IMF proposes two new bank taxes to fund bailouts
Banks around the world could face two new taxes to cover the cost of any future bailouts under proposals by the International Monetary Fund circulated to the Group of 20 countries on Tuesday.
London: Banks around the world could face two new taxes to cover the cost of any future bailouts under proposals by the International Monetary Fund circulated to the Group of 20 countries on Tuesday.
British Finance Minister Alistair Darling welcomed the IMF report, saying financial institutions have to pay something back to the society in which they operate. Bank lobby groups, however, said they were concerned that new taxes could damage competitiveness.
"We want proposals agreed as soon as possible," said Darling, who is scheduled to attend a meeting of G20 finance ministers and central bankers in Washington later this week.
Any agreement this week remains unlikely, not least because it was unclear whether European delegations would make it to the IMF/World Bank meetings in Washington given flying restrictions caused by a volcanic ash cloud, though European airports had started to return to life on Tuesday.
First proposed by British Prime Minister Gordon Brown in November, support for a global levy has been gaining traction in Europe and the United States as politicians try to appease public anger and find a way to recoup the costs of trillion-dollar bailouts. Canada, for one, remains opposed.
The IMF, itself, said this was just an interim report and a final version would be presented to G20 leaders in June.
The report, made available on the BBC`s website on Tuesday, proposes a "Financial Stability Contribution," which would be used to cover the cost of any future financial sector bailouts to ensure that never again will taxpayers have to shell out trillions of dollars to keep banks in business.
Most likely, the revenue collected would be paid into a bailout fund that could end up being some 2-4 percent of a country`s gross domestic product. The IMF also left the door open for the tax revenue to go directly into national budgets.
All financial institutions would have to pay, initially at a flat rate. The levy could be refined over time to make most risky organisations pay proportionately more.
The IMF also proposed a further tax on the financial sector that is designed to pick up additional revenue, which recognises that banks benefit from being part of a wider society -- an alternative to calls in some quarters for a so-called Tobin tax imposed on transactions.
The "Financial Activities Tax" (FAT) -- or a fat cat tax -- would be levied on the sum of the profits and remuneration of financial institutions and paid into national budgets. A source said it could raise amounts equivalent to something like 0.2 to 0.4 percent of gross domestic product.
"All taxes have an impact and more tax has more impact," said a spokesman for the British Bankers` Association. "The recommendations need to be carefully examined, but we remain concerned about moves which could place the UK industry at a competitive disadvantage."
The IMF stressed that international cooperation was important and Darling stressed that any bank levy had to be global in order to prevent regulatory arbitrage.
But politicians everywhere know that people are angry with bankers and in many cases blame them for the financial crisis that has cost millions of jobs and sent thousands of businesses to the wall.
In Britain, after a decade in which the City of London financial sector was held up as a beacon of excellence, the crisis and ensuing recession has meant that bankers are an easy target in the country`s increasingly unpredictable election campaign.
With polling day on May 6, both main parties have been vying to appear tough on bankers and on Tuesday rushed to welcome the IMF proposals and take credit for leading the way.
Labour Prime Minister Gordon Brown had first proposed a global bank levy at a finance ministers` meeting in Scotland in November. He also slapped on a one-off tax on bankers` bonuses.
The opposition Conservatives, meanwhile, have said they will seek international agreement on a bank tax but will go ahead with one in any case.
They are planning to raise roughly a billion pounds from a bank levy which they have said they would use for a promised tax break for married couples.
Aid groups reacted positively, and the proposals are likely to tap into the bank-bashing mood prevailing over much of the world in the wake of the financial crisis.
"The IMF has given a green light to taxing banks, which is positive. We need to see hundreds of millions of dollars every year going to fight poverty and climate change," said Oxfam spokeswoman Elizabeth Stuart.