TAX NEWS - June 2010

Australia Tax: Rudd doesn't need a bank tax

Australian bankers can heave a sigh of relief. The almighty row between the Rudd government and the miners makes it exceedingly unlikely that Australia is going to join the move to introduce a global tax on banks any time soon.

The idea of introducing a global tax on the banks was given a push after last night's meeting between German chancellor, Angela Merkel, and French president, Nicolas Sarkozy.

Although the two hold strikingly different views on the future economic government of the eurozone, one area they're in strong agreement is on the need for more taxes on banks.

And this strong European support for a global bank tax could set the stage for a show-down at the next G20 meeting to be held in Toronto at the end of the month with the Europeans and the Americans supporting the tax, while the Australians, Canadians and Swiss oppose it.

After their meeting overnight, Merkel and Sarkozy told reporters they wanted to implement a tax on financial transactions, as well as a global tax on banks. Merkel said this would ensure that taxpayers would not again be required to pick up the cost of bailing out the banks.

Merkel said she and Sarkozy intended to send a letter to Canadian Prime Minister, Stephen Harper, who will chair the next G20 meeting to be held in Toronto at the end of the month. The two leaders are unhappy with the lack of progress in tightening bank regulation and forcing banks to contribute to the cost of bail-outs.

The idea of a global bank tax also has the backing of the United States. At the beginning of the year, US president Barack Obama unveiled a new tax on banks to recoup the cost of bailing out failing firms during the financial crisis. The new tax – which is expected to generate an estimated $US90 billion over the next decade – would only apply to financial institutions with more than $50 billion in assets.

The idea of a global bank tax has been worrying bankers since the beginning of the year. In the lead-up to the April G20 meeting in Washington, a proposal from the International Monetary Fund was circulated, which proposed two new global taxes on banks, insurers and hedge funds: a general levy as well as an extra tax on profits and pay. The proceeds of these taxes would be used to meet the cost of future bailouts.

The IMF proposed that the levy – dubbed the 'financial stability contribution' would initially be charged at a flat rate, but would eventually be modified so that riskier businesses paid a higher rate.

But at the April meeting, Australia, Canada, Japan and Switzerland expressed their reservations about the IMF scheme.

The Canadian government has strongly opposed international moves to impose a global bank tax, arguing that such a tax would penalise financial institutions that were strong enough to withstand the financial crisis.

Wayne Swan has also expressed his opposition to a global bank tax. Instead, he's argued that the G20 should adopt a flexible approach that would allow different countries to introduce measures that suited their circumstances.

This would mean that Australian banks – which did not need to be bailed out during the financial crisis – would be spared the bank tax.

And one thing you can be sure of is that, having endured the wrath of the miners over their proposed resource super profits tax, Kevin Rudd and Wayne Swan will be doing everything they can to ensure that they don't get the country's bankers offside.