Wednesday, 30 August 2006

Txt Msg Tax = :-(

In May, a senior centre-right French MEP named Alain Lamassoure suggested that the EU should levy a tax on text messages (SMS) and email messages to shore up the future financing of EU programs. The suggestion came at the joint European Parliament and national parliament conference on the future of Europe in Brussels and was later debated in the Committee on Budgets. It now appears increasingly likely that the proposal will be considered at the next committee meeting in September despite widespread opposition to the measure that eventually prompted even Lamassoure to distance himself it.

Originally, Lamassoure had this to say: “The economic value of today’s globalization lies in information through transactions in the form of international communication. Why don’t we levy taxes on this value?” Under his proposal, a tax on an SMS sent within the borders of a member state would be allocated to the national government of that state, while taxes collected on messages sent between the member states would accrue to the EU. The same would apply to email messages.

Lamassoure also argued that in times of globalization, it is less and less easy for states to raise tax revenues. “I suggest this as an idea not only for the EU but also for member states themselves and on the worldwide scale,” he said. He compared his idea to the “Tobin tax” proposed in the 1970s to tax cross-border currency trading.

This “revolutionary” proposal is economically illiterate and politically senile.

The Tobin transactions tax is based on the idea that absent intervention, excessive volume of trading in currencies poses potential risk of emergence of financial bubbles, leading to irrational and disruptive volatility in the market. Since its conception in the 1970s, the Tobin tax has been shown to be counterproductive in several markets, such as real estate.

Volatility — the sole argument for Tobin tax — is hardly a problem in the world of personal communications. Does anyone really worry about the fact that messaging flows may peak during the lunch and early evening hours, when people are off work, followed by deep troughs during the late night hours, when the majority of the population is asleep? Furthermore, while reducing the overall flow of communications across all hours, a tax on SMS and email will hardly change this pattern.

Another argument in favor of the tax is that it can help in reducing spam. However, the tax on emails will have to be applied across all jurisdictions in order for it to be effective against spam. Short of some remarkably cohesive and comprehensive international treaty, a tax on emails within the EU will simply push spam producers to offshore internet service providers not covered by EU law.

If volatility is not a problem, and spam is not a target, then these transaction taxes will do nothing more than give greedy governments another source of revenue. Remember: SMS messages and other telephone services are already subject to VAT levies in all member states, ranging between 15 and 21 percent of the value of mobile and internet bills. Thus the new French proposal is nothing more than an attempt to impose dual taxation on a single service.

The real problem with the proposal is that imposing a new tax on services will result in mobile telephony and the internet moving in the direction of higher costs and lower quality of services, and in lower utilization of these services. The only reason that, until recently, the EU led the US in mobile telephony is the fact that landline telephone services in Europe were too expensive and poor in quality. The latter prompted strong substitution away from the landline services in favor of mobiles. Now the French are proposing to push new technologies in the direction of the old one. Just how this fits the EU’s stated objective of achieving rapid growth in the R&D and knowledge-intensive sectors is unclear.

Overall, the French idea is something that may make sense only in the world of statist, protectionist, status-quo-preservation that is modern France. Afraid of anything that lies beyond the immediate control of the state, French political discourse is becoming increasingly Orwellian. Thus, the ghosts of US “cultural imperialism” and the bugbears of globalization became the mantra of French society, breeding paralyzing fear of change in the nation’s psyche.

If the EU needs more funding for its worthwhile programs, it has plenty of wasteful ones it can do away with. How about giving a boot to ag subsidies? Or, better yet, how about a tax on bizarre French economic ideas?
By Constantin Gurdgiev
This article first appeared on