Financial Times: Entente fiscale

[marmar]

Entente fiscale
Published: December 10 2009 19:25 | Last updated: December 10 2009 19:25


One bubble that has not burst is the one inside which many bankers seem to live: bonus pools currently set aside by investment banks are bumping up against boomtime records even though profits nowadays are mostly the product of free central bank money and implicit (or explicit) government insurance against losses.

Having ignored past bubbles, some politicians are determined not to let this one get out of hand. The British government this week announced a one-off 50 per cent tax on any bonus above £25,000 that banks in the UK will pay their staff this year. On Thursday Nicolas Sarkozy, French president, in a joint article with Gordon Brown, UK prime minister, said that France would follow suit.

One can see the benefit for the two leaders: Mr Sarkozy gets to crow about the defeat of Anglo-Saxon capitalism while giving a leg-up to Mr Brown, who can re-don his favourite mantle of global financial reformer-in-chief.

But beyond politics, there are sound economic reasons for a special levy on profits resulting from government aid rather than market rewards for skill, effort or private risk-taking. What is more, if you are going to tax bankers, the British approach is the right one: one-off so as not to reduce future competitiveness (although the government must make this credible); levied on bonus payments but not on retained profits added to bank capital; and leaving a reasonable amount untaxed so as not to affect small awards to junior staff. .........(more)

The complete piece is at: http://www.ft.com/cms/s/0/be0b415a-e5c0-11de-b5d7-00144feab49a.html?nclick_check=1