Noyer: Tobin Tax Would Hurt Markets Without Raising Money

The European Union’s proposed financial-transaction tax may not generate any revenue because of the market damage it would cause, European Central Bank Governing Council member Christian Noyer said.

“The analyses we’ve done show that the project, as it has been prepared by the commission, will first of all raise nothing at all, there’ll be no revenue,” Noyer told reporters in Paris today, stepping up central bank criticism of the levy.

“The immediate effect will be either to destroy financial sectors” such as the repurchase agreement market, or to create conditions in which “the cost of borrowing in the real economy will increase for everyone,” Noyer said. He also flagged concerns that the plan would hurt the ECB’s monetary transmission channels, a concern raised by others on the central bank’s governing panel.

The EU has proposed a broad-based tax on stocks, bonds, derivatives and other trades that could be collected worldwide by France, Germany and nine other EU nations, including Belgium, that have so far signed up. The European Commission has resisted calls to exclude government bonds from the proposed levy, saying it wants to limit exceptions to make the tax hard to avoid.

Noyer, who leads the Bank of France, said taxing secondary-market bond trades would encourage investors to trade outside the EU or make it “very significantly” more expensive for governments and companies to finance themselves.

“This is another example of early research showing the potential sclerotic effect of the FTT,” said Richard Croker, head of tax at law firm CMS Cameron McKenna. “Either markets migrate outside the EU or the costs of borrowing will increase.”

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