Source: The Canadian Press
Canada has won a key battle to block a global bank tax from being applied uniformly on all members of the Group of 20 countries.
Finance ministers meeting in Busan, South Korea on Saturday said in a communique that each country will be free to choose its own way of dealing with the issue.
The tax is favoured by several large European countries and the United States as a way to create a fund that would be dipped into if important financial institutions ever faced failure in the future.
But Canada has been lobbying world leaders for months that countries that didn’t need to bail out their financial institutions during the recent crisis shouldn’t have to punish their banks for what others did.
“It was apparent that most G20 members do not support the concept of a universal levy,” Finance Minister Jim Flaherty said at the conclusion of the meeting.
“What there is agreement about is the following principle — to the extent that a financial institution contributes to a financial crisis, then the financial institution should bear the cost of that contribution and not taxpayers.
“At the end of the day, different countries will choose different ways of reaching the goals … but there is no agreement to proceed with an ex-ante tax,” he added.
The United Kingdom, German, France and the U.S. have been most adamant in pressing for a bank levy against financial institutions, in part because they were forced to use hundreds of billions of taxpayers dollars to rescue them in an effort to stave off an every more punishing global recession.
The proponents want the levy to apply in all jurisdiction because otherwise banks in non-tax countries will gain a competitive edge.
Earlier this week Prime Minister Stephen Harper appeared to win no concessions in talks with British and French leaders during a visit to London and Paris.
From China, Flaherty had said most countries in the G20 did not need to use taxpayers dollars to rescue banks and were siding with Canada on the issue.
He called the issue a “distraction” that was threatening to disrupt the timetable on needed financial systems reform, which the G20 countries hope to have in place by the end of this year.
Resolution of the issue likely means the bank levy will not represent a major area of disagreement at the upcoming meeting of G20 leaders in Toronto in late June.
The Busan communique, released Saturday morning, established three priorities for the Toronto summit — implementing a framework for sustained global growth, completing financial sector reforms that would increase capital requirements for banks and limit risk exposure, and strengthening international financial institutions.
The ministers expressed concern over renewed volatility as a result of Europe’s debt crisis, saying “countries with serious fiscal challenges need to accelerate the pace of consolidation.”
Flaherty told reporters the need for countries with debt issues to outline plans and policies to rein in deficits was a repetitive theme in discussions.
As for the bank tax to create a rainy-day fund for potential future crises, each country can proceed as it sees fit, the communique states.
“Recognizing that there is a range of policy approaches, we agreed to develop principles reflecting the need to protect taxpayers, reduce risks from the financial system, protect the flow of credit in good times and bad, taking into account individual country’s circumstances and options, and helping to promote (a) level playing field,” the communique reads.
The reference to a level playing field suggests that each country would need put into place its own mechanism to deal with future crises.
Canada has favoured creation of a rainy-day fund that each bank would retain on its books and dip into in the event it faced bankruptcy.
Under the Canadian proposal, called “embedded contingency capital,” banks would issue bonds that could be converted into equal-value equity upon the order of a federal regulator, thereby re-capitalizing the bank.
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