The intention to arrange for the introduction, in Belgium, of a Financial Transaction Tax in the post-Brexit era poses a serious problem

23 November 2016

Febelfin is concerned about the negative effect on the Belgian economy and the future of the Brussels financial centre

In the current post-Brexit era, one of the major challenges for the financial sector is to draw the attention at the attractiveness of Belgium and to attract adequate investments. So, we would like to point out the importance, if not the need, of drafting a Belgian Brexit Plan in support of our assets and priority aims and of avoiding any additional taxation of banking and financial activities.

Febelfin is aware of the fact that at the beginning of December, Belgium, together with a minority group of Member States1, will have to decide whether or not to continue its efforts for the introduction of a European Financial Transaction Tax (FTT).

Consequently, it wants to warn against the negative consequences an FTT may have for the financing of the economy and the positive development of the Brussels financial centre. One should prevent  sound banking and finance business at the service of households and companies from being jeopardised by the introduction of an ill-timed and badly conceived FTT. 

The current proposal submitted for negotiations at the European level does not only pertain to ‘speculation’ but also, without any distinction, to efficient activities which are part of a sound risk management by banks, and the financing of households and companies. 

The possibility of this tax being introduced in Belgium makes Febelfin worry about the negative effect this may have on corporate and private lending, more particularly as for mortgage credit. The current European aim of leaving public instruments out of the scope must be seen as an indication that the cost of financing would go up, if this kind of FTT will be applicable. It goes without saying that this is a cause of concern for Europe, which does not want to impose this extra cost on the public authorities.

This exception however, does not fully apply or does not apply at all to other segments of the economy and society nor to sound risk management. 

Consequences

Febelfin considers it to be its duty to draw the attention at the potential consequences for the real economy, the financing of households and companies and the proper development of the Brussels financial centre. The negative consequences for the latter will be even bigger due to the fact that only 10 Member States are thinking about introducing an FTT and the refusal from our direct neighbour countries (the Netherlands and Luxembourg) to take part in this project.

In addition, chances will be higher that efficient activities will be transferred out of Belgium given the lack of a level playing field within the European Union and the Euro Area. Against the background of the need to develop efficient activities from within the Brussels financial centre, Belgium has to rely on its competitiveness for being able to maintain the current business and employment as much as possible and to attract new opportunities. 

Belgium also has a number of assets when it comes to attract investments in the post-Brexit era. Other European countries are fully occupied at adapting their competitiveness in the light of the Brexit, and so Belgium also has to devise a strong and consistent approach. The introduction of an FTT would pose a serious problem for the attractiveness of the Brussels financial centre and already now affects the capacity to attract investments.

The very presence of Belgium as one of the European countries taking part in the negotiations, currently has a negative effect on the search for new activities to be set up in Belgium. The other two Benelux Member States indeed can play all their cards in promoting Amsterdam and Luxembourg without being restricted by a ‘European’ FTT.

Febelfin would like to remind the government about the engagement made in the government agreement to avoid goldplating as much as possible and to make an effort in order to promote the Brussels financial centre. The current proposals for the introduction of an FTT run counter to this engagement.

Request to the government

Febelfin asks the government to step out of the ongoing European negotiations about the proposal for the introduction of an FTT in 10 Member States. In the current proposal, the distinction between what is called ‘despicable’ speculation and perfectly desirable and sound activities is insufficient if not non-existent.

The Belgian participation in the FTT negotiations crosses the development of the efforts aimed at giving the Brussels financial centre the possibility to develop efficient and sustainable activities.

Should the government nevertheless want to continue negotiating about the introduction of an FTT, then this tax must be examined within the framework of a European Capital Markets Union. This Union is a top priority issue for Europe and should result in promoting investments, creating a maximum of alternative financing sources through the capital markets and providing new employment. The Financial Transaction Tax in its current form is ineffective in this respect.

Notwithstanding the abovementioned considerations about the future European Capital Markets Union, we would like to point out the following: 

  • If the tax is considered to be necessary and at the same time desirable from a political point of view, it should pertain to speculation and similar unfavourable activities only. Any kind of sound financing, investment and risk management should be excluded from its scope.
  • This new kind of European Financial Transaction Tax should apply at least in all of the countries belonging to the Euro Area and ideally cover the whole of the European Union, for the sake of a level playing field.
  • This FTT should be free from any unjustified distinction between government bonds and other forms of financing of the economy, the households and the companies. 
  • There is still a need for a full-scale, serious and objective impact analysis.
  • It would also be better to wait for the consequences of the Brexit before taking the decision to introduce this new taxation in a limited number of European countries. The Brexit indeed is bound to have an influence on the European banking and finance landscape. 

Febelfin asks the government to give a clear sign and to take this concern into account, so as to make it possible to safeguard the financing of households and companies and the financial institutions’ risk management in Belgium. We expect the government to develop a vision for the future and to highlight Belgium’s assets for investors.

 


1 At present, a minority group of 10 EU Member States, including Belgium, are taking part in the European negotiations about the proposal to introduce a Financial Transaction Tax (FTT). 

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