I don't think I would be far wrong if I said that the reason for the creation of the financial transaction tax was the feeling that the banking sector was partly responsible for triggering and shaping the economic crisis and should be "punished" so that it would help overcome the crisis. There is also a (false) assumption that the financial sector is taxed less than others.

The facts show that some crises are caused by other areas, such as real estate bubbles (when investors seek more tangible assets) and technology in the early 21st century, and prices of raw materials (oil).

But we have to admit that excesses were committed in risk assessment mainly in the field of financial speculation, such as the proliferation of toxic assets resulting from sub-prime loans, securitisation, collateralisation and other operations aimed at improving ratings, and the introduction of over-complex, high-risk financial products.

The vast majority of banks were not involved in these speculative adventures and generalisations are not appropriate.

This is the case of the Portuguese banks, which have very little exposure to toxic assets.

Taxation of this kind should be assessed in terms of all its impacts, both positive and negative.

The positive aspects are:

- Substantial tax revenue, as the financial sector makes a sizeable contribution to public revenue, estimated at 30 to 35 billion euros, and additional taxation of the sector will prevent its costs being borne by the taxpayers;

- Reinforcement of the single market by reducing the number of different national approaches to taxation of financial transactions;

- Discouragement of speculation and encouraging the financial sector to support the real economy.

The disadvantages are huge, however:

- The financial transaction tax will be levied only in enhanced cooperation in 11 of the 17 members of the Eurosystem and 27 EU Member States, thereby creating disadvantageous competitive conditions for financial systems in the EU and globally. In other words, the Eurosystem financial sector will be at a disadvantage in relation to the rest of the world. My question: how is it possible to optimise and introduce mechanisms contributing to European financial integration based on a level playing field for financial operators, while introducing a new tax in only some Member States that will result in competitive disadvantages and high risks of transfer of activities and earnings to those where it is not levied?

- Certain activities will be transferred to other financial markets not subject to financial transaction tax – risk of flight of capital (e.g. London, Luxembourg, Netherlands, Sweden, etc);

- There will be fewer transactions, meaning less liquidity in the financial markets and discouraging demand for products.

- Shares prices will be affected.

- Furthermore, intermediaries can transfer the entire tax to the investors.

- The financial transaction tax does not address the systemic risk of large financial institutions.

The economic impact will be substantial.

The European Commission's impact assessment placed losses of product at 0.53% of GDP and calculated a negative effect of 0.2% on employment.


The financial transaction tax will create an additional cost for companies, especially SMEs and consumers investing in capital instruments.

Transaction costs will rise, thereby reducing funding opportunities.



Competition between stock exchanges is healthy and dynamic and the exchanges in the enhanced cooperation countries should not be placed at a disadvantage.


After Sweden adopted a financial transaction tax in 1984, around half of its share markets moved to London.

When the tax was levied on bonds in 1989, the number of transactions fell 85% against the average for the previous two years.

Sweden repealed the financial transaction tax in 1991.


In 1999 Japan also dropped its failed experiment.


France took the individual initiative of introducing a financial transaction tax.

One of the main problems of the French tax is its extraterritorial nature, as it is paid regardless of where the transaction takes place. Any entity wishing to acquire financial instruments issued by French entities must pay it, even if there is no other connection with France.

Since 1 August, when the French tax came into effect, there has been a reduction in liquidity in its market. There was a dercrease of around 18% in the number of transactions in some French financial instruments and a corresponding 16% increase in investment in similar instruments issued by non-French entities. In other words, a tax of this kind fosters flight of capital abroad and this risk will also exist if the tax is only adopted by some countries and not all Member States.

In other words, a tax of this kind fosters flight of capital abroad and this risk will also exist if the tax is only adopted by some countries and not all Member States.

In Portugal, the crucial question is moving on from recession to economic growth, which requires investment and, at short term, optimisation of current production infrastructure.

This depends a lot on funding of the economy.

One of the reasons why many companies have difficulty accessing credit is their deficient capitalisation and financial autonomy.

The capital market plays an important role in funding companies.

There must be coherence and consistency in measures to stimulate investment. We can't live a contradiction. What is more of a priority, obtaining addition tax revenue (and will it go to the Member State?) at the expense of economic growth or having a tax policy that makes investment attractive?

On the other hand, the draft directive did not take account of the high costs borne by the banking sector in terms of taxation, stricter prudential regulation or the growth of the economy or sector. The greatest problem for the banking sector at the moment is pressure on its return.

Fernando Faria de Oliveira

President of the Portuguese Banking Association

Lisbon, 19 February 2013