MercoPress. South Atlantic News Agency

G-20 fails to reach consensus on proposal to impose global tax on banks

IMF chief Dominique Strauss-Khan

The Group of 20 nations failed over the weekend to agree on a proposal to impose a global tax on banks that was aimed at making the financial industry shoulder the cost of bailouts, settling instead for a common set of guidelines.

G-20 finance ministers and central bank governors said in a statement in Busan, South Korea, that governments will take account of each nation’s “circumstances and options.” The result allows nations such as Canada, China and Brazil, whose banks suffered less during the global financial crisis, to skip introducing a tax. European countries and the U.S. have advocated the levy.

The statement leaves in place an initiative to seek tighter global standards for capital levels at banks, which is a “more practical” way to help reduce the risk of financial crises. Banks have opposed the effort, warning that the costs may curb credit expansion and economic growth.

The meeting sets the agenda for a summit of G20 leaders in Toronto on 26-27 June.

“The recent volatility in financial markets reminds us that significant challenges remain and underscores the importance of international co-operation,” the final statement from finance ministers said.

European governments and the US have advocated a bank tax to be adopted in every major country to prevent lenders from relocating to jurisdictions that don’t charge the levy. The IMF was asked by the G-20 last year to recommend how to tax the industry.

Ministers said they now recognized that there’s a “range of policy options” open to countries and agreed instead to adopt “principles” that protect taxpayers and reduce the risks of further crises.

“The problem is not uniformity, the problem is to do things which are consistent and that do not create arbitrage in terms of regulation and taxation” IMF Managing Director Dominique Strauss-Kahn said in Busan. The principles will be written in a way that avoids inconsistency in the different systems, he said.

The G-20 separately said that “it is critical that our banking regulators develop capital and liquidity rules” tough enough to ensure lenders can withstand further crises. The rules should be agreed by November, with implementation targeted for the end of 2012, the statement said.

Chancellor of the Exchequer George Osborne said that Britain will push ahead with a plan to implement a tax and that he will unveil further details in his June 22 budget. The UK wants tax revenue to finance general government expenditure, marking it aside from other European nations who want the tax to fund future bailouts.