France's new tax to be a first in Europe

François Hollande

By RFI

On Wednesday, France will be the first European country to impose a tax on financial transactions. It’s an idea that has many people worried about French Socialist President François Hollande’s ability to revive France’s economy.

It's an idea that has been largely discussed by the EU. But France will be the first country to impose a 0.2 percent tax applied to shares bought in any of the 109 French companies that are valued at more than1 billion euros. It is a model loosely based on the ideas of American economist James Tobin.

What is the Tobin Tax?

The ‘Tobin tax’ comes from the work of the late Nobel Laureate Economist, James Tobin, in 1971
Following the collapse of the fixed exchange rate system, the Bretton-Woods agreement, the Tobin tax was proposed as a way to stabilize trade of foreign exchange
The idea is a small 0.1 percent tax on all currency transactions
In other words, the onus is on financial institutions to pay a tax, not consumers
It’s a way of deterring risky and unproductive trading and stabilising the economy

However, according to a Bloomberg News report, the tax has loopholes and the expected revenue is negligible. Its worst-case scenario sees the tax as scaring off investment and stunting growth. Its best-case scenario sees it serving as a distraction from the real measures that should be in place to help boost the French economy.

The new fiscal measures are part of the amended 2012 budget that includes a special tax on the wealthy and a reversal of reforms on France’s social-welfare system and labour laws that were put in place by former president Nicolas Sarkozy. Such reforms included a lengthening of the French 35-hour work week, raising the retirement age, and making it easier for companies to hire and fire employees.