Cause and Effect in European Politics and Law

Hello, Is This the Bulgarian Position? No, You Got the Wrong Number

Ralitsa Kovacheva, April 1, 2012

Is there a change in the Bulgarian position on a financial transaction tax (FTT)? And if so, why was the change needed and what is its direction? Not for the first time euinside is asking these questions, but once again their answer is not particularly clear, moreover, as it turned out, not only to us. As we wrote, two independent and well-informed sources told euinside that the Bulgarian position on the FTT had softened and was no longer firmly against. Despite our persistent efforts and several e-mails with questions to the Ministry of Finance, so far we have not received any response.

The issue is even more important since it is part of the debate on the revenue side of the EU budget. The European Commission proposed to introduce the FTT as a new own source of revenue in the budget, together with the so-called European VAT. So naturally the question was raised during the conference "Bulgaria and the EU Multiannual Financial Framework 2014-2020", organised by the Economic Policy Institute. The timing of the discussion was very good, given that the debates on the MFF have inflamed at European level. The event was meant to present the Bulgarian positions on the key elements both from the revenue and expenditure sides of the next seven-year European budget.

The European Commission is giving increasingly convincing arguments in favour of the tax. The last such strong argument was expressed by Commissioner Lewandowski, EU budget commissioner, that the introduction of FTT would reduce national contributions by half, said Monica Panayotova, chairwoman of the Committee on European Affairs in the National Assembly. Minutes later, Ms Iren Rusinova with the Ministry of Finance, said that if a decision was taken to use the FTT as an own resource for the EU budget, Bulgaria would not oppose. This is a new element in the Bulgarian position and fully understandably it was perceived as news by everyone in the room. It was perfectly logical to assume that since Bulgaria was not against the FTT as own resource to the EU budget, then it was clearly not against the introduction of the tax itself. However, this turned out to be a wrong assumption.

euinside asked why has the Bulgarian position changed, whether from firmly against it had become fully in favour of the tax and based on what arguments. Ms Panayotova replied that she could not comment on why the Bulgarian position had changed, since she had just learnt about such a change. We will invite Deputy Finance Minister Boryana Pencheva in the Committee on European Affairs to explain what arguments have prevailed, Monica Panayotova said. Iren Rusinova contributed to the total confusion by saying she did not know about a change of the official Bulgarian position on the introduction of the tax. From her words it became clear that rather a new element was added - if the FTT was to be adopted Bulgaria would not oppose it to be used as own resource for the European budget. This clarification is important because there are countries (like Germany, for example) supporting the FTT, but willing to collect the revenue in the national coffins, rather than in the EU budget. The European Parliament in turn believes that the tax should serve precisely as an own resource to the EU budget and must be used for financing European policies.

Ms Rusinova in turn asked if the Economic Policy Institute had done any research on how the tax would affect the Bulgarian economy and financial sector. The position of the economists is that Bulgaria has no reason to worry if the FTT is to be introduced since it will not have any significant impact on the economy, nor would it drive potential investors away from the Bulgarian financial market.

As you know, according to the European Commission proposal, if implemented across the EU the FTT would bring revenue of 57 billion euros in the EU Budget. Commissioner Janusz Lewandowski announced recently that if FTT was introduced as an own resource the national contributions would be halved or would drop by totally 54 bn euros in 2020. The Commission's proposal is two thirds of the FTT revenues to enter the European budget, reducing with the same amount the national contributions, which are based on gross national income, and the remaining one third to be retained by the member states. The Commission's calculations show that, if the FTT is introduced Bulgaria's contribution would be reduced by 176 million euros.

At the latest discussion on the FTT by EU finance ministers, Germany put a deadline the issue to be solved by the end of June. The problem is that there are countries which are strongly opposed to the introduction of the tax, and those supporting it are not united - some believe revenues from the tax should remain in national budgets, others say money should go to the European budget. A third group is in favour of the tax but only if it is adopted at European level. If this cannot happen, there is an option to apply the principle of enhanced cooperation and the tax to be introduced only in countries willing to. France and Germany insist FTT to be introduced at least in the eurozone. Some MEPs, mainly from the left, advocate a similar position, but the parliament is not united on the matter.

Among the euro area countries, however, there are some opposing the FTT, such as Luxembourg which relies heavily on its financial sector, and Ireland, which is worried that if Britain did not apply the tax businesses could easily move from Dublin to London. The Netherlands fears that the tax would seriously affect the pension funds and so it would punish pensioners, instead of financial institutions. It is also obvious that the introduction of the tax in a limited number of countries will not bring the expected benefits when introduced at European level.

By the end of June the European Parliament should also be ready with its position on the subject, and as a result of negotiations in the Council, balance of power between the member states will be clear. The Danish EU Presidency is committed to work together with the European Commission to find the needed compromise and to propose alternatives. But as tax commissioner Algirdas Semeta said before the Economic committee in the EP, it was about looking for a compromise on the current Commission proposal, not about inventing new options.