In his annual State of the Union address to members of the European Parliament, Commission president José Manuel Barroso on Wednesday floated the idea of levying a financial transaction tax to raise up to €55 billion in additional revenue to be split between the European Union and its member states. It’s a ridiculous notion that should be defeated quickly.

Barroso insisted that it was only fair that the financial industry “make a contribution back to society” after European governments had bailed out banks with guarantees amounting to €4.6 trillion in the wake of the 2008 financial crisis. “If our farmers, if our workers, if all the sectors of the economy from industry to agriculture to services, if they all pay a contribution to society, also the banking sector should pay a contribution to society,” according to the president. Besides, he wondered, where else should the money come from?

Are we going to tax labour more? Are we going to tax consumption more? I think it is fair to tax financial activities that in some of our member states do not pay the proportionate contribution to society.

Whatever is the “proportionate” contribution to society, Barroso wouldn’t say. What he also wouldn’t say is that banks, like all businesses, pay their fair amount in corporate taxes although rates differ between European states. Instead, he suggested that the banking sector isn’t paying a “contribution to society” at all which is nonsense.

The financial transaction tax that Barroso proposed, and hopes to introduce in 2014, would enforce a 0.1 percent tax on the exchange of shares and bonds and a 0.01 percent tax on derivative contracts. Some 85 percent of transactions between financial institutions would thus be taxed.

The rates may seem modest but an average trader might oversee thousands of transactions per day. For companies, it adds up. A special banking tax would likely prompt them to move their trades out of the European Union to Hong Kong, New York or Singapore. London would be hit hardest because it is by far the largest financial market in Europe. The British financial services industry account for roughly 10 percent of the nation’s economic output, 11 percent of its total income tax and 15 percent of corporate tax revenue. To pretend that The City doesn’t pay its “fair share” is therefore preposterous. It pays its fair share more than 50 percent over!

When Sweden tried a financial transaction tax in the 1980s, share prices fell rapidly and half of Swedish equity trading moved to England. The volume of bond trades fell by 85 percent and futures trades by 98 percent. The options trading market virtually disappeared overnight.

Brazil similarly failed to raise much revenue with its transaction tax in the 1990s. Both Brazil and Sweden have since abolished the tax and for good reason. It doesn’t work because it is immoral. Governments shouldn’t single out any industry for special taxation even if they chose to use trillions of euros in taxpayers’ money to stop the market from punishing these companies for the poor business decisions they made.