Is a Tobin Tax ‘unworkable’?
Something of a bidding war is in progress to see who can propose the toughest measures aimed at bank profits/bonuses. The latest entrant is Lord Turner head of the Financial Services Authority, who, in an interview with Prospect magazine has argued in favour of governments levying a so-called ‘Tobin Tax’ on banking transactions. Given the likelihood of his departure and the sidelining of the FSA; Turner probably feels able to speak as he pleases pretty much and will not be bothered by the annoyance expressed by pretty much all politicians.
Nick Clegg thinks that such a tax is unworkable but shares Turners ‘sentiments’. Clegg is to a degree right that there would be serious questions marks over a ‘UK only’ bank tax but then again that wasn’t what Turner was proposing so it is something of a straw man that Clegg is arguing against. Turner proposes the measure as part of “a very major reconstruct of the global financial regulatory system”. Given the fact that most global f9inancial transactions take place in only nine countries it would indeed be most effective if implemented by these nine. However, it is not entirely true that it is impossible to operate such a tax on a regional basis; the ‘Bank of the South’ in South America has implemented one recently and is using the monies raised for a development fund for the region. Meanwhile, the Canadian government passed a resolution in favour of the tax in 1999.
It is also true that such a tax would not be explicitly aimed at curbing bonuses though it is not unfair to assume that having to pay the tax in the first place would result naturally in lower bonuses being paid. At this point you being to suspect that there is less sympathy with the ‘sentiments’ than has been stated. The tax could be set at a low rate and still raise billions in revenue which could either be reinvested in each economy or used to support developing economies. The real nail in the coffin of Clegg’s argument that it is ‘unworkable’ is supplied by none other than the City of London itself which reported that a simplified version of the tax was, in fact, workable.
A ‘Tobin Tax’ is not something that exists against or in opposition to measures to ‘break-up’ High Street banks or indeed Vince Cable’s recently proposed high-pay commission. It is in fact, as Turner rightly says, part of the major restructuring that needs to take place following the latest ‘crash and burn’ of the global economy.
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