A tax on financial transactions to help pay for bailouts of failed banks would be difficult to devise and easy to avoid, the International Monetary Fund's managing director said on Wednesday (17 March).
Dominique Strauss-Kahn will present the G20 group of leading countries his proposals next month on how to make banks rather than taxpayers pay for bailouts using either a tax on transactions or a levy on a bank's balance sheet.
Germany and France have pushed for a 'Tobin'-style tax on transactions, proposed by US economist James Tobin in the 1970s as a way to raise money for developing countries and dampen volatility in foreign exchange markets.
Strauss-Kahn was initially sceptical of a transaction tax when the IMF was tasked last November to consider one.
Now several months on and just before he delivers his report, that scepticism appears to have taken root.
"I have been a big fan of the transaction tax in the 1970s but since then a lot of things have changed. What has changed is the technicality of the financial industry," Strauss-Kahn told the European Parliament.
"What is obvious is it becomes more and more easy to build derivatives to avoid a transaction tax," he added.
"In taxation the simpler the better. It's not that obvious that the easiest way is to build something which is maybe difficult to create and rather easy to avoid."
"Certainly we will provide answers. There is room for some financial sector tax. What kind of tax we will have to wait and see," Strauss-Kahn said.
The United States and Canada have said they will not introduce a financial transaction tax.
UK Prime Minister Gordon Brown said last month the idea of a levy on banks was gaining ground, diluting his initial support for a transaction tax last year.
This leaves open some form of a levy on bank balance sheets, a step the United States is already planning, but only to recover bailout costs.
Strauss-Kahn also warned leaders needed to be clear on what was the objective – to finance development, rescue banks, or both.
"You can't do both with the same money. The question is what do you really want? A bigger levy? The money can only be used once," he added.
(EURACTIV with Reuters.)