax drew criticism from across the spectrum on Tuesday, with some labeling it investment “poison” and opposition politicians saying it did not go far enough.

FILE PHOTO: German Finance Minister Olaf Scholz attends a congress of the Social Democratic Party (SPD) in Berlin, Germany, December 7, 2019. REUTERS/Annegret Hilse

But the proposal won strong backing from allies, with French Finance Minister Bruno Le Maire telling Handelsblatt newspaper he welcomed the proposals, and Chancellor Angela Merkel saying Scholz’s plans for a limited tax were just right.

Under plans drawn up by Scholz and sent to ministers from nine other European Union states, they would levy a Financial Transaction Tax (FTT) of 0.2% of the transaction value of purchases of shares in large companies.

But while Merkel told legislators that a tax that only targeted equities was the right approach, the decision to exclude derivatives and other securities disappointed many who have advocated an FTT as a bulwark against the leveraged trades that they believe cause market instability.

“The lesson of the 2008 financial crisis was that you tax highly risky trade and support long-term investments,” said Greens caucus leader Anton Hofreiter. “This will spare large investors who move large sums in short periods of time.”

The initiative comes as countries across Europe experiment with approaches to regulating overbearing financial and capital markets that are seen as threatening state authority. A French proposal to ensure tech companies pay tax where they earn money drew sharp criticisms and threats of sanctions from the United States.

Plans for an EU financial transaction tax (FTT) have stumbled over the past years. After an initial proposal in 2011 was blocked by member governments, a group of states pressed ahead, while the majority of the 28 EU states backed down.

The shares affected would be in companies valued at over 1 billion euros, meaning the tax would apply to purchases of shares in more than 500 companies in all 10 countries - Germany, Belgium, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia.

“We are now close to reaching our goal,” Scholz wrote to ministers from the other states involved in the plan in a letter seen by Reuters.

He received strong backing from Paris, with Le Maire telling Handelsblatt that the proposal had been closely coordinated with France.

But even this watered-down FTT drew criticism from inside Merkel’s party, with senior conservative legislator Joachim Pfeiffer describing the Social Democrat Scholz’s plans as “pure poison” for Germany’s investment climate.

Scholz’s plan envisages much of the 1.5 billion euros in annual revenues going to offset the cost of a new basic pension, a Finance Ministry document shows.

Reporting by Holger Hansen, Christian Kraemer and Paul Carrel; Writing by Thomas Escritt, Editing by William Maclean

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