The populist ‘Robin Hood’ tax, named after a heroic outlaw in English folklore that took from the rich to give to the poor, is being heralded as a way that the financial services industry pays its way for the government bail-outs it has received. But will the Financial Transaction Tax endanger the future of UCITS?
The FTT will result in money market funds – many of which use the UCITS wrapper – going out of business, according to the European Fund and Asset Management Association. EFAMA says the levy will also reduce the attractiveness of long term savings in equity, bond and balanced funds – many which also use the wrapper.
This is because financial products that use UCITS would be hit twice over: when investors redeem their UCITS shares/units and when UCITS fund managers buy and sell securities or derivatives.
No one can deny that the financial services sector is being propped up directly and indirectly through trillions of dollars of bailout cash it received from governments via taxpayers. But expecting savers to pay, when there are negative interest rates and the intrinsic value of their savings has declined because of inflation, seems the wrong remedy.
Deposit accounts and life insurance saving products are not covered by the tax and thus the move is likely only to limit savers and stifle innovation. Hitting out at savers, directly or indirectly, is not the solution to this conundrum.
The global financial crisis exposed governments’ desperate lack of cash. Individuals are expected to save for their long term futures. But part of the problem with the FTT – however well-intentioned it might be – is that it taxes investors who have taken responsibility for their financial future and will hinder developments in the industry at a time when investors urgently need it.