Brown Says G-20 Should Consider Tax on Speculation
Nov. 7 (Bloomberg) -- U.K. Prime Minister Gordon Brown saidthe Group of 20 nations should consider measures such as taxingfinancial transactions to penalize excessive risk taking andlimit the burden on taxpayers of bank failures.
“It cannot be acceptable that the benefits of success inthis sector are reaped by the few but the costs of its failureare borne by all of us,” Brown told G-20 finance ministers andcentral bankers at a meeting today in St. Andrews, Scotland.Tighter capital rules and pooled bank resolution funds couldalso be considered, he said.
The comments add momentum to a global debate on howgovernments should rein in markets after bad bets almost toppledthe global financial system, triggering a worldwide recessionand a string of government bailouts. French President NicolasSarkozy and Adair Turner, chairman of the U.K.’s FinancialServices Authority, have both supported a so-called Tobin tax.
Brown, who didn’t say whether he’d endorse a levy, said anypolicy would need to be implemented by all financial centersincluding those in the Middle East, Asia and Switzerland. Healso acknowledged the “enormous and difficult” issues thatneed to be overcome to set up a “globally cohesive system.”
The debate over whether to implement a global levy onspeculation has mounted in recent months with the G-20 askingthe International Monetary Fund in September to study it. Twelvenations including Britain, France, Germany and Brazil agreedlast month to set up a panel of economists to research itsfeasibility.
Currency Trading
Their inspiration is a 1971 proposal by U.S. economistJames Tobin to tax currency trading to deter speculation in thewake of the collapse of the Bretton Woods system of peggingexchange rates. Tobin, who died in 2002, won the 1981 NobelPrize for his work on financial markets.
For Brown, who is trailing in polls less than seven monthsbefore the next U.K. election is due, the comments are designedto open a divide with the Conservative opposition. While theConservatives say the biggest risk to the economy is thegovernment’s record budget deficit, Brown has stepped up hisattacks on banks.
Brown and Chancellor of the Exchequer Alistair Darling sayloose oversight of the banking industry allowed institutions totake on too much risk, destabilizing the financial system by thetime the subprime crisis dried up credit in 2007.
Social Contract
“There must be a better economic and social contractbetween financial institutions and the public based on trust anda just distribution of risks and rewards,” Brown said today.“We need a better economic and social contract to reflect theglobal responsibilities of financial institutions to society.”
Some G-20 members are already acting alone on tradingtaxes. Brazil last month imposed a 2 percent tax on foreignpurchases of equities and fixed-income securities in a bid tofend off excess speculation.
“Various countries have discussed the measure and are eventhinking of adopting it,” Brazilian Finance Minister GuidoMantega said in a Nov. 5 interview with Bloomberg Television.
G-20 finance ministers and central bankers are meeting inthe so-called home of golf to hammer out policies that willcement a recovery from the worst global recession since WorldWar II and prevent a repeat of the financial crisis. Afterchannelling more than $500 billion to bail out banks such asRoyal Bank of Scotland Group Plc and Citigroup Inc., they’realso looking to impose tougher banking regulations.
Banking Mess
Brown’s speech “clearly opens the door for a financialtransactions tax to make the bankers pay for the mess they’vecaused,” said Max Lawson, a policy adviser at aid organizationOxfam International. “There is a real rage against the bankswhich the prime minister is speaking to. There are big obstaclesfor such a tax, but this is a big moment.”
A tax of 0.05 percent on financial transactions may raiseup to $700 billion a year, according to the WWF, a globalenvironmental pressure group.
The British Bankers’ Association issued a statement sayingthat regulatory changes must be “properly costed” and the“timetable for change clearly set out.”
Economists are divided over whether any tax on financialtransactions could work.
Former European Central Bank Chief Economist Otmar Issingsaid Oct. 26 that talk of such a measure is “like the Loch Nessmonster; it appears once or twice a year, then goes away,”arguing it could never be imposed across borders and investorswould circumnavigate it.
French officials including Sarkozy have suggested a levy onspeculation for most of this decade without success.
To contact the reporter on this story:Reed Landberg in St. Andrews, Scotland at landberg@bloomberg.net
Last Updated: November 7, 2009 08:08 ESTSource: Bloomberg
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