In a move designed to put pressure on the European Commission to push ahead with its proposals for taxing the financial sector, the European Parliament has approved a non-legislative resolution in favour of a report which recommends the introduction of an EU Financial Transaction Tax (FTT).

The Commission itself has been working on ideas for taxing the finance sector. In October 2010, it published a Communication on the viability of an FTT and a financial activities tax (FAT) (See European Commission proposals for taxing the financial sector). At the end of February 2011, the Commission launched a consultation on financial sector taxation, seeking views on the impact and feasibility of various policy options in this area, the potential design of the tax and possible problems.

MEPs were voting on an "own-initiative" report by Greek Socialist MEP, Anni Podimata. The report proposes an FTT in addition to bank levies and FAT. The report suggests a rate of between 0.01% and 0.05%, on a broad tax base covering every type of financial transaction. The estimated revenue potential of the FTT at a rate of 0.05% would yield nearly EUR200 billion per year at EU level and US$650 billion at global level.

The report states that the tax should have the broadest base possible to ensure there is a level playing field in the financial markets. It suggests that the tax could be graded, to create positive incentives to move financial transactions away from over-the-counter trading to more transparent and regulated venues. The intention is that the FTT will help curb speculation and tackle short-term and automated high-frequency trade transactions which are seen to be highly damaging. It is hoped that the tax will improve market efficiency, increase transparency, reduce excessive price volatility and create incentives for the financial sector to make long-term investments. The report calls for an impact assessment on the feasibility of a FTT to be presented as soon as possible, with the intention that it constitute the first step towards legislative proposals.

The Commission was quick to distance itself from the Strasbourg vote. Algirdas Semeta, EU Taxation Commissioner, said the idea of pursuing such a tax at EU-level only was "premature" and he believed such a tax was necessary at a global level. "In fact, taking into account the potential impact that this could have on European competitiveness, it would be irresponsible to proceed with such a tax without first analysing and fully understanding all the implications". Commission officials are due to publish their conclusions on the various options for taxing the financial sector by the summer.

Although the MEPs' vote has no legislative effect, and the European Commission would need agreement from all member states before proceeding with a tax policy, nonetheless a symbolic vote of 529 to 127 piles pressure on Brussels to look more closely at the FTT, when the Commission begins negotiations for the next EU budget later this year.