The International Monetary Fund has proposed two new global taxes on banks and other financial institutions to cover the cost of future bailouts, the BBC reported Wednesday.
The measures would see all institutions pay a bank levy as well as a further tax on profits and pay, which would aim to protect against future financial meltdown, the BBC said, citing a leaked IMF report. Governments of the Group of 20 advanced and developing countries — which account for more than 85 percent of the global economy — received the documents Tuesday, the BBC said.
Finance ministers would discuss the proposals this weekend, it added. Insurers, hedge funds and other financial institutions would also be required to pay the taxes under the IMF proposals, despite the fact they were less implicated in the recent financial crisis. This was to prevent banks reclassifying activities they currently carry out as other services — such as insurance or hedge-fund services — in an effort to avoid the levy. The general levy, called the “financial stability contribution,” would start at a flat rate but would eventually be changed so businesses judged to be riskier paid more, the BBC said.
Several proposals have been put forward by different governments to cover the costs of future economic rescue packages, including a tax on financial transactions. But many have been reluctant to unilaterally introduce taxes to pay for future bailouts, believing coordinated action is the only option. If governments acted alone, it is feared that institutions would simply move their operations to places with less stringent financial regulation.
The IMF report, which will form the basis of a submission to the G20 summit in June, states international cooperation in the introduction of the new levies would be “beneficial.” “Countries’ experiences in the recent crisis differ widely and so do their priorities as they emerge from it. But none is immune from the risk of a future — and inevitably global — financial crisis,” it said. “Unilateral actions by governments risk being undermined by tax and regulatory arbitrage.”
Britain has been pressing for the introduction of a global bank tax and Finance Minister Alistair Darling welcomed the contents of the leaked IMF proposals. “The recognition that banks should make a contribution to the society in which they operate is right,” he said. However, the British Bankers Association was cautious at the prospect of an additional tax, noting that members have already made changes in the fallout from a global crisis which saw several lenders bailed out by the government.
“UK banks have already made structural changes — as well as being required to hold more cash and capital — to limit future risk,” the BBA said, noting also that “the banks have also historically been major contributors” to government coffers. The reported IMF proposals “seem to be both wide-ranging and significant, covering two types of taxation,” it said. “All taxes have an impact and more tax has more impact. The recommendations need to be carefully examined but we remain concerned about moves which would place the UK industry at a competitive disadvantage internationally.”
Prime Minister Gordon Brown told the Financial Times newspaper earlier this month that the large economies were getting closer to a deal on the banks. Britain, France and Germany were broadly agreed on the need for a levy, Brown said, adding he hoped the United States would join them. He added that he wanted a deal to be struck at the G20 summit in Seoul in November. French Economy Minister Christine Lagarde said Wednesday that she was happy to hear of the IMF proposals and there was a wide choice of options available.
London, April 21, 2010 (AFP)