Pranab says 'No' to taxing banks for bailouts

The G-20 is unlikely to make headway on the contentious issue of taxing banks for future bailouts with India, Australia and Canada opposing it.

Finance minister Pranab Mukherjee stated India's preference for regulatory mechanism instead of bank tax at a meeting with Il Sakong, the chairman of the presidential committee for the G-20 meeting in Busan.

India is not in favour of imposing any tax on banks, he said, adding the better option would be to adopt regulatory mechanism as is being followed by Indian banks.

Besides India, Australia and Canada too are opposed to a bank levy, reported South Korean news agency Yonhap.

The countries which are in favour of a bank levy include the US, Britain and European countries. While opposing the levy, Australia and Canada argue that such a tax is not needed as they did not suffer the financial crisis the way it had affected some other countries.

"Australia is committed to moving the G-20 agenda forward on financial regulation. The G-20 has a responsibility to make sure our global banking system can stand on its own two feet in the years ahead," Australian treasurer Wayne Swan told the agency in an interview.

"But it is also important to remember that the crisis did not play out the same way in every country...The Australian financial system did not go through the kind of upheaval seen in other advanced economies and is not expected to require the same kind of adjustment," he told the Yonhap.

Canada, the host for the upcoming G-20 summit later this month at Toranto, also expressed discomfort over the move, the agency said. Canadian finance minister Jim Flaherty told reporters, "there are many countries" that support its opposition to the idea. But South Korean finance minister Yoon Jeung-hyun said, "a bank levy remains on top of our agenda."

Last month, the EU proposed a levy on banks to raise money for managing future financial turmoil.

This had set the stage for a wider debate on sparing taxpayers from footing bailouts. The latest proposal came amid many EU countries grappling with high public debt, partly due to their massive public spending during the financial crisis of 2008 and 2009.

With the plan, the EC looks to establish bank resolution funds to ensure that future bank failures are neither at the cost of taxpayers nor it destabilises the financial system. Mukherjee and Sakong expressed hope that the meeting will play a major role in the recovery of the developed world and reflect the tilting balance of power.

"The G-20 will be able to play a major role in recovery of various countries and it will reflect change in the balance of power. This is all the more relevant as various advanced economies have failed to resolve their financial problems of their own," they said and hoped that European crisis will be discussed at the G-20 ministerial and that a comprehensive package being prepared will be sufficient to contain damage.