IMF proposes double tax hit for all banks
BANKS around the world could face two new taxes to cover the cost of any future bailouts under proposals by the International Monetary Fund (IMF) circulated to the Group of 20 countries yesterday.
The report 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 two-four per cent 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.
Bank lobby groups warned the new taxes could damage competitiveness.
“All taxes have an impact and more tax has more impact,” said a spokesman for the British Bankers’ Association. “We remain concerned about moves which could place the UK industry at a competitive disadvantage.”
The IMF stressed that international cooperation was important and chancellor Alistair Darling stressed that any bank levy had to be global in order to prevent regulatory arbitrage.
First proposed by Prime Minister Gordon Brown in November, support for a global levy has gained popularity in Europe and the United States as politicians try to appease public anger and recoup bailout costs.