Brown calls for global tax
By Angela Monaghan | theage.com.au | 19 November
The international finance community was split over the weekend after British Prime Minister Gordon Brown surprised world leaders by announcing that he wanted to explore a multibillion-dollar worldwide tax on financial transactions.
The about-face by Mr Brown on a global transaction tax, which had previously been briefed against by the British Treasury, comes after public anger that banks are still free to make multibillion-dollar profits despite being propped up by taxpayer money.
Yesterday, US Treasury Secretary Timothy Geithner said America did not back proposals for fees on financial transactions. ''A day-by-day financial transaction tax is not something we're prepared to support,'' he said. France and Germany have traditionally been in favour of such a global tax.
Australian Treasurer Wayne Swan said it was prudent to wait until the International Monetary Fund reported back on the proposal, given it had first been raised at a summit of G20 leaders in Pittsburgh in September.
''But I just would make this point - that it [the proposal] was raised in the context of countries where there had been massive bail-outs of the banking system. And that has not been the case in our country,'' Mr Swan told ABC television yesterday.
Addressing G20 finance ministers at a meeting in St Andrews, Scotland, Mr Brown said that a global tax on transactions, or ''Tobin tax'', should be considered to address the need for ''a better economic and social contract to reflect the global responsibilities of financial institutions to society''.
It is not yet clear how a levy on transactions would be designed. But the Austrian Institute for Economic Research has calculated that if shares, derivatives and currency transactions were taxed at a rate of of 0.05 per cent it could raise some $US690 billion ($A751 billion) globally each year.
The idea of such a tax is to make banks pay for the risks the financial sector poses to the broader economy, and the prevailing possibility that the taxpayer will be called upon to the bail them out.
The surprise move from Mr Brown, who decided to speak at the conference at the last minute, made it clear that he wants Britain to take the lead in a hardline approach to the banks.
He said the International Monetary Fund would review the possibility of a global levy and report back in April next year - signalling that the G20 had agreed as a group to take up the matter more seriously.
The British Prime Minister warned, however, that it would not act alone, and said the success of such a policy would depend on international agreement.
''Let me be clear: Britain will not move unless others move with us together. [Any measures] would have to be global, to reflect the existence of the world's first truly global sector and thereby create a level playing field.
''They would need to be implemented by all responsible financial centres in the world - the US, Europe, Asia, the Middle East and Switzerland.''
The proposal has been floated as Australian banks are already resisting a crackdown on rules related to liquidity.
Meanwhile, Mr Swan said the Australian Government continues to evaluate whether to begin winding back a wholesale funding guarantee for banks.
''In the last couple of months or so the major banks have been raising term funding without the use of the guarantee. And to some extent the pricing mechanism that we put in encourages that to happen,'' Mr Swan said.
''But we're looking at it from time to time, and it's a matter that is being considered by the Council of Financial Regulators.''
First published by TheAge.com.au on November 19 2009
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