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19 Feb

Canada to oppose global bank tax


Posted by: Kimberly Walker

Paul Vieira, Financial Post 

OTTAWA — Canada will officially oppose international efforts to get the world’s major economies to impose a global bank tax, government sources tell the Financial Post.

This could potentially ignite a major divide among Group of 20 leaders at their summit meeting in Toronto this summer, and further thwart efforts to implement uniform financial regulations in the post-recession era.

Senior Canadian officials are in the midst of crafting a public response to be released shortly, say sources with knowledge of the plan. An official response is required, they say, due to recent public musings from Gordon Brown, the British Prime Minister, that the G20 countries were close to a deal on a financial services tax — the so-called “Tobin” tax.

Canada is co-head of the group this year with South Korea.

“Canada is going to oppose any tax on financial transactions,” said one source, adding the tax runs counter to the Conservative government’s reputation for lower taxes. “The government wants it known that a deal on a bank tax isn’t going to happen.”

Prime Minister Stephen Harper, as well as Finance Minister Jim Flaherty, want to use their influence as host of the next G20 meeting, in Toronto in June, to kill the proposal. The sources suggested the G20 would not agree to measures or policies unless all leaders sign on.

When he was at the World Economic Forum in Davos last month, Mr. Harper used the global stage to denounce “excessive” and “arbitrary” proposals from countries, such as Britain and France, to regulate the financial-services industry in the aftermath of the global financial crisis.

Among the proposals Mr. Harper was referring to is a levy on financial transactions, designed to make banks pay for the bailouts governments posted in 2008 and 2009 to deal with the financial crisis and to dissuade banks from making risky bets in the future.

Individually, U.S. President Barack Obama has proposed a levy on banks with assets of higher than US$50-billion, while Mr. Brown has taxed bonuses earned by London’s top bankers.

Last week, Mr. Brown told the Financial Times he envisaged a G20 deal on a bank tax at the Toronto summit.

Mr. Brown said he believed backing for a global bank tax had gained momentum after Mr. Obama introduced a similar levy.

“People are now prepared to consider the best mechanism by which a levy could be raised,” Mr. Brown said in the interview. “I’m interested in the way support is building up for international action.”

Mr. Brown’s comments have clearly irked Canadian officials. It was only a few weeks ago that Mr. Flaherty and other Group of Seven finance and central officials met in Iqaluit, and appeared to be united in finding a common front of global financial reform. As a show of unity, they agreed to commission a study on the usefulness of a bank levy.

Mr. Brown proposed a global transaction tax at a G20 meeting he hosted in Scotland last November, only to draw stiff opposition — from, among others, Timothy Geithner, the U.S. Treasury secretary.

Canada’s plan to officially quash talk of a bank-tax deal is the latest hiccup in efforts by global leaders to map out a uniform regulatory scheme in the post-crisis world. Leaders from the G20 had agreed to implement uniform rules to prevent companies from seeking out countries with less-stringent regulation. Working groups, such as the Financial Stability Board, are in the midst of developing rules that would apply, such as the levels of capital banks would need to keep on their balance sheets.

But now, despite Mr. Brown’s musings, countries appear to be as divided as ever.