UK gives impetus to global banks tax, U.S. doubtful
By Huw Jones
ST ANDREWS, Scotland, Nov 7 (Reuters) – Britain urged world governments on Saturday to consider a levy on banks to fund future bailouts, departing from long-held opposition, though there was little sign of the consensus needed to make it fly.
British Prime Minister Gordon Brown raised the idea at a weekend meeting of Group of 20 financial leaders in Scotland — ending London’s resistance to such moves on behalf of its huge financial sector.The United States, key to the success of any global initiative, rejected a tax on day-to-day transactions, though it left the door open to other ways to protect taxpayers from losses. Canada was also lukewarm.
“A day-by-day financial transaction tax is not something we are prepared to support,” U.S. Treasury Secretary Timothy Geithner told reporters.
“This idea (of a bank transaction tax) has been around for a long time … I think frankly the experiences are mixed.”
In a briefing later, though, he also signalled the United States would engage in work to seek ways to recoup the costs of future bailouts and protect the economy and important institutions like pension funds from banks’ losses.
“I think it’s fair to say that this view is shared by many countries that we need to build a system in which tax payers are not exposed to such risks in future,” Geithner told reporters.
British Prime Minister Gordon Brown joined earlier calls from France and Germany in saying it was time for banks to give something back after governments have poured billions of dollars to shore up the sector.
Brown’s intervention took the G20 by surprise though he was careful to list several tough conditions before Britain would actually commit to a new levy, such as full support from all the world’s top financial centres, including the United States.
Canada said banks that get into trouble should bear the consequences but a tax may not be the best solution.
“It’s one of the ideas that’s on the table, but is not particularly attractive to me as finance minister of Canada. We have been a government that has been reducing taxes,” Jim Flaherty told reporters.
Britain this week forked out another 30 billion pounds on bailing out two of its biggest banks for the second time, and opinion polls all show Brown heading for defeat at the hands of opposition conservatives in next year’s election.
“We should discuss whether we need a better economic and social contract to reflect the global responsibilities of financial institutions to society,” Brown told the G20 meeting.
“There have been proposals for an insurance fee to reflect systemic risk or a resolution fund or contingent capital arrangements or a global transaction levy,” he said.
Brown said the International Monetary Fund would review the possibility of a global transaction tax and report back in April next year.
“I do not in any way underestimate the enormous and difficult practical and technical issues that will need to be overcome that a globally cohesive system requires and raises.
“But I do not think these issues should prevent us from considering with urgency the legitimate issues I have discussed,” he said.
IMF Managing Director, Dominique Strauss-Kahn, said it was probably impossible to find a transaction tax that would not be avoidable by potential taxpayers.
“So it will be based not on transactions but on something else,” Strauss-Kahn said.
A bank sector tax, including a “possible windfall tax for 2009, a one shot thing” and a more long-term tax were two possibilities, Strauss-Kahn added.
Banks have already warned the G20 that if they have to meet new higher capital charges too soon, they will have less money left to lend and aid recovery.
Britain has repeatedly rejected a long-standing idea for a so-called Tobin Tax on cross border foreign exchange transactions to quell speculation.
G20 officials said the levy mentioned by Brown would be broader and could be on all financial transactions or bank earnings. The levy would be small, perhaps around 0.005 percent, much lower than a Tobin Tax. (Additional reporting by Glenn Sommerville and David Milliken, Editing by Patrick Graham)
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