B457 - Big Banking Bill 2012 (Second Reading)
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I would agree with you about normal transactions like trading everyday goods, though the research clearly shows that the effects of an FTT on profits would not be passed on to everyday customers - it's one of the most progressive taxes because the only entities that pay the small charge are investment banks and people that use the capital markets, this is not a big group. Besides, this Bill is taxing the undertaxed Wall Street to give the High Street a 50% tax cut, while also removing the lowest earners from tax.(Original post by MacCuishy)
Capping profits and taxing transactions is not progressive. Nay
And this Bill doesn't cap profits at all. Where'd you get that idea?
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Re: B457 - Big Banking Bill 2012 (Second Reading)There's an anomaly in the Notes section. I don't know how, but the main quote under the last spoiler has disappeared. It should read like this:(Original post by Metrobeans)
QFA
Why the FTT Here Cannot be Fairly Compared to Sweden's STT
Spoiler:ShowThe UK shares a time zone with Portugal, Morocco, Mauritius and a few other bits'n'bobs countries that have relatively small financial markets. Trading abroad is not a feasible or cost effective alternative to using Britain - we have very good financial services, and will continue to regardless of the miniscule tax being proposed here (0.1% compared to the Swedish 2%). There is also demonstrable political appetite among European Union countries for an FTT. The tax here covers all markets, so avoidance by that method will also not be practical. In conclusion, we won't be subject to the problems experienced by Sweden. Ifo's report and revenue estimations take into account the likely drop in tax volume - it is small. Making transactions will remain completely profitable, it will continue to cost more to avoid the tax.(Original post by Ifo)
For the most part, the Swedish STT experience may be considered a failure. With the Swedish experience in mind, why can there still be a case for an STT?
When a new transaction tax is introduced, the cost of each transaction is increased, which may cause tax avoidance behavior on the part of the (rational) investor. Whether (and how much) tax avoidance occurs is determined by the availability (and costs) of avoidance measures.
Furthermore, an investor always has the possibility not to trade at all. Thus, in responding to an introduction of a STT, investors may adapt their behavior in the following ways:
1) Continue trading and pay the tax.
2) Change the location of the trade (spatial substitution, necessarily in the same or an adjacent time zone).
3) Trade substitute securities (preferably untaxed securities; availability issues).
4) Choose not to trade.
In general, an investor will pick the option that is least harmful to his profits. If no substitutes (options 2 and 3) exist, an investor will choose option 1 if he continues to make profits (or derive a positive expected utility) through trading despite the higher transactions costs. Otherwise, he will choose option 4 and not trade at all.
Both options 2 and 3 are substitute options. A rational investor will choose a substitute only if his expected profit of trading the substitute is positive and greater than his expected profit of trading in the taxed security. This is equal to saying that the costs of using the substitute22) need to be less than the costs of simply paying the tax or not trading at all.
For option 2 (changing the location of the trade, spatial substitution) to really be an option, an appropriate substitute market is required. In the case of the Swedish equity transaction tax, the London Stock Exchange proved to be such a market especially for foreign investors. However, the costs of spatial substitution most likely will be prohibitive if the only available substitute market is in a different (or at least non-adjacent) time zone23).
Option 3 depends on the availability of substitute securities. For some securities covered by the Swedish fixed-income securities tax, untaxed domestic substitutes were available so that investors could easily conduct their transactions in these without incurring large additional costs.
In the end, the Swedish turnover tax failed due to a bad tax design and the resulting migration of trading volume. Having learned the lesson from the Swedish experience, one should make sure a FTT covers all markets to a priori minimize material substitution problems. The tax should possibly be applied to all countries of the respective time zone with a market for securities, since this will prevent spatial substitution. If it is not feasible to include all countries, special higher exit taxes, intelligent tax design, political pressure on tax havens or bilateral contracts over the treatment of securities may also be steps that can be taken. Helpful in this respect is also the British lesson (see the following section): tax liability for trading in UK companies is worldwide, whereas in Sweden one only had to pay when the transaction was carried out by a Swedish broker, which made tax avoidance relatively easy.
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Re: B457 - Big Banking Bill 2012 (Second Reading)On the whole this reading is an improvment on the last reading although i still do not believe that it goes far enough in reform.
I am not entirely sure that governments should be prohibited from providing cash to business even if i do not support doing so but this is a non issue for me. I do like the increased protection for deposits.
I will not however support the introduction of a needless tax.
When you refer to the deposits of investors, do you mean people investing in something via the bank (stock market for example) or do you mean investing in the bank itself (shareholders).(Original post by JPKC)
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Re: B457 - Big Banking Bill 2012 (Second Reading)All taxes could be called needless. What I'd like to hear is why you think the tax is so bad. It allows the government to give tax cuts to normal people and normal businesses, and austerity policies could be slowed down to save thousands of jobs. The studies suggest it would have a minimal impact on the financial sector, with transactions remaining profitable. It honestly is a common-sense idea that most people would support (look at the coalition of groups assembled in support of the Robin Hood Tax proposal, and that's even 5x bigger at 0.5%).(Original post by Rakas21)
On the whole this reading is an improvment on the last reading although i still do not believe that it goes far enough in reform.
I am not entirely sure that governments should be prohibited from providing cash to business even if i do not support doing so but this is a non issue for me. I do like the increased protection for deposits.
I will not however support the introduction of a needless tax.
Both are covered.When you refer to the deposits of investors, do you mean people investing in something via the bank (stock market for example) or do you mean investing in the bank itself (shareholders).
This bill'd cut corporation tax for small and medium businesses by 50%, and also lower the rate of central income tax to 0% for all earning below £20k. It'd halve our budget deficit, helping to reduce further cuts to public services. The FTT that pays for all this would have very little impact on our economic prosperity, as well.(Original post by internetguru)
I have a question for the bill writers. What tax reductions or spending increases are you making which make you need to introduce this tax? -
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Re: B457 - Big Banking Bill 2012 (Second Reading)Obviously I'd support that tax if these tax cuts were made, I have no interest in reducing cuts to public services.(Original post by JPKC)
This bill'd cut corporation tax for small and medium businesses by 50%, and also lower the rate of central income tax to 0% for all earning below £20k. It'd halve our budget deficit, helping to reduce further cuts to public services. The FTT that pays for all this would have very little impact on our economic prosperity, as well. -
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Re: B457 - Big Banking Bill 2012 (Second Reading)The problem that I have with all this is that you're saying the right things and I agree with the second paragraph until the last sentence, but I always like to follow the saying 'if it sounds too good to be true, then it probably is' and that's why I'm hesitant. You make all these grand claims about what we can do, but you're making the assumption that the IFO is right and that the amount won't drop significantly. However, let's take the jobs claim. Ok so we introduce FTT we save jobs. However, FTT leads to trading decreasing which in turn leads to companies moving and jobs being lost there. The money that came from those transactions and those companies is lost and so in the end we end up having to cut those jobs that we have apparently saved in the first place so those jobs are merely held on to for a bit longer. We have more people unemployed, decreased tax receipts and we're worse off than we were before FTT.(Original post by JPKC)
All taxes could be called needless. What I'd like to hear is why you think the tax is so bad. It allows the government to give tax cuts to normal people and normal businesses, and austerity policies could be slowed down to save thousands of jobs. The studies suggest it would have a minimal impact on the financial sector, with transactions remaining profitable. It honestly is a common-sense idea that most people would support (look at the coalition of groups assembled in support of the Robin Hood Tax proposal, and that's even 5x bigger at 0.5%).
This bill'd cut corporation tax for small and medium businesses by 50%, and also lower the rate of central income tax to 0% for all earning below £20k. It'd halve our budget deficit, helping to reduce further cuts to public services. The FTT that pays for all this would have very little impact on our economic prosperity, as well.
I'm also opposed to it now with regards to your spending plans. If you were introducing FTT as some kind of insurance policy of sorts, then it would be worth looking at slightly, but you're using it to slow down on austerity. Now that's fine enough, but all it means is that you're using FTT as some kind of political weapon against the financial services sector. You're too busy trying to 'bash the bankers' and not really using FTT where it should be used (which is as some kind of insurance policy in my book) even if we were to introduce.
You mention slowing down on austerity, but ultimately you wouldn't be able to do so. Now I'm not suggesting a huge exodus, but there will be job losses in the financial services sector as a result of this because companies will move. That will lead to job losses here, you can't deny that. What you end up with job losses hence unemployment hence more people on the dole. Their company's tax receipts gone. FTT here has caused a net cost to the taxpayer. We'll then have to use some of the gains from FTT towards supporting those people. That's a decrease in revenue to spend on your other pet projects so you've either got to keep the cuts up in order to recoup some money to fund those projects or you've got to let the projects go in because you can't afford everything that you want to do.
You also deny the fact that there'll be a mass exodus in the short term. Now that's fine for the time being, but let's look at the medium term. A country suddenly becomes a little more profitable for the company - they will move to that country destroying your claim. I don't think that you can simply claim that it will have little effect. You can't sit in lala land saying 'oh this won't happen because it's a minor tax' because chances are that those estimates are rather optimistic to simply prove a point to those who oppose this tax. It would be better to use pessimistic figures so that we can actually see the worst case scenario before considering what to do about the tax.
I'm opposed to it. The claims about slowing down austerity are fiction. You'll increase the jobless rate, lose tax revenue and have to fund that increased unemployment somehow (probably out of FTT which obviously cuts into what you make from this tax). You won't save jobs in the long run because increased unemployment from that sector will increase costs to the taxpayer meaning that FTT revenue is lower meaning that austerity can't be slowed by as much as thought and so job losses will still have to occur. Your claims about the amount of companies leaving being small is frankly highly optimistic.
I've always said that if you approach this multilaterally at a world level, I'd look at supporting it, but I can not support your attempts to cripple what is ultimately a significant proportion of our economy so that the left can get some kind of kick out of bashing the bankers one more time. -
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Re: B457 - Big Banking Bill 2012 (Second Reading)I'm not sure why the writers of this bill think that encouraging less but larger transactions is somehow more stable than more, smaller ones. More granularity would be far less volatile, for reasons that I'd like to think are obvious to anyone trying to regulate an industry like this.
This is a really tough bill to tackle, because it's trying to do about 50 things at once. Ultimately, though, the aim is to "protect consumers from the harmful volatility of casino banking practices" (as well as lowering corp tax, which of course I love). But...
Lehman Brothers are the company most often having the finger of blame pointed at them for the current fiscal situation the global economy is on - the 4th largest investment bank in the US and a long term bellweather of investment bank success, their collapse is the archetype of an investment bank playing fast and loose with their investors money. Now, they were not a high street bank. They did, however, give out a lot of sub-prime mortgages via their Mortgage arm, and they also offered positions on even more sub-prime mortgages given by other institutions. The absolute catastrophe in this market (combined with some shaky creative accounting) lead to their massive decline and eventual bankruptcy within a very short period of time. Nothing in this bill would have altered a thing about this. I appreciate they're in the US so nothing we write will, but the UK banks also had a lot of exposure to the US sub prime mortgage crisis.
One problem with this, though, for the banks that it would affect, is that it's indiscriminate - it's not a tax on profits, it's a tax on practice. So this means a bank could go all year without making a profit, and still have paid significant volumes of tax. Now, this is the same with VAT (sort of - you can claim a lot of it back, but not til afterwards) but of course, if it's volatility of investment banks that you ultimately want to reign in, it's tough to follow the logic that further hamstringing banks that are already failing to make profit is likely to do that. The other ones, the ones that "can afford" it (ie the ones making lots of money) are unlikely to be the ones causing instability in the first place. This isn't universally the case, of course. But not long ago, the UK government had to bail out a number of institutions in the financial sector, to great cost to the tax payer. This doesn't sound like the sort of industry that could healthily (and "would have very little impact on our economic prosperity", no less) withstand a £50bn per year loss. In fact, even at the pre-crash boom, the global profit from the top 1,000 banks in the world was around $800bn (approx £510bn) but Investment Bank (remember, they're being split up here) accounts for only £45bn. Worldwide. In the UK in 2011, investment banks generated "only" £2.1bn in revenue. My source for these figures (here) separates investment banking profits from "banking" - which is appropriate, as that's what your system would result in.
So what's the actual, practical goal here? To reduce trading? To reduce volatility? To increase tax revenue? To encourage certain practices but discourage others? To help British banks succeed in a tough climate? It's hard to ascertain the 'success' of this bill when I'm not sure what it's meant to do. What I think it would do is cripple investment banking in the UK, cause many employers and employees to leave for pastures greener and leave us with both a lot less employed people but also much lower tax revenue and a load of empty buildings in the docklands.
Finally, the notes at the bottom about time zones etc seem a bit odd. Firstly, this bill doesn't apply to every country within our time zone, and it's far less of a big deal than the writer of that article seems to think it is. I'm confused as to why they think it is. Bankers don't have to move to Wall Street or Singapore or Hong Kong - they can go to Lichtenstein or Switzerland which is an hour away. -
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Re: B457 - Big Banking Bill 2012 (Second Reading)The FTT is not much worse than any other tax but the issue for me is that it is yet another tax and only takes revenue from one sector of the economy. In order to gain competitiveness over our international rivals we need not only lower taxes, but less taxes and as a result attract foreign investment. I can no more support this tax than i could a WST (wife swapping tax). That of course assumes that i agree with your assertion that the FTT would not damage the economy and frankly i am very unsure.(Original post by JPKC)
All taxes could be called needless. What I'd like to hear is why you think the tax is so bad. It allows the government to give tax cuts to normal people and normal businesses, and austerity policies could be slowed down to save thousands of jobs. The studies suggest it would have a minimal impact on the financial sector, with transactions remaining profitable. It honestly is a common-sense idea that most people would support (look at the coalition of groups assembled in support of the Robin Hood Tax proposal, and that's even 5x bigger at 0.5%).
Both are covered.
Whilst i disagree with the exact austerity policies enacted in RL i do agree with austerity itself and have no interest in protecting public sector jobs (2 million of which could be unnecessary).
Whilst i agree with protecting those who simply use the bank as a broker to invest elsewhere i will not support protecting shareholders who invest at their own risk. -
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Re: B457 - Big Banking Bill 2012 (Second Reading)PS I wrote this blog about the Robin Hood tax a while ago. Not directly relevant to this bill, but the concepts are very similar:
Just in case anyone was left wondering when the next time we were going to be patronised by multi-millionaire movie stars about how rich bankers are, the Robin Hood Tax campaign comes along and lets us known that the time is now.
The sheer volume of bizarre misinformation regarding the campaign is as intimidating as it is mind-boggling. I'll try and offer my opinions in as orderly fashion as possible, but it is a rather confusing mess.
1 - A tax that costs a single industry up to £250bn (that's enough to pay for our military for over 8 years, by the way) isn't "tiny". You could tax my salary at 20%, or you could tax it a "tiny" 1% twenty times - it's still not tiny, because of the massive accumulation. If the suggestion that they can afford it (since it's only a tiny proportion of their turnover) is somewhat at odds with the much-referenced fact that a lot of them have just taken a massive amount of... well, not "our" money, but fake money the government's invented that we'll eventually have to pay off. If they had £250bn to just piss up the wall on an inconsequential tax, they probably wouldn't have needed a bailout. And that's sort of the point, right - this isn't a tax on their profit, it's a tax on their turnover. So a bank (even without ever having received any taxpayers money, such as HSBC) could fail to make a profit in a year and STILL pay billions of pounds in a "Robin Hood" tax. That's really a good system?
2 - People seem totally disconnected with where this money comes from, goes to, or what it does. People seem of the opinion that it's made up of charging them for going over their over-drafts and credit card interest. It's not. The vast majority of it goes into people's mortgages (thus the whole crisis in the first place, as the sub-prime market crashed) and in business investment. A lot was said about banks being "less willing" to lend following the crisis. It was because their supple of credit dried up. Supply dwindled, demand remained the same or increased, thus it's more expensive. They weren't "unwilling" to lend anymore than BP are "unwilling to sell petrol" when prices go up. They need to sell petrol to make money, and banks need to lend money to people and businesses to make money.
You take away yet more of their supply of credit, and their ability to offer loans at affordable rates goes down yet more. It's not the "fat cats" with their Bentley's that get hurt, it's people trying to get mortgages and loans for their businesses. This means businesses find it a lot harder to expand (or stop themselves collapsing altogether), which means less jobs, which in turn means less tax and more unemployed bums on the seats of jobcenters picking up their JSA. I don't know how many times history has to teach us that when you target a specific industry for taxes, it's not the business that get hurt, it's the consumers, before we start listening. Businesses only exist because of their customers. If you make it more expensive for businesses, the customers end up paying more, because that's where the money comes from.
3 - There are a lot of banks out there who weren't run into the ground and are still making profit. They neither wanted, nor received any government bailout. So why should they be forced to pay an extra tax? The idea that "they can afford it" is an incredibly dangerous road to go down. It's important to remember that the government can't "grow" the economy. They can attempt to sustain it temporarily, or even suggest bouyancy, but it's a totally circular design - The government doles out money, people spend it, the government taxes it and they get it back. Except, obviously, they lose money every time. Resources get used up. The private sector is the only one that can "create" wealth. The idea that if you take more and more money from the private sector to dole out - however good the intention - and it not affect the performance of the economy is blasphemously short-termist and economically just incorrect. You can't just take more and more of their money and expect them to simply stop buying Bentleys ceteris paribus. When oil prices go up, BP don't lose money, car drivers do.
4 - The banks who didn't take our money have nothing to answer for. Those who did took our money. It's ours - why are we taxing it? It's like the absurdity of taxing doctors and nurses on the NHS. What's the point? Their money comes from the treasury, then the tax goes straight back. But that's not a big deal, it just seems like a waste of paper, nothing more. In this instance, though, demanding yet more money from the banks that required our help is like issuing punishing interest rates on loans to third world countries. There's no point demanding £250bn a year if they can't even turn a profit, in the same way that there's no point demanding loan repayments from Ghana when it needs the money to build infrastructure so that they can actually make profit in the future. It's better in the long term to let them use the money, build an industry and then get the money back when they actually can afford it, because that way you get it all back (plus the interest). If we keep hammering HBOS for money when they're already on their knees, that doesn't benefit us because we own their debt. It's our debt. If they crash, it's STILL our debt. How about we let them actually make a profit, then we can sell it on when it's actually profitable. That way we get the money back. We should stop cutting off our nose to spite our ridiculously indebted face.
The answer to all these points is painfully obvious, though. It's about short-term populism. It always is. In a political world where you know you're only safe for four years, who would take the tough decisions that will reap rewards in the long run at the expense of short term popularity? This tax is undoubtedly popular, and any politician that supports it will get a (temporary, perhaps) bump in the polls. With an election 3 months away, it's not hard to see why it's gaining so much ground. There are few politicians who do what they think is right even if it means being unpopular. Perhaps looking to Greece is a perfect example of why no one does it - suggest cutting a bloated public sector and a day later the infrastructure of the country falls apart by self-interested people on the "non-productive" wing of the economy (not that the Greek government suggested cutting the public sector, merely not giving them a pay rise - something I daresay a lot of private sector workers will have to suffer through during these times, too).
But it's a shame that those who do make the tough decisions are rarely acknowledged as doing so, even in hindsight. How many other politicians that have laid the necessary groundwork for transforming an economy from one that has power cuts and mass national strikes to one that sees unprecedented levels of growth have people actively looking forward to their funeral so they can dance on their grave? And how many people even acknowledge the massive degree of self-sacrifice it took for Gorbachev to willingly give up so much power for the greater good of his country?
I think that will be the final legacy of the Labour party, actually. They were one of the few examples of a government who really knew they were going to be in government for at least 8 years, and yet managed to squander the rarest of opportunities where they could have done something unpopular in the short term but necessary in the long term without having to sacrifice power. They could have done so much.
