European officials welcome IMF bank tax plans

21st April 2010, Comments 0 comments

European officials on Wednesday welcomed IMF proposals for two new global taxes on banks to cover the cost of future bailouts after hundreds of billions were spent to stabilise them.

The measures would see lenders and other financial institutions pay a levy as well as a further tax on profits and pay, which would aim to protect against a repeat financial meltdown, the BBC reported, citing a leaked IMF report.

Insurers, hedge funds and other financial institutions would also be required to pay the taxes so as to prevent banks reclassifying similar activities of their own so as 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.

The IMF proposals "are very much in line with what I presented last week" to European finance ministers, European Commissioner for Financial Services Michel Barnier said.

Barnier, speaking in Strasbourg on the sidelines of a European Parliament meeting, said the plans also called for an overall framework to prevent and manage future crises, complementing regulations.

"I have always favoured a pro-active stance," Barnier said, citing emergency planning put in place for natural disasters.

Britain has been pressing for the introduction of a global bank tax and its finance minister, Alistair Darling, welcomed the reported IMF plans.

"The recognition that banks should make a contribution to the society in which they operate is right," he said.

French Economy Minister Christine Lagarde said she was happy to hear of the IMF proposals and there was a wide choice of options available.

Governments of the Group of 20 advanced and developing countries -- which account for more than 85 percent of the global economy -- were given the IMF proposals on Tuesday and are expected to discuss them this weekend, 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."

Meanwhile, Canadian Finance Minister Jim Flaherty rejected the plans to tax banks, saying it would weaken their ability to absorb losses.

"This idea of taxing banks has gained support in some European countries and the United States," he said in a speech to the Canada Forum Euromoney Conference in Toronto.

"Their view is that these levies would penalise institutions that triggered the global recession and would create a cushion against future crises."

But removing capital from an institution to an external fund or to general government revenues "could result in weakening an institution's ability to absorb losses.

"A levy could result in excessive risk taking, because of the perception of a government guarantee against an institution's failure," he warned.

© 2010 AFP

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