Canada has won a key fight in its high-profile international campaign against a global bank tax as G20 finance ministers Saturday approved a plan that allows countries to manage the issue as they see fit.
Proponents of such a tax including the United States and Europe are free to go it alone, but the new plan allows the rest of the G20 to avoid the controversial idea and find other ways to reduce banking risks.
“The majority of the countries in the G20 do not support an ex ante bank tax, that is clear,” Canadian Finance Minister Jim Flaherty said at a news conference following a two-day meeting of G20 finance ministers and central bankers.
“At the end of the day, different countries will chose different ways of reaching the goal [that banks should pay for government interventions] but there is no agreement to proceed with an ex ante bank tax,” he said.
In their final communiqué, G20 finance ministers and central bankers said the financial sector must make a “fair and substantial” contribution to paying for any of the burdens associated with government intervention.
However, the statement then goes on to include wording that will allow most G20 members to avoid a bank tax, should they choose. For instance, the requirement for banks to pay back government aid is limited to those countries that actually bailed out their banks. There is also wording allowing countries to choose from a “range” of policy options in this area that take into account their own individual circumstances.
Europe and the United States are the main proponents of a bank tax – partly to recoup taxpayers’ money used to bail out banks during the recession. But the European Union and the United States have also argued that it is in the interests of all G20 countries to create a fund via a global bank tax so that governments aren’t on the hook again to cover the huge costs of protecting vulnerable banks in a downturn.
