TalkingPoint : Denmark: what the FTT will mean for us

written by TalkingPoint on 11/11/2011

by Lars Nielsen, Public Affairs Manager, Danish Bankers Association

Globally, this is a time of challenge and change for the financial services industry. Of all the controversial proposals for reform that face banks at present, the debate over the financial transactions tax (FTT) is probably the most publicly contested.

What the UK Government has confirmed is that any such tax would only be levied in the UK if it were exacted globally. So what do bankers in other countries think of the FTT? Research carried out in Denmark has shown that the tax will have serious and negative impact on ordinary Danish citizens, impacting another contentious and emotive issue: pensions. Lars Nielsen, public affairs manager at the Danish Bankers Association Finansrådet, explains the potential costs to personal finance of the FTT .

In a recent memo to the Danish Parliament’s Committee on Europe, the Danish government points out that the proposal of a financial transactions tax will:
“…have negative socio-economic consequences for Denmark in the long term. The magnitude of this will depend on a number of uncertain factors, including the risk of relocation of financial activity and hence declining turnover in financial markets and reduction in other tax bases. The extent of these risks is uncertain and will depend on a variety of assumptions.”

This is a point well-made. The conclusions of the Danish government, submitted to the Danish parliament show that a tax on equity trades will have an adverse effect in economic growth in Denmark. It will thus lead to welfare losses.

The FTT is going to hit far more people than most imagine. We can make certain some of those socio-economic consequences alluded to in the Committee on Europe’s statement through careful costing.

Let us look specifically at pensions. Calculations from the Danish Bankers Association show that the European Commission’s proposed tax on financial transactions will erode Danish pensions by DKK 700 or about GBP 80 per month.[1] Every month. The estimated reduction on the return for Danish pension savers is based on consideration of what the average worker in the Danish Federation of Trade Unions can expect to receive if the tax is levied on both purchase and sale.

Danish citizens’ pension savings are invested annually in securities, which will be subject to the possible future tax. This means the tax will erode individual tax savings. We would therefore dispute the European Commission’s proposals and FTT advocates’ proposals that the levy will only hit professional investors.

Put simply, clearly and effectively, the transaction tax will have an adverse effect on economic growth in Denmark and will this lead to welfare losses. Before it is introduced, then, it must be given careful thought by all stakeholders, the local, the regional and the international alike.

Lars shared his views on the FTT this week while visiting the BBA with Finansrådet colleagues and representatives of the Danish financial services industry.