An idea for global tax on banksNovember 7 2009
St Andrews, Scotland, Finance ministers and central bank governors of the Group of 20 leading nations launched a framework to promote a better balanced global economy on Saturday, but the meeting was overshadowed by a dispute about a global tax on financial transactions and little progress on financing efforts to reduce global warming.
The G20 agreed a detailed timetable for the new “framework for strong, sustainable and balanced growth” with finance ministers committing to have peer review and “more specific policy recommendations” in place by next November.
They hope that if all countries put political weight behind the negotiations over the next year, the world can recover without developing the huge trade and financial imbalances of the past decade. But there was no agreement on a specific set of common objectives, not a mechanism to resolve disputes.
An example of how difficult disputes are to resolve came as the G20 failed to make progress on climate finance. Ministers agreed only to keep working for an ambitious outcome at next month’s meeting in Copenhagen but could not agree on the amount of money developed countries will offer to poorer countries to help them reduce their carbon dioxide emissions.
The meeting was also overshadowed by a dispute about the possibility of a global tax on financial transactions. Speaking to the meeting, Gordon Brown, British prime minister, floated the idea of such a tax would help banks to pay for the insurance they receive from taxpayers.
His advisers stressed the UK had become much more supportive of a global tax on financial transactions – often called a “Tobin tax” – even though it was only one of four possibilities mentioned in the prime minister’s speech. He said the tax would have to be global for Britain to consider adopting it.
Within hours of the suggestion, the idea appeared still-born when Tim Geithner, the US Treasury secretary, told Sky News: “A day-to-day financial transaction tax is not something we are prepared to support.”
Similar ideas have been raised by Adair Turner, chairman of the Financial Services Authority, and Nicolas Sarkozy, French president, in recent months.
The US has always rejected a Tobin tax as impractical and undesirable, a position also supported by Dominique Strauss Kahn, the head of the International Monetary Fund in October. “I do not think that the very simplistic idea of just putting a tax on transactions will work. For many technical reasons I think it is very difficult to implement.
But some of the other measures mentioned by the prime minister – an insurance fee to reflect the risk of some banks, a pre-funded pool of money to support orderly bank bankruptcies and contingent capital arrangements – have more international support. The US is supportive of efforts to ensure banks cannot rely on taxpayers to bail them out in future.
Mr Brown made it clear that the Tobin tax idea was a non-starter if all the world’s big financial centres did not follow suit.
“I do not in any way underestimate the enormous and difficult practical and technical issues that will need to be overcome,” the prime minister said.
He said the purpose of his proposal was that “it cannot be acceptable that the benefits of success in this [banking] sector are reaped by the few but the costs of its failure are borne by all of us”.
Although the message from the prime minister’s office was that he was changing the UK’s stance on Tobin taxes, his speech was much more cautious. “There have been proposals for an insurance fee to reflect systemic risk or a resolution fund or contingent capital arrangements or a global financial transactions levy.”
He called for the IMF to look at all four and report back in April, something the Fund was already doing.
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