Canada leads rift on IMF bank tax
Canada's vocal opposition to an international proposal to tax banks is highlighting the growing split between countries about how best to protect the global financial system, experts said.
Finance Minister Jim Flaherty outlined Ottawa's gripes about the proposal by the International Monetary Fund to place new levies on financial institutions as the G20 finance ministers met in Washington on Friday.
"[Canada and other countries] are saying, 'If you fellows want to go ahead and do this, that's fine — but don't ask us to play ball,'" said Morris Goldstein, senior fellow at the Washington-based Peterson Institute for International Economics, a think-tank that examines global financial issues.
The IMF is suggesting that governments impose a pair of new taxes on banks and other financial institutions: One would create a bailout fund in the event of another financing collapse, the other would be linked to bankers' compensation and would prevent payout schemes that might give senior management an incentive to engage in risky commercial behaviour.
The proposal was contained in a confidential IMF staff report that was leaked to a number of prominent media outlets in April in advance of G20 economic meetings.
So far, Canada, Australia and Japan have indicated they have little interest in imposing either of two taxes on their banking sectors.
Flaherty has been leading the international opposition.
"I'm not going to impose a tax on our banks that performed well during the crisis," he said Thursday in Washington. "It seems to me a very odd thing to do, to punish our banks that got the job done admirably."
Bank of Canada governor Mark Carney also weighed in against the new levy as a way to reduce risky behaviour among banks.
"We see the bank levy discussion as a distraction from that core agenda [of financial regulation reform]," Carney said in Ottawa.
Instead, Carney and government officials point to regulatory reform as the preferred route.
And many financial institutions — perhaps not surprisingly — have voiced their opposition to the IMF trial balloon.
"An international tax on financial transactions or banks is unfair, misguided and bad public policy. Unlike banks in other countries, Canada's banks have not experienced financial difficulties and have not needed taxpayer-funded government bailouts," a release from the Canadian Bankers Association, which represents the country's chartered banks, said on Friday.
Other countries, such as the United Kingdom, have responded favourably to the proposals as a way of reducing the risk of future financing crises and ensuring that domestic taxpayers do not bear the brunt of any fiscal bailout of these institutions.
"The recognition that banks should make a contribution to the society in which they operate is right," Alistair Darling, the U.K.'s chancellor of the exchequer, said earlier in the week.
His government, headed by Prime Minister Gordon Brown, is in the midst of general national election campaign.
Generally, European governments, many of which were forced to bail out failing banks with taxpayer cash, are in favour of imposing new charges on financial institutions.
And support for the IMF reforms also has come from unexpected sources.
"This newspaper favours some kind of transaction levy in the Cayman Islands to ensure that local financial institutions and their clients do far more than they have done historically to contribute directly to the economy," said Cayman NetNews, an online news service from the Caribbean island.
The Cayman Islands is famous for its secretive banking system.
with files from The Canadian Press