HAT’S BEEN PROPOSED AT THE GLOBAL LEVEL?
A. The IMF has proposed two new bank taxes: a financial stability contribution (FSC) would be linked to a resolution mechanism to pay for the fiscal cost of any future government support to the sector. Any further contributions would be raised by a financial activities tax (FAT) levied on the profits and remuneration of banks. The FAT tax could raise amounts equivalent to 0.2 per cent to 0.4 per cent of a country’s GDP, and the FSC tax could build up a fund equivalent to 2 to 4 per cent. The current crisis has cost G20 countries about 2.7 per cent of GDP.
Q. IS A GLOBAL LEVY NOW SEEN AS A CERTAINTY?
A. Far from it. While there is support in Europe and the US for some form of levy, Canada and others such as Australia feel banks should not be penalised with an extra tax as they did not require rescuing. There is also disagreement over its scope and use. Sweden and Germany back a dedicated fund for winding up banks in a future crisis. Britain and France want money raised by a levy to go directly into the treasury. The US plan is only for recouping taxpayer aid in the current crisis and then it would expire.
Q. Does this mean the tobin tax idea is dead and buried?
A. A Tobin-style tax on financial transactions -- named after the US economist James Tobin whose idea it was in the 1970s -- was rejected last year by the US, effectively sealing its fate. The IMF said such a tax won’t work but German politicians are still pressing for one.