Brown’s “big” proposal to tax financial transactions – the so called Tobin tax – has been met with opposition by almost all the finance ministers of the G20. The reason is obvious; it actively discourages the trading of financial assets. It is this trading in 2009 of assets on the back of a new financial bubble that has partly offset the losses that the banks and investment banks have made in the rest of their operations. Without these trading gains the scale of the financial bailouts by governments for the banks would have to have been much larger.
Many of these trading transactions are structured by buying one asset and selling another asset. This means that the amount of capital (cash) that a bank has to put up to cover losses in the transaction is much smaller. These large nominal positions have smaller returns but on very small amounts of capital. An upfront tax on these transactions will make many of them unprofitable or have to a low return for a bank to enter into them. Brown knows this but needed to be seen to be making a stand against the greedy bankers. He knew he would get no support for his proposal. It is nothing but a cynical public relations exercise.
It is ironic that Brown has come up with this proposal in a week that the government gave away another £56 billion pounds of our money to the banks through a further £31 billion bailout for RBS and Lloyds and another £25 billion on Quantitative easing (QE). QE gives money to the banks and financial institutions for unwanted government and corporate debt. Little of this money is flowing into the real economy – the banks are hoarding it to cover losses and future losses and the financial institutions are using it to buy other assets helping to create the new financial bubble.
A real reforming move would be to tax these banks profits at much higher levels and have a progressive tax on high earners to cut out their bonuses. Both would create huge revenues to spend on public services. A 100% tax on all earnings over £50,000 would mean the public sector budget could be increased by 33%. Brown, the person who over saw the deregulation of the financial markets and creation of the easy money environment that helped lead to this crisis, is clearly not up to any such radical proposals.
The real priority for Brown is to implement public sector cuts to make us pay for the bailouts and stimulus programmes. The latest leak that the government is going to cut youth training programmes at a time of massive youth unemployment is a case in point.
The G20 offered nothing new but a continuation of their stimulus programmes. They fear if these are withdrawn the world economy will slump into a depression. This is because there is no real consumer demand due to rising unemployment and no fresh credit available from the damaged banking system. They were of course unable to resolve the dispute over exchange rates where the United States and China have kept their currencies artificially weak to make their exports cheaper against their main competitors in Europe and Japan.
The G20 continues to subsidise the private car industry and private housing market with our money. These two industries are major contributors to the climate change crisis and the financial bubble respectively. But they would rather support them than use the money to create a lower polluting public transport system and sustainable social housing for whole of society.
These stimulus programmes and the bailout will have to be paid for by us. The International Monetary Fund in a report issued this week estimates that the major developed economies will face ten years of public sector cuts and tax rises to pay for it all.
It’s up us to not let them get away with it.
