G20 fails to reach agreement on bank tax

AFP - Americans and Europeans failed Friday to convince G20 partners to approve a financial sector tax aimed at reimbursing bail-outs of banks that sparked the global economic crisis.

The initiative was first floated in November at a meeting of finance ministers from 20 leading developed and developing countries in Saint Andrews, Scotland, but sparked dissension at their latest meeting in Washington.

A G20 statement called on the International Monetary Fund to continue work on the issue ahead of a G20 summit scheduled in June in Toronto.

The IMF presented finance ministers and central bankers with a report that proposed two taxes, one on each financial institution according to its level of assets, risky ones in particular, and another on profits and pay.

Fund experts said the taxes must be coherent among all G20 members to prevent banks from avoiding them by moving operations to countries where the levies were not applied.

But one of the meeting's hosts, Canada, led opposition to the idea, refusing to impose a charge on institutions that made it through the financial crisis relatively unscathed.

"Some countries are in favour of that, some countries quite clearly are not," said Canadian Finance Minister Jim Flaherty, who declared his own opposition to the idea.

He received backing from Brazilian counterpart Guido Mantega, who said: "I would prefer to curb risk by demanding that banks maintain higher reserves.

"The crisis did not originate in our financial systems," Mantega noted.

Their arguments were opposed by four major countries that support a financial sector tax: Britain, France, Germany and the United States.

"We explained to the Canadians that although the risk did not materialize this time, it could the next time around," French Finance Minister Christine Lagarde said.

She stressed however that "there was never any question of reaching an agreement today. We still need to examine the tax base, its rate and its target," but acknowledged that "the countries are not all on the same wavelength."

The IMF must now come up with a compromise to its innovative plan for what has been dubbed a "Financial Activities Tax" (FAT) on profits and pay meant to discourage the kind of excessive risk taking that exacerbated the financial crisis.

Reaching such a compromise will be more difficult for G20 envoys than for their counterparts in the more homogenous G7 group of highly industrialised countries.

"There are always differences of opinion, especially between countries that paid a high price during the financial crisis and others that did not suffer such costs, in particular emerging economies," German junior finance minister Joerg Asmussen noted.

He added though that "during the meeting, no one contested the notion that the financial sector must pay its part."

US Treasury Secretary Timothy Geithner added that "it's a basic sense of fairness that we adopt that basic framework."

 Source: france24.com/ April 24, 2010