TAX NEWS - JUNE 2010

Global Bank Tax: G20 finance ministers end bid for a global bank tax

The Group of 20 finance ministers meeting in South Korea decided yesterday not to push for an international bank tax to protect against financial sector meltdowns.

Instead, participants ending two days of talks in Busan said they agreed that a range of policy alternatives should be considered.

The move is considered a victory for Canadian Finance Minister Jim Flaherty, who has been a vocal opponent of the tax proposal from the International Monetary Fund.

The plan had won support from the United States and many European countries, including France, Britain and Germany.

Opposition to the tax also came from G20 members such as Japan, Brazil, China and Australia.

Yoon Jeung-hyun, South Korea's minister of strategy and finance and host of the meeting, acknowledged that debate over some issues - especially a possible universal tax on banks to help pay for bailouts - had been heated.

"It was apparent that most G20 members do not support the concept of a universal levy," Flaherty said yesterday.

U.S. Treasury Secretary Timothy Geithner said the group is ready to move ahead on stronger capital reserve requirements for banks and limits on indebtedness to help financial institutions weather future crises.

"Europe laid out a very strong, very powerful framework of reforms and financial support and they are moving very quickly to put the full political force of their governments behind that framework," Geithner said after the meeting. "And my understanding, of course, from colleagues in Europe, is that they expect to finalize the details of this very substantial financial stability mechanism in the next hours, couple [of] days."

In remarks on bank transparency, Geithner said: "There is a very strong recognition of the value of bringing greater transparency and disclosure to the major institutions in these markets and to the markets themselves. That basic commitment to transparency was critical in the process that we went through in the United States, to recapitalize our financial system with private money. It's central to the reform principles adopted by the G20, and those the U.S. is about to embrace in law.

"Markets work better when people have a better sense of how to assess risk, markets work better when they're not operating in the dark," he added.

The world's G20 and G8 political leaders are set to meet in Ontario near the end of June.