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Bank tax & the G20 [Part II]: Canada’s ‘responsible’ banks

Bank tax & the G20 [Part II]: Canada’s ‘responsible’ banks

[continued from Part I]

[PDF of full article]

Is Canada really an inspiration for the world’s troubled banks?

A great deal of Canada’s authority on these bank tax issues is based on the perception that the country’s traditional banking sector was able to withstand the financial crisis. The historical record is murkier – there is much more to the story than mainstream media accolades of bank prudence and wise Conservative government policy.

In the late 1990s (and again in the early part of the new millennium) the five Canadian banks aimed to merge into three institutions to obtain the capital base to compete internationally with banks such as Citigroup, UBS, and Royal Bank of Scotland. They hoped to enter the “major leagues” of investment banking and non-traditional speculative banking: the very markets that were at the heart of the crash. The banks were unsuccessful in their quest, as the Canadian government blocked the mergers.

Many critics have argued (here and here, for example) that it was not a prudent fear of systemic risk, or the Liberal government’s foresight that stopped the mergers. Rather, it was news of the banks’ ambitions and public outcry about branch layoffs and closures and increased service charges that forced the Canadian government’s hand, pushing it to block the banks from joining together. Canadian financial elites and the business class harshly criticized the government.

Yet it may have been fortunate for bankers, and the current government, that the Canadian public was not swayed. Otherwise, Canadian banks likely would have needed a US or UK style bailout in the 2008 crisis.

According to political commentator Murray Dobbin, the current Conservative government actually has offered a great deal of money to banks in the past two years, and he questions whether this was a form of bailout in itself. The Canadian government spent $70 billion to buy up risky mortgages from the big five banks (Dobbin wonders, if Canadian banks are so wonderful, why does the government need to buy these mortgages?), created a $200 billion fund called the Emergency Finance Framework to insure banks when they need it, and currently ensures 100% of all mortgages through the Canadian Mortgage and Housing Corporation – eliminating risk for banks.

The fiscally sound Canadian bank appears to be more fable than fact.

US position key

Unsurprisingly, the US position leading up to the June G20 meetings is likely to be a major determinant of the success or failure of the G20 bank tax talks. The enormous US bank bailouts have made it difficult for the US government to point to their strong financial sector as a reason to oppose bank taxes. Nevertheless, the US, ever averse to taxation of any kind, has also come out strongly against the Tobin tax and has reacted ambiguously to the idea of an international bank levy.

On the other hand, the Obama administration has made public statements over the last few months about a domestic bank levy proposal. This may lead the US to be more open to an international levy given that it would shield them from capital flight if all nations bought in.

Conclusion: is consensus on a bank tax possible at the G20?

Because consensus is required for G20 policy decisions, the growing Atlantic divide leaves any tax or levy plans up in the air. Meanwhile, the positions of the other 15 G20 countries are still being developed and do not seem to be getting much attention from the major players.

Though tax watching might seem like a dull sport, it is worth observing the developments both during Harper’s trip to Europe this week and this June at the G20 summit. The European powers backing these taxes have been shaken by the crisis and pressured by their electorate to do something about the banks. The taxes are not radical solutions to more fundamental systemic problems, but at least they point in the right direction: towards the banks.

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Darren Puscas is the editor of the G20 newsblog www.g20breakdown.com. He is currently a researcher on a multi-country project on women and unionization at McMaster University in Hamilton, Ontario. He lives in downtown Toronto, not far from the summit fence.

[This is an updated version of a bank tax backgrounder that first appeared in The Dominion in its Special Issue on the G8/G20]

–> Further information on the bank tax at G20 Breakdown

–> Plug-in to the campaign against the tax

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The bank tax & the G20 summit: An overview

This article gets away a little bit from my usual short post approach to the site.  I feel that a broad overview of the bank tax, including the Canadian  government position, is quite needed right now – so it is here in full!  It’s still only 4+ pages and it’s broken up into two parts. Or you can read a printable PDF of the full article.  Enjoy (and share) it!

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The bank tax & the G20 summit: An overview

Canada fiercely against tax on banks aimed to curb financial speculation.
Prime Minister Harper flies to Europe this week to pressure the UK and France.

by Darren Puscas

A confrontation is brewing at the upcoming G20 summit in Toronto, pitting Canada against European countries that are promoting a global “Robin Hood” bank tax which could raise hundreds of billions of dollars for social programs, food security or debt payment.

On Thursday June 3rd, Canadian Prime Minister Harper will be traveling to London and Paris to meet with new British PM David Cameron and French President Nicolas Sarkozy. He will try to convince them that the bank tax, which proponents say would help curb risky speculation at the heart of the economic crisis, is a bad idea. The US, while still uncommitted, is leaning towards Canada’s position.

Opposition from one country would undermine the consensus required for the adoption of the multinational bank tax.  With these crucial meetings and the G20 summit on the horizon, it is a good time to reflect on what this tax is all about.

The lines are drawn: Pre-summit bank tax discussions

In early February, then British Prime Minister Gordon Brown suggested that a deal on a potential tax levy could be reached at the Toronto G20 Summit. A few days later, the Canadian government publicly opposed any such agreement. “We’re not going to impose capital taxes on our financial institutions,” Canadian Finance Minister Jim Flaherty told journalists. “We’re against raising taxes and I hope to be able to convince my colleagues that these are unwise moves.” The Conservative government has also argued that as the only G8 country whose banks did not require bailouts it should not have to enter into a bank taxation plan.

The Association for the Taxation of Financial Transactions for the Aid of Citizens (ATTAC) has criticized the Canadian Conservative government for rejecting financial regulation, accusing it of being beholden to financial interests. “The Conservative government is opposed in principle to any new form of tax,” said Claude Vaillancourt, co-president of ATTAC-Québec. “The Conservatives are blinded by the non-interventionist principles of neoliberal economics, to which they adhere with ideological fervency.”

In April, the Harper government put on a full court press in opposition to the tax. During the G20 Finance Ministers meeting in Washington, D.C., Canada pushed hard and got what it wanted – the bank tax idea fell to the bottom of the June summit’s economic regulation agenda and was openly opposed by a few of the G20 countries.

Nevertheless, there have been renewed European calls on the issue, including German leader Angela Merkel recently stating she wants the Financial Transaction Tax on the agenda at the Toronto G20 meetings. And there are bank tax campaign organizations (such as At the Table) that continue to work very hard to get it back on the agenda. Despite Canada’s efforts to the contrary, there is no question that the bank tax issue is still up for debate during the June summit in Toronto.

Why is Britain so strongly behind the tax?

Prior to the economic crisis, London was a preeminent banking centre and over the past 20 years has been steadfastly opposed to most regulation of financial services.

The crisis changed all that.

After the insolvency of several British banks, a $1.38 trillion US bank bailout, and an election looming ahead, then Prime Minister Brown was suddenly talking tough about banks “giving something to society,” telling the media he was “interested in how support is building up for international action.” The election of David Cameron presumably should not change this (if he sticks to his word), as he campaigned in support of the bank tax. It will be interesting to see his position at the summit now that he has been elected (and after he talks to Harper on Wednesday).

The two types of bank taxes proposed

Britain’s proposals include a tax on bank transactions and a levy-style tax on bank assets.

Option 1: The Financial Transaction Tax (or Tobin Tax)

The transaction tax, often called the ‘Robin Hood tax’ or the ‘Tobin tax’ (after the US economist James Tobin, who first proposed it in 1972), is the more ambitious. It would focus on the trillions of transactions that take place in financial markets every day, including speculative ones such as derivatives [explained clearly here], which were a key part of the financial crash.

Precipitating the crash, these assets, including bundles of sub-prime mortgages, became overvalued due to speculation. When their values fell rapidly in 2008, the collapse began.

The transaction tax would put a very small tax (from 0.05 per cent to 1 per cent) on each of these transactions. Critics of unregulated banking argue that had such a tax been in place a few years ago investment banks would have thought twice about performing these transactions, thus lessening the likelihood of the crash.

“A low transactions tax…has little or no impact upon useful, longer term transactions, but limits ‘noise trading’ and very short term ‘in and out’ speculation,” argues Canadian Labour Congress economist Andrew Jackson. “Progressive economists who have advocated a financial transaction tax…believe that it would reduce speculation and volatility, without interfering with normal and useful activities including stock and currency trading and even hedging for legitimate purposes.”

A 2009 study by the Austrian government (pdf) showed that a 0.05 per cent tax on UK financial trades could raise about £100bn a year, paying for the expansion of social programs, paying down debt, and providing insurance funds against future bailouts.

Grassroots organizations like ATTAC-Québec take a stronger position, suggesting that any new funds from a tax should not go to banks, which might only encourage them to take more risks, potentially leading to new crises.

“The tax should simply be a fee for assisting citizens across the world,” said Vaillancourt. “This tax could, for example, give all citizens basic services–quality health care or free education.”

Despite its current opposition, Canada was one of the first G20 countries to consider adopting the Tobin tax. In 1999 the Liberal government passed a resolution to “enact a Tobin tax in concert with the international community.” However, the Reform Party (later the Conservative Party) opposed the resolution and it did not gain enough international support to be enacted.

Option 2: The bank Levy

The other proposal promoted by European countries is a tax or levy on the assets of banks. It would not bring in sums on the scale of a Tobin tax, though some financial analysts believe it would restrain banks and raise some bailout money. As it stands now the levy has gained support from Britain’s key European counterparts, France and Germany, both of whom are strongly promoting it.

From the perspective of the banks this is a more acceptable proposal than the Tobin tax as it would be either a one-off or infrequent fee based on a bank’s worth rather than a tax on its every transaction. From the perspective of advocates of the FTT, this is an inferior choice both because of its nature as a one-time fee and because it is more likely to be used create an insurance fund to bail out the banks after a crash rather than build a tax which could stabilize markets by discouraging risky speculation.

Continue reading Part II

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G8 Foreign ministers get acquainted in Quebec; talk Afghanistan, Iran

G8 Foreign ministers get acquainted in Quebec; talk Afghanistan, Iran

A number of key things came out of this week’s G8 foreign ministers meetings.

1. One item of importance to Canadians is that the Conservative government plans to continue with its Afghanistan withdrawal plans and be out of the country by 2011. I am happy to hear this and that Canada is holding firm against U.S. pressure to stay, though I don’t think we should have been there to begin with.

However, due to the withdrawal, the Canadian government is reasoning that there is no need for, and will not be, any more debate around Afghanistan. What? Imagine if the government decides to change its withdrawal plans due to ‘new’ circumstances? At that point, won’t we be thinking that there should have been debate during that year and a half? And

In any case, Parliament needs to be debating the things that happen over the next 21 months, a lot of time for many developments to transpire. Maybe they figure it isn’t much time since the war has been going on since 2002, but that leaves plenty of time for lives lost and people maimed over the next year and nine months.

Further, does this end of debate also include the detainee debate? Finally, what will happen after 2011? What is Canada’s role then?

Ignatieff (the Canadian opposition leader) is right, the Conservatives want to do foreign policy through the media, with no Parliamentary oversight and debate.

2. There is a plan for an Afghanistan-Pakistan border trade initiative “to help improve trade between the two countries and strengthen border infrastructure.” I don’t fully understand the details, though it does seem like a plan build an economic solution to help people economically to dissuade them from joining the Taliban. Not sure how all that will work, and it doesn’t seem like they know either. Window dressing?

3. And Iran. The G8 has been kind enough to open dialogue with Iran over their nuclear program, though they call for strong measures against them as well. Setting aside the unspeakable fact that four G8 countries are nuclear weapons states themselves, there is little evidence that Iran has nuclear capabilities, or will in the future. The White House even announced this back in February:

White House spokesman Robert Gibbs said the US “do not believe they have the capability” to enrich the uranium to the 20 percent level, as President Ahmadinejad claimed earlier today.

Iran has been enriching uranium at 3.5 percent, the level needed for its power generation program. On Tuesday they announced that they were beginning to enrich uranium at 20 percent, the level needed for their medical reactor. The IAEA indicated yesterday that Iran has converted a small percentage of its enrichment program to the 20 percent level.

Since the announcement, US officials have insisted that they needed to make haste with new sanctions against Iran, claiming that the 20 percent enrichment (though itself legal and innocuous) could have been a step toward the capability to enrich uranium above 90 percent, or weapons grade.

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Conservatives put birth control back on the table

Conservatives put birth control back on the table

Seems the Conservative government is realizing that their ‘signature’ women’s health initiative at the G-8 isn’t going anywhere if birth control is off the table.

This still doesn’t answer the question of ‘whether the government will put any money toward family-planning initiatives in developing countries’, according to the NDP. And it still leaves abortion off the agenda.

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Canada: Women’s health & contraception don’t mix

Canada: Women’s health & contraception don’t mix

The Canadian government’s ‘signature initiative’ for the G8, its focus on improving women’s and infant health, won’t include birth control.

The Foreign Minister Lawrence Cannon made clear yesterday that it’s off the table, clearly due to the government’s fears of upsetting their anti-abortion base. It is troubling enough that they don’t respect the right to choose – now they’re equating abortion with all forms of family planning.

How can the government be serious about the plight of mothers around the world if key choices are of the table?

Regardless, this whole initiative is likely to be window dressing anyway. How is the Conservative government equipped to fight for women’s health and rights around the world when it has systematically eroded those same rights and opportunities in Canada?

They eliminated the national childcare program proposed by the Liberals, they closed Status on Women offices across the country, and cut money to numerous women’s organizations.

Further, women’s health goes much deeper than funding and access to contraception. If governments don’t include a strategy to deal with the economic insecurity capitalism has created for women around the world, little is possible. Health care solutions (though they are important) that don’t acknowledge the sources of poverty and poor health are not nearly enough. Medicalized, band-aid solutions have been proposed for years, and poor health is as rampant as ever.

But, of course, anything that might question globalization’s own role in this economic precariousness is surely off the G8 discussion table (and far away in another room).

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