Thursday, April 22, 2010

IMF’s Global Taxes Can Only Be Enforced Through Global Government

Latest proposals part of ongoing centralisation into new economic world order

Steve Watson
Thursday, April 22nd, 2010

As you will have no doubt read in the headlines today, the IMF has proposed levying two “global” taxes on the world’s banks to make sure those greedy guys don’t get us into trouble again. If that sounds dubious, it’s because it is. In reality what is being proposed, and has been falling into place for some time, is the framework for an unelected global authority with powers above and beyond those of sovereign governments.

In our featured article today we explain how the IMF’s so called global Financial Activities (FAT) tax on banks is nothing more than a bailout slush fund that would inevitably trickle down to the consumer, and also be levied upon all financial institutions (not just the big ones that commit massive fraud on a daily basis).

This will not prevent globalist bankers from over reaching, it will in fact provide the incentive for more moral hazard by providing built in insurance against risky actions.

Such taxes will drastically reduce the profits of all banks and financial institutions, ensuring only the biggest can continue to thrive. Global competition could be killed off completely, signaling the final nail in the coffin of the free market.

Some within the banking industry also argue that reduced capital in financial institutions makes them a less attractive investment and makes it more likely that governments will have to step in when a fresh crisis hits.

The Association for Financial Markets in Europe issued a statement to this effect: “The IMF has set the right objective in addressing the need to avoid another financial crisis, but appears to have chosen the wrong means to achieve it.

“The financial sector should not rely on public funds in the event of a crisis. As an industry, it needs to put in place measures that will enable failing firms to be wound down or restructured without needing taxpayer support. Banks must be allowed to fail and the cost of dealing with any failure must be first met by shareholders and creditors, not taxpayers.”

Even The Economist has denounced the idea as “Treating the symptoms, not the cause”.

Aside from these issues is another valuable point being made by the banks themselves, as well as economists and commentators – you cannot have global taxes without a powerful enough global authority to enforce them.

Global Consensus Key to Introducing New Levies is the headline in the Korea Times, which notes that without an overarching international framework to oversee global taxation, the idea will struggle to come to fruition.

“Certainly, the recommendation will provide momentum for global discussions on whether to put the idea of this taxation into action.” The report states. “This issue is also expected to be on the top of the agenda during a G-20 meeting of finance ministers and central bankers to be held this weekend in Washington. What’s important is to build a global consensus on this contentious matter.”

The London Telegraph reiterates this key point:

“Both taxes would be tricky to enforce, as bankers were quick to point out. A FAT tax would almost certainly require global co-ordination or face “regulatory arbitrage” by banks moving operations to friendlier territories.”

The IMF is well aware of this problem, outlining in the proposal that unilateral measures “risk being undermined by tax and regulatory arbitrage, and may also jeopardise national industries’ competitiveness”. Coordinated action, it says, would promote a level playing field for cross-border institutions and ease implementation.

The Telegraph article continues:

“The IMF’s idea is for the levy to support a resolution regime that would minimise the need for state support. A resolution agency would determine when a bank was insolvent and ‘replace managers, recognize losses in equity accounts, and, as necessary, expose unsecured creditors to loss’.”

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