Finnish experts take dim view of proposed international bank tax
Katainen: To work, the tax would have to apply to all countries
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Antti Suvanto
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Sixten Korkman
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Piia-Noora Kauppi
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Jyrki Katainen
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Osmo Soininvaara
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A proposal by British Prime Minister Gordon Brown to impose a tax on international cash flows has received a cool welcome from Finnish economic figures.
The proposal is seen as an interesting idea, but it is also denounced as the wrong medicine for the country’s present economic problems. It is also seen as impossible to implement.
The Finnish experts also suspect that there are political reasons behind Gordon Brown’s decision to raise the tax at this point. It is seen as a way to score points among voters who have financed the rescue of banks with their tax money.
The issue of a currency exchange tax came up at the weekend when the British Prime Minister unexpectedly proposed during a meeting of the G20 group of countries in Scotland that some kind of a tax on international cash flows should be considered rapidly.
Brown’s initiative was significant. Until then, British politicians had defended the interests of the country’s big financial centre, the City of London, and taken a dim view of tighter regulation of financial markets.
Finnish Minister of Finance Jyrki Katainen (Nat. Coalition Party) believes that Brown’s tax proposals will be discussed early in the week, when the EU’s ministers’ of finance meet to discuss the outcome of the G20 summit. He had little to say about Brown’s proposal on Sunday.
“If some kind of a currency exchange tax is desired, the system should be global, and apply to everyone”, he said.
Katainen feels that the model of the so-called Tobin tax is not the only option.
“We should look broadly at what kinds of global taxes or fees that would work in the best possible way could be found to finance reducing climate change”, Katainen noted.
At the Research Institute of the Finnish Economy (ETLA), director Sixten Korkman notes that debate on the taxation of international cash flows reflects the shock that the crisis in the financial markets has caused.
He is surprised that many political figures are now backing the idea. In addition to Brown, Adair Turner, the chair of Britain’s Financial Services Authority spoke on behalf of such a tax earlier in the autumn.
Korkman does not believe that a tax regulating international cash flows will work, as it should apply to all countries in the world equally.
He points out that internal debate in Europe on taxation has shown how difficult it is to reach political agreement on such matters.
“If there is a change in government in Britain, I do not believe that the Conservatives will support the decision”, he says.
“I also do not believe that the Untied States would support this idea. In addition, there are many countries in the world who are eagerly waiting for other countries to impose such a curb on their own financial markets; they will certainly offer their services.”
At the Bank of Finland, Antti Suvanto, the head of the central bank’s section on monetary policy and research, takes a sceptical view of the proposal. He has studied the possibilities for implementing a currency exchange tax.
Suvanto emphasises that the traditional idea of a currency exchange tax - the Tobin tax - should be distinguished from Brown’s proposal for a tax on all international financial transactions.
“It is hard to take a stand on the matter, because it has not been said what the model ultimately would be”, Suvanto says.
He feels that such a tax would probably not solve the present problems in any way. One of the causes of the present crisis on the financial market is that complicated derivatives were traded without any supervision. No international tax would tackle this problem.
Suvanto feels that a better way to solve the current problems would be to increase the efficiency of bank supervision in such a way that it would cover the entire financial sector, including the operations of so-called shadow banks. He also feels that the capital requirements for banks should be made more specific.
Suvanto also wants more transparency in trading in derivatives. He feels that trade in derivatives should take place in regulated market locations, similar to stock market trading.
Taking a similar view is Piia-Noora Kauppi, Managing Director of the Federation of Finnish Financial Services. She calls for tighter control on the European level.
Osmo Soininvaara, a financial expert who has long been a key player in the Green League, agrees with Suvanto in saying that the proposed tax would probably not cure the ailments that it is meant to treat. Soininvaara feels that a more intense discussion on the tax is mainly a political game.
“I don’t know if Brown’s proposal is real, or part of an election campaign.
Helsingin Sanomat
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| 9.11.2009 - TODAY |
 Finnish experts take dim view of proposed international bank tax |
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