ECOFIN council debates levies and taxes on financial institutions
20 October 2010
At both G-20 and EU levels, it has been underscored that in any future financial crisis, should a further crisis occur, taxpayers' money should not be used to cover bank losses. Some member states have imposed levies on banks but competitive distortions and over-burdening must be avoided.
The Council approved a report to the European Council, with a view to its meeting on 28 and 29 October, on levies and taxes on financial institutions.
Levies and taxes are amongst the measures being examined as part of a new crisis resolution framework for the financial industry. They could also help ensure that the industry makes a fair contribution to the consolidation of public finances in the wake of the financial crisis, thereby relieving the pressure on taxpayers.
At both G-20 and EU levels, it has been underscored that in any future financial crisis, should a further crisis occur, taxpayers' money should not be used to cover bank losses.
In this context, a number of member states have imposed levies on banks or are in the process of doing so. However, the nature of those levies differs from one country to another, creating a risk of competitive distortions and multiple charging of banks that operate in several member states. The Commission therefore recommends that general principles be agreed on so as to enable a coordinated approach.
As regards financial sector taxation, work is less advanced. The idea of a financial transactions tax was proposed in 1972 by economist James Tobin, and interest in this has re-emerged in the wake of the financial crisis. An alternative idea, that of a financial activities tax, was recently suggested by the International Monetary Fund.
The Council's report, requested by the European Council in June, calls for consideration to be given to the impact of other measures that are currently being introduced – in particular new capital and liquidity requirements and funding measures for deposit guarantee schemes – so as to avoid overburdening the financial industry and to safeguard the flow of credit to the economy.
On bank levies, the report suggests that:
– in the short term, attention should focus on ensuring a minimum level of coordination, and
in particular on eliminating the multiple charging of banks that operate in several member states;
– in the medium term, the setting up of crisis resolution structures should be discussed on the basis of proposals from the Commission.
On financial sector taxation, the report takes note of a communication from the Commission. Possible options could be examined by the Council.
© ECFIN
