An international group of finance experts from Brazil, Japan, France and Britain, including the boss of the U.K.'s main chartered accountancy body, have criticised plans for bank taxes put forward by governments and the IMF in favour of reviving the idea of a “Tobin tax” on foreign exchange trades.
The global tax could raise $33bn to fund development projects and bring nations together in a single effort to combat poverty rather than create divisions through competing bank taxes, the report said.
The report by the Leading Group, put together by French Foreign Minister Bernard Kouchner and the previous British Labour administration, follows calls by the U.K.'s Lord Turner for a tax on bank transactions alongside taxes on profits and bonuses.
It said a tax on foreign exchange deals, which would cost an extra 0.005% on each trade, would best meet the criteria “as the most appropriate source of revenue to fund public goods and share of wealth generated by globalised companies.”
The Leading Group of experts is hopeful their report will be given a hearing ahead of the G20 summit in the autumn which will debate various proposals for internationally agreed bank taxes.
But after months of debate over the most likely way to support developing countries through a tax on banking, the report is likely to be seen as supporting a radical policy with little likelihood of high level agreement. Critics of the G20 expect rich nations to reject a global tax in favour of individual nations adopting their own schemes. The U.K. government has agreed to apply a tax on bank profits and is considering a tax on bonuses if it reaches international agreement.
The U.S. government has also come under acute pressure from Wall Street institutions to block further tax raising measures, including a levy on foreign currency trades. Under the latest proposals, the tax would be applied to deals in the four main currencies — the dollar, yen, euro and sterling — that are traded in foreign exchange markets. If the U.S. government opted out of the scheme the majority of tax revenue would be lost.
Michael Izza, chief executive of the Institute of Chartered Accountants in England & Wales, said the group was given a remit to investigate a method of raising funds that not only generated billions of pounds, but also avoided tax arbitrage across the major economies. “A tax on currency trading was attractive because probably for the first time we had centralised currency settlement systems that allow small taxes to be collected. It is not a technical problem, only one of political will,” he said.
Mr. Izza said there were concerns that banks would attempt to trade away from the main currency markets to avoid the tax. But the committee said in the report that avoidance could be discouraged by central banks, which controlled the currencies and monitored the trading environment. The IMF recently rejected a Tobin tax, named after the economist Peter Tobin who proposed a levy in the 1970s on foreign currency trades.
IMF boss Dominique Strauss Kahn, a former French Foreign Minister, argued it would be passed on to customers and investors would pay the tax and not bank shareholders. The Leading Group report said it was likely some of the tax would be passed on to customers, but only in the way all taxes are part of trading costs. It said the burden would be shared internationally under a global currency tax.
Unlike taxes applied by national governments, the “Global Solidarity Tax” would be paid into a central pool and shared among developing nations. The increased cost of a 0.005% levy on a $1m trade would be $50. But the billions of transactions each year would raise $33bn, it said. — © Guardian Newspapers Limited, 2010
