Might other countries follow the UK’s lead and hit the bankers where it really hurts?
That certainly is the impression one gets reading the letter penned by Gordon Brown and Nicolas Sarkozy in the Wall Street Journal on Thursday.
We have found that a huge and opaque global trading network involving complex products, short-termism and too-often excessive rewards created risks that few people understood. We have also learned that when crises happen, taxpayers have to cover the costs. It is simply not acceptable for them to foot the bill for losses in a deep downturn, while institutions’ shareholders and employees enjoy all the gains as the economy recovers.
Therefore, we propose a long-term global compact that will encapsulate both the responsibilities of the banking system and the risk they pose to the economy as a whole. Various proposals have been put forward and deserve examination. They include resolution funds, insurance premiums, financial transaction levies and a tax on bonuses.
Among these proposals, we agree that a one-off tax in relation to bonuses should be considered a priority, due to the fact that bonuses for 2009 have arisen partly because of government support for the banking system.
However, it is clear the action that must be taken must be at a global level. No one territory can be expected to or be able to act on its own. And if we can find a solution, implemented consistently across the major economies, then we may find a way to ensure that taxpayers do not pay in a systemic crisis for the risks taken on by the banking sector. We might also be able to help the funding of our Millennium Development Goals and address climate change.
Bankers beware; A bonus tax could be coming to a country near you — very soon.
Breaking news from the FT:
President Nicolas Sarkozy is to follow Britain and impose a one-off supertax on bonus pay-outs by banks operating in France.
The French government intends to include the tax in the budget bill currently going through parliament. It will be levied on bonus pay-outs over €27,000 and will be paid by the banks, bringing Paris in line with London. France and Britain want a similar one-off tax to be adopted across the EU.
A senior French official told the FT that the French government had been considering such a tax for some time but had been deterred from doing so by the threat to the competitiveness of Paris as a financial centre.
“There is no obstacle to doing it now if it has been done in London,” the official said.
Right, who’s next?
It looks like it might be ze Germans:
BONN, Germany, Dec 10 (Reuters) – German Chancellor Angela Merkel on Thursday backed the idea of a one-off tax on bankers’ bonuses that has been introduced by Britain, saying it would help the financial sector learn from its mistakes.
“The Germans always said that we want the banks and the people who work in these banks to share the burden resulting from this crisis. We should not place the burden squarely on the tax payers’ shoulders,” Merkel told reporters.
“We have committed ourselves to a transaction tax in the financial market. I think that would be a more sustainable solution to the problems,” she said.
“But still, I think the idea that arose in the City of London … to have a one-off tax on managers’ bonuses is a charming idea that maybe will produce a learning effect,” she said.