TAX NEWS - JUNE 2010

EU Barroso Backs Financial Tax To Support Budgets

by Matthew Dalton, 02 June 2010 -- European Commission President Jose Manuel Barroso voiced support Wednesday for a financial transactions tax that could be used for general purposes.

The commission last week proposed a different tax on banks roughly based on their size, rather than on individual transactions, and using the money to fund the "orderly failure" of weak banks. The commission, however, doesn't want those funds used for general spending, a position strongly opposed by the U.K. and France.

"I personally am in favor of what is called a financial transaction tax," Barroso said. "It's only reasonable that there should be a contribution from the financial sector for the common good, not just for insuring the banks."

European governments have no more room for deficit spending, but economic growth is still possible even while deficits are being cut, Barroso said.

"There is simply no room for more deficit spending," he said.

The European Union must also depend less on ratings provided by the three major credit-ratings agencies and will consider proposals next year on the issue, Barroso said.

"We want to come forward with ideas to ensure that we don't depend so much on agencies, that we have alternatives," he said.

The first of these proposals could come in September and include ideas to create a European credit-rating agency to compete with Standard & Poor's Corp., Moody's Investors Service Inc. (MCO) and Fitch Ratings Inc., which are all from the U.S.

"Is it normal that all of them come from the same country?" Barroso said.

Barroso also suggested that export credit agencies might be able to provide competition to the three major credit-ratings agencies, mirroring an idea proposed by Christian Noyer, governor of the Bank of France, in an interview Wednesday.

"If some of these entities want to explore that avenue, it's a possibility that deserves to be considered," Barroso said.