A global banker tax? (updated with breaking news from France)
- Source: A global banker tax? (updated with breaking news from France) FT Alphaville, December 10, 2009
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.
Selected highlights: 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.
Update: 10.47am 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?
- France Said to Consider Following U.K. Bank Bonus Tax Bloomberg, December 10, 2009
U.K. to levy 50% tax on bank bonuses
- Source: U.K. to Levy 50% Tax on Bank Bonuses Exceeding 25,000 Pounds Bloomberg, December 9, 2009
Chancellor of the Exchequer Alistair Darling said the U.K. will force banks awarding discretionary bonuses of more than 25,000 pounds ($40,800) to pay a one-time levy of 50 percent.
The tax, effective today, will be paid by all banks that operate in the U.K., including U.S. firms such as Goldman Sachs Group Inc. and JPMorgan Chase & Co. Employees will still have to pay income tax on their bonuses, the Treasury said. The top tax rate on earnings of more than 150,000 pounds will rise to 50 percent in April, a measure announced earlier this year.
Today’s levy will raise about 550 million pounds, less than 1 percent of the U.K.’s total tax revenue, according to KPMG LLP. Darling, whose Labour Party faces an election by June, is trying to mollify voter anger after providing more than 1 trillion pounds to prop up lenders including Royal Bank of Scotland Group Plc in the credit crisis. Barclays Plc President Robert Diamond said yesterday the measure risks driving business away from the City of London.
“This will further damage the image of the City as a global financial centre,” said Shaun Springer, chief executive officer of Square Mile Services Ltd., which advises London financial firms on pay. “This is politically motivated.”
The government introduced the measure after firms that had benefited from taxpayer bailouts began to allocate more money to employee remuneration. Bonuses for U.K. financial services employees may rise by 50 percent to 6 billion pounds this year, the Centre for Economics & Business Research Ltd. said in Oct.
- The Wall Street Lobby 2.0 FT Alphaville, March 5, 2010
- Banker tax - further details (updated with bonus maths) FT Alphaville, December 9, 2009