UK Prime Minister, Gordon Brown, surprised delegates to the G20 meeting in Scotland by advocating a transaction tax on banks, a move which did not receive any support from the US delegation.
Brown's proposals included a transaction levy, an insurance fee to recognize the systemic risk represented by bank operations, or contingent bank capital arrangements – but it was the first suggestion that garnered the most attention. While he recognized that there would be practical and technical difficulties in implementing any transaction tax, and that it would have to be applied in all countries, he felt that it merited serious consideration.
A tax on financial transactions, or “Tobin”, tax was first mooted over 30 years ago, when it was aimed at dampening speculation in the foreign exchange markets. It has been advocated recently by a range of supporters, including the French government and Lord Adair Turner, head of the UK’s Financial Service Authority.
Opponents point to the myriad and complex nature of financial transactions now in the global marketplace, and to their fast-changing nature, arguing that this makes such a tax impossible to achieve in practice.
The communiqué issued after the G20 meeting made no mention of any bank taxation. In fact, following Gordon Brown’s proposal, the US Treasury Secretary, Timothy Geithner, said that the US would be unable to support any such transaction tax proposal.
The International Monetary Fund’s (IMF) managing director, Dominique Strauss-Kahn, confirmed that a Tobin tax was one of the options being considered by the IMF for its report due in April next year, but he suggested that other forms of taxes on banks were more likely to be recommended.
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