EU proposes bank tax to end unacceptable taxpayer bailouts

Published on, BST, 26 May 2010.

Banks must face new taxes to avoid repeating the ‘unacceptable’ bail-outs of failed banks that cost taxpayers billions, the European Union’s chief financial regulator warned.

European banks may face taxes on the size of their balance sheets, on how much they owe other institutions or on how much profit they make, Michael Barnier, the EU’s Financial Services Commissioner said on Wednesday.

The cash raised would be used to pay for future bail-outs. 

“It is not acceptable that taxpayers should continue to bear the heavy cost of rescuing the banking sector,” Mr Barnier said. “They should not be in the front line. I believe in the polluter pays principle.

“We need to build a system which ensures that the financial sector will pay the cost of banking crises in the future.”

The plans by Mr Barnier come as the eurozone faces the biggest crisis in its short history, as investors fear that the debt crisis that engulfed Greece will spread.

However, there are divisions among European countries on how to implement the tax and what it should be used for.

France and Britain would like the money raised to reparing the hole in public finances, but Germany wants to ring-fence the levy.

Last month, finance ministers from the European Union failed to agree on support for the principle of a banking levy … //

… A UK spokesman confirmed that the Government would go ahead with a levy on its own “if necessary”, but said the UK did not agree with “ring-fencing the funds to use in connection with bank failures”.

“We feel that to do so creates ‘moral hazard’ – in other words, if banks know that there is a fund to rescue them, they are more likely to make rash decisions. Our view is that the tax revenue raised in this way will be available for other things.”

Angela Knight, of the British Bankers’ Association, said there was universal agreement on the principle that if a bank got into trouble it should not be bailed out by the taxpayer. (full text).

Comments are closed.