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Financial Transaction Tax

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Scarfman

Knitter of the Scarf
I think the Occupy Movement ought to focus on the FTT. I think it would be a terrific outcome.

Here's an article from a couple of days ago showing that an FTT seems to be on the way in the EU.

And here's the Wikipedia page on the tax - which is not a great page because it's trying to talk about a wide range of taxation measures under the same name, which is not quite accurate.

But Swanny says no:


Federal Treasurer Wayne Swan says he has no plan to follow France's lead by introducing a financial transaction tax.


Doing so would slow down economic growth because it would hit all Australian businesses, not just banks, he said.

French President Nicolas Sarkozy yesterday announced he would introduce a 0.1 per cent tax on financial transactions in August.

Advocates of the controversial ``Robin Hood'' tax see it as a potentially significant revenue generator as well as a penalty against speculation.

But critics said it could cause investors to pull their money out of countries applying it.

``The Government has no plans to introduce a financial transaction tax,'' Mr Swan said in a brief statement today.
He said such an impost would slow economic growth by raising the cost of capital for all Australian businesses.

``Large and small businesses all across Australia use financial transactions every day to prudently manage their risks, strengthen their business models and, ultimately, protect Australian jobs.''

Several European economies propose such taxes in circumstances where they have massive holes in their budgets and need to bail out banks.

``Here in Australia, we didn't need to bail out our banks with taxpayer funds,'' Mr Swan said.

Instead, the Government introduced bank guarantees to secure the flow of credit to households and small businesses.


http://www.perthnow.com.au/business...-says-wayne-swan/story-e6frg2t3-1226257468790

I really don't get it. These transactions - even though they are used as purely financial instruments - always involve the sale of something with value. That ought to be subject to a tax like any sale. What is the foundation behind exempting these transactions (except that businesses don't like it, as Swanny says).

They can make it 10% as far as I'm concerned - that's what I pay on transactions.

The benefits are obvious: we need to prevent corporations from day trading. It's got to the point where it's going to reduce everyone's superannuation payout simply because super funds don't trade like that.
 

Gagger

Nick Farr-Jones (63)
Staff member
The only argument they could come up with in the UK against it (other than Swanny's) was that "it would be difficult to track"

Yes, I laughed as well
 

Scarfman

Knitter of the Scarf
In Sweden it reduced derivatives trading by 90% (no link, I'm remembering this fact, so could be wrong). Which shows you what kind of transactions these are when they can be derailed by a 0.1% tax.

There's another argument that gets trotted out by the finance industry - that our corporations need these financial instruments to reduce risk (e.g., from their currency falling, commodity prices changing, etc). I say - suck it up and endure some risk. Naturally enough corporations try to minimise risk and maximise profit. So do I, but I still have to pay tax on transactions.
 

cyclopath

George Smith (75)
Staff member
My business has a pretty high "cash" flow and most of it is run by electronic banking. Are these transactions, many attracting credit card surcharges and GST already, supposed to be included? Ultimately, businesses would build it into their structure, so it all gets passed on to the consumer. I'm not sure we need it, and 10% sounds a bit over the top , Scarfy.
 

Gagger

Nick Farr-Jones (63)
Staff member
Yeah, 10% would be psychotic - but the fact is someone (broker, trader, whoever) clips every ticket already. A fraction of a % on this stuff would net billions.

There's a whole movement about it here somewhere online that'll have all the numbers
 

Scarfman

Knitter of the Scarf
I'm not seriously suggesting 10%, but I suspect there is no reasonable defence against a tax of 2% to 3%.

For motor vehicles, you have to pay 10% GST plus something between 3% and 5% duty on top of that.

For property sales, it's about 2%.

More importantly, for the sale of a business, it starts at about 2% and goes up with the value of the business. A sale of shares is a sale of a business and should, theoretically, attract the same tax.

But what I'm saying is that's it's outrageous that they're trying to get out of paying a 0.1% tax.
 

cyclopath

George Smith (75)
Staff member
I'm not seriously suggesting 10%, but I suspect there is no reasonable defence against a tax of 2% to 3%.

For motor vehicles, you have to pay 10% GST plus something between 3% and 5% duty on top of that.

For property sales, it's about 2%.

More importantly, for the sale of a business, it starts at about 2% and goes up with the value of the business. A sale of shares is a sale of a business and should, theoretically, attract the same tax.

But what I'm saying is that's it's outrageous that they're trying to get out of paying a 0.1% tax.
Do you really think Australians, as a whole, are undertaxed?
What about the various other taxes on motor vehicles that already exist?
Sales of shares, if resulting in capital gain, attract a tax.
I "sold" a business interest a little while back, and accrued a rather large loss (and no, it was not deductible). But it was a transaction. Should I pay an extra few % for that privilege?
I remain unconvinced such a tax is in any way needed.
 

Braveheart81

Will Genia (78)
Staff member
Australia is generally a fairly low taxed country, particularly for a social democracy.

Personally I think a financial transactions tax could be beneficial (at a very low rate such as 0.1%) purely to try and counteract (or just tax) things like high volume trading done by hedge funds and speculators. This sort of trading badly distorts financial markets and increases volatility (by profiting on that volatility).

In a general taxation sense, the GST should rise to 12.5 or 15%. Other federal taxes (income and company) should remain fairly stable.

State taxes are generally inefficient and stamp duty in particular should be abolished. This should be counteracted by applying land tax to all property. One of the great distortions we have in the property market is that due to stamp duty, it is expensive to transfer property so people continue to live in properties that don't suit their circumstances. Many people would downsize as they got older if it was cheap to do so. Instead we see people stay in a large house after their kids have moved out just because it is expensive to move.

If you made the costs to change property much lower and applied land tax to all property it would provide a far greater incentive for people to live in properties that suited their needs. This would reduce many of the housing supply issues we have in Australia.
 

Bowside

Peter Johnson (47)
Australia is generally a fairly low taxed country, particularly for a social democracy.

Personally I think a financial transactions tax could be beneficial (at a very low rate such as 0.1%) purely to try and counteract (or just tax) things like high volume trading done by hedge funds and speculators. This sort of trading badly distorts financial markets and increases volatility (by profiting on that volatility).

In a general taxation sense, the GST should rise to 12.5 or 15%. Other federal taxes (income and company) should remain fairly stable.

State taxes are generally inefficient and stamp duty in particular should be abolished. This should be counteracted by applying land tax to all property. One of the great distortions we have in the property market is that due to stamp duty, it is expensive to transfer property so people continue to live in properties that don't suit their circumstances. Many people would downsize as they got older if it was cheap to do so. Instead we see people stay in a large house after their kids have moved out just because it is expensive to move.

If you made the costs to change property much lower and applied land tax to all property it would provide a far greater incentive for people to live in properties that suited their needs. This would reduce many of the housing supply issues we have in Australia.

Changing the eligibility criteria for old age pensions (to include property but not some other assets), would also have the effect of forcing pensioners to downsize - which would be a constant source of liquidity for the property market.

I don't really agree with a transactions tax. I think they should instead make it compulsory to follow through with any market order you make, I feel it would have much the same effect without impacting the risk sharing purpose of financial instruments.
 

Scarfman

Knitter of the Scarf
I remain unconvinced such a tax is in any way needed.

I think a financial transactions tax could be beneficial (at a very low rate such as 0.1%) purely to try and counteract (or just tax) things like high volume trading done by hedge funds and speculators. This sort of trading badly distorts financial markets and increases volatility (by profiting on that volatility).

cyclo, this is an intervention-type tax to disincentivise (!) certain financial instruments which are distorting the financial fundamentals of the economy.
 

cyclopath

George Smith (75)
Staff member
cyclo, this is an intervention-type tax to disincentivise (!) certain financial instruments which are distorting the financial fundamentals of the economy.
Yeah, I get that, but would it apply across the board, or just in that specific setting?
Obviously 0.1% makes bugger all difference to me, but if you add another 3-5% to every transaction I feel it is unnecessary.
 

Scarfman

Knitter of the Scarf
No mate, I was just drawing an analogy wih the tax on other (similar) transactions to say that there could be a philosophical case for a tax of 2% - 3%. I'm actually calling for a 0.1% tax, which would be in line with Europe, which is the way our carbon tax has recently gone.
 
J

Jiggles

Guest
It’s an interesting idea but I doubt the cost-benefit would not make it worthwhile in Australia nor would it have much impact on volatility since Australian markets are very stable by world standards. Compared to New York, Chicago, European and Asian markets, Australian markets are relatively ‘boring’ with regards to what is traded. Financial markets in Sydney are dominated by equities and vanilla equity derivatives trading conducted by big institutional funds. The large majority of the institutionals are super funds that can’t make great speculative bets, are usually long only, and for the most part only use vanilla derivatives as hedging tools. They have pretty strict mandates regarding what they can and can’t do.

The hedge fund industry in Australia, which I guess this would be targeted at, is pretty immature by world standards and again it’s primarily focused on long/short equity strategies. The reason for this is barriers to entry are pretty high, so it’s much easier to go start a fund up in Asia where markets are much more open and more sophisticated products are readily available.

This idea may have merit in more sophisticated markets, but in Australia the majority of the tax costs would be passed on to the average person and his/her super for little to no benefit other than boosting government coffers.
 

Mank

Ted Thorn (20)
As a programmer who works in high frequency trading in the UK, I'm against it (the tax) :)

Then again, maybe it's time for a change, and the middle east has been gunning to steal the finance business from Europe for a while.
 
J

Jiggles

Guest
As a programmer who works in high frequency trading in the UK, I'm against it (the tax) :)

Then again, maybe it's time for a change, and the middle east has been gunning to steal the finance business from Europe for a while.

Do you think this tax would have much impact on HFT? Perhaps if a firms strategy was only just breaking even then the margins might be cut depending on volume, I suppose.

I've never working in HFT but from what I have read the risk management paramaters put in place regarding certain strategies actually contributed to the massive HFT driven downturns around 2008 in NYC. To put it simply, when the models saw the markets declining, they automatically unloaded their own positions driving prices further south. A self fulfilling prophecy in a way. Soros writes some pretty interesting stuff about this sort of phenomena and how to recognise it. Anyway I am sure you'd have a better understanding of this than me.

I think there are probably better ways to regulate against market volatility driven by speculation than a blanket tax, but nothing is as easy for a politician to understand and sell than a tax.
 

Mank

Ted Thorn (20)
Do you think this tax would have much impact on HFT? Perhaps if a firms strategy was only just breaking even then the margins might be cut depending on volume, I suppose.

It's a good question, and one I would like to know the answer to. I'm on the execution side though, the blip in the wire between the hedge funds (our clients) and the markets. I know a little about their strategies, but obviously not enough to know what their margins are. I'd like to look at markets which have implemented a transaction tax and see the affect.

I've never working in HFT but from what I have read the risk management paramaters put in place regarding certain strategies actually contributed to the massive HFT driven downturns around 2008 in NYC. To put it simply, when the models saw the markets declining, they automatically unloaded their own positions driving prices further south. A self fulfilling prophecy in a way. Soros writes some pretty interesting stuff about this sort of phenomena and how to recognise it. Anyway I am sure you'd have a better understanding of this than me.

Yes, it's happened a few times, it is fascinating (to some of us).

I think there are probably better ways to regulate against market volatility driven by speculation than a blanket tax, but nothing is as easy for a politician to understand and sell than a tax.

It's interesting for me because I'm uncertain what the impact would actually be, and since it's my livelihood I've got a vested interest. From an ethical point of view I must admit that my intuition is that a lot of the market problems could be due to stock prices driven by something other than fundamentals, but has that ever not been true? No HFT in 1929 right? Such a tax might doom HFT (I don't know), but I'm not convinced it'll get rid of sentiment driven markets, or human greed. I remain sceptical, and think at the moment, at least in Europe, it's just a reactionary tactic.

Btw, the UK in particular is very reliant on the finance system, so I think the powers that be aren't crazy about anything that could drive business abroad.

As an aside, the science that drives this stuff is fascinating. As I mentioned I'm on the execution side, so low latency and throughput are the areas we specialise in, but the actual algos that drive the trading are in an arms race and our clients are very demanding. We're all pushing the boundaries of technology in a way that very few other IT areas do, and that's got to have some positive affects?
 

wilful

Larry Dwyer (12)
A version of this has previously been called a Tobin tax, and thought of as a good way to pay for the UN.

As far as I'm aware, it would destroy HFT, which runs on much smaller margins than 0.1%

I'm no expert, but I haven't found more than the most shallow and spurious justifications for HFT - it sounds like the rentiers are out in force, clipping everyone's tickets.
 

Scarfman

Knitter of the Scarf
Here's a report in the SMH which seems to contradict some of the interested insider's accounts in this thread:

http://www.smh.com.au/business/highfrequency-trading-rewriting-the-rule-book-20121026-28azm.html

High-frequency trading rewriting the rule book

The spectre of ultra-fast trading has stalked the nation's sharemarket this month.

First, at the Australian Securities Exchange's annual meeting, where board members were peppered with anxious questions about high-speed or high-frequency trading - called HFT.

Then came the bizarre share price spikes on Thursday morning last week, when a handful of blue-chip stocks shot up, inexplicably, before just as strangely dropping back down, in the seconds before the market opened. The irregular price movements sent whispers hurtling through the market: were high-frequency traders involved?
[the article continues]
Read more: http://www.smh.com.au/business/high...e-rule-book-20121026-28azm.html#ixzz2AXH0BQhb
 

Antony

Alex Ross (28)
I think it's pretty hard to oppose this, even if you think HFT isn't a big deal in Australia, yet. It's still worth acting against, and this is a good way of doing it.

1. HFT exacerbates volatility, thus driving out institutional investors and making IPOs less reliable - driving yet more businesses to favour debt over equity;
2. HFT is too haphazard and rapid to effectively regulate;
3. A truly tiny impost would wipe out HFT margins (apparently they're as low as one basis point);
4. Therefore the entire practice could be nixed by a practically invisible tax (the US is debating a three basis point one). It wouldn't add any substantial disincentive to actual economically justifiable contracts (liability hedging etc.), and would only eliminate bullshit market manipulation.
 
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