Tobin’s tax confirms its failure after two years in force

It was one of the big assessments of the Government in terms of collection a few years ago. And after just over two exercises in force – it was launched in January 2021 – everything indicates that tax on financial transactions (better known as Tobin’s tax), it will go down in history as a thorn in the shoe to attract new investors, not as an effective plan to increase government revenues.

The latest data from the General Intervention of State Administration (IGAE) show that the Treasury has collected 111 million between January and April at this rate, down 4.3% than in the same period last year, when HRK 116 million was collected in those four months.

One of the reasons why this tax is diluted compared to the calculations of the executive is the very composition of the Spanish stock market. And this year Tobin’s tax taxes the acquisition of shares of listed companies at 0.2% which had a capitalization of more than 1,000 million euros on December 1, 2022. Problem? That the declines experienced in 2022 in the stock market limited the number of companies exposed to the tax to 52, below 57 in 2021.

Moreover, the recovery that the national park is experiencing this 2023 — with an accumulated increase of 13% so far this year — does not mean that the collection will be much higher, since one of the great evils that has dragged the national market for years is the decreasing volume of trading. According to data managed by BME, trading volume on the Spanish stock market in May — the latest available data — reached 22.919 million euros. That is 28.7% less than last year.

Compared to April, the drop is 16.5 percent. On the other hand, the number of operations registered in the month was 2.05 million, 39.5% less than in May 2022, but 5.7% more in a monthly rate. Since the beginning of the new year, the collapse of turnover is close to 22%, to a total of 139,618 million euros, while the number of jobs fell by 35.1%, to 12.7 million.

To give you an idea, in May 2019, before the pandemic and the tax taking effect, 40.137 million euros were traded on the Spanish stock exchangetwice as much as in the same month this year, and even then it represents a strong decline compared to previous periods.

Operator exit

It is impossible to calculate how much the tax on financial transactions is responsible for this development. But the National Securities Market Commission (CNMV) has warned on numerous occasions that the tax could cause many operators passed their trades from regulated markets (in which the rate is effective) to other alternative platforms, so-called OTC (Over the Counter, by the acronym in English).

Completely legal markets, but where the parties directly negotiate the business of buying and selling (without intermediaries such as banks or the Stock Exchange itself) and no tax is applied. The pitcher of cold water with expectations was total. When the Ministry for The Ministry of Finance presented its proposal for the Tobin tax, the aspiration was to collect around 850 million euros per year. In 2021, barely 296 million were entered. Thus, the goal for 2022 was reduced to 372 million euros. But again, and finally, 196 million euros were registered (almost 34 percent less), according to the data from the Annual Report on Collections of the Tax Administration for that year.

In the proposal of the General State Budget for 2023. The government has estimated that around 335 million euros will be brought in with the tax. And if the trend continues as before, it is to be expected that the number will be fulfilled. But things also looked good in 2022 and the targets were not met. In other words, this figure is already a long way from the huge revenue-raising commitment made by the Government, which seems to have been somewhat more successful with other newly implemented tax figures such as the Google rate (digital services tax), which this year raised 80 million euros, which is 8% more than in the same period of the previous year.