Countries should consider imposing a two-pronged tax on banks and other financial firms to pay for bailouts the next time markets tank, the world's financial body is proposing.(BBC source and IMF report)
In a report to the G20 countries that was obtained by the BBC, the International Monetary Fund recommends a globally co-ordinated flat fee on every big bank, coupled with a tax on profits.
The money would be managed by governments and used to pay for economic rescue measures if the world ever again faces the kind of financial crisis that devastated economies over the last year and a half.
That latter paragraph is something that has not really been discussed in whatever limited Canadian discussion we've had about this proposed tax. We may not have had financial institutions collapse, but we suffered the effects of the world wide financial crisis as a result of financial collapses in other countries. We have incurred great debt as a result of the recession. So the argument for such measures is there to be made, even though our financial institutions would seemingly be penalized for the risk indulged in by other nations' institutions.
One problem Flaherty is going to have is the coordinated nature of the tax that's underlying these discussions. I.e., that all G20 countries would have to agree to do the same thing tax wise, otherwise banks will go to the jurisdiction where they're not subject to the new tax. So Flaherty might end up being compelled to consider something that's not so comfortable ideologically. The other side to the coordinated deal coin is that it might make it harder in the end to actually get all the nations to agree on something. But, you know, that's part of Jim's role as we're chairing this deal, right? (Well, at least we are in the technical sense.)
Flaherty has touted the IMF over the past year or so when it has spoken favourably about the Canadian economy so it will be interesting to see the reaction to these IMF tax proposals.