Posts Tagged ‘Financial transaction tax’

10CC had the right sentiments; you just need to swap the word cricket for QE. “I don’t like QE, oh no, I love it”, or so they might have sung. “I was walking down the street,” said the Brazilian Finance Minister, “I heard this dark voice behind me, and I looked around in a state of fright…” But when he turned around he did not see “four faces, one mad; a brother from the gutter”, instead he saw Ben Bernanke and Mervyn King: “They turned to each other.”

“They looked him up and down and”, alas, that is where the rhyme stops. “We need quantitative easing, man,” they said. And they then did, they made it, money from the gutter flowed across the world.

The Brazilian Finance Minister called foul; he called it a currency war.

It is not like that now. As the Fed hints that QE may be coming to an end, as good news on the US and UK economy erupts from the bellies of Purchasing Managers Indices, markets fear what will happen if the era of cheap money, or magic money created from the dust, comes to an end.

The FT quoted Marcelo Salomon, an economist at Barclays, who said, “The [Brazilian] government is getting concerned that global liquidity conditions are changing really fast and that this could push the real to a much weaker level.”

So what to do? First off, Brazil has cut its equivalent of a financial transactions tax, which is to say its tax on overseas investment and which is called IOF, from 6 per cent to zero.

Brazil’s Finance Minister, Guido Mantega said, “With the market normalising and the movement of the [US] Federal Reserve to reduce its expansionist policies, we were able to remove this barrier.” But the FT sees the move as more dramatic than that and said that the Brazilian government feared a weakening currency could spark off inflation.

Indeed,  US QE may have been good for Brazil because it kept Brazilian inflation in check.  For that matter, in as much as QE led to higher commodity prices, and Brazil exports commodities, QE may have been very good for Brazil.

Maybe it is time Brazil’s Finance Minister comes clean by admitting, “I don’t like QE, oh no, I love it.”

© Investment & Business News 2013

The penny has finally dropped. When individual countries try to tax companies the results is that the businesses go elsewhere, or hide behind their globalised operation to get around one country’s rules. We demonise Google and Apple, but the truth is that they are operating within the law. And when did it suddenly become immoral to try to reduce taxes while acting within the law?

The solution is global. EU leaders have agreed to agree, that one day they will agree. That may be a little harsh. The EU is to rush through rules to enforce greater transparency in how companies break down their business into the various regions in which they trade.

Ireland has spoken up. Its Enterprise Minister Richard Bruton told national broadcaster RTE that some companies “play the tax codes one against the other”. He said: “That is tax planning and I think we do need international cooperation through the OECD to deal with the aggressive nature of that.” He does, ever so slightly, have the veneer of a Turkey that has just voted for Christmas.

The big problem with the issue of corporate tax, indeed a financial transaction tax, is that the challenges posed by globalisation have been hijacked by those who favour tax cuts no matter what.

When one country, or even a region as large as the EU, imposes a financial transaction tax, or a tax on corporate profits, there is always a risk that multinational companies will simply move to another region, taking jobs with them. And they can always use the multinational nature of their business to circumnavigate paying taxes.

The fact is that across the world, corporate profits to GDP are approaching an all-time high. Much of the money generated by large companies is not creating wealth; rather it is sloshing around the system ending up in government bonds. And because, thanks to austerity, governments are not spending the money the markets want to lend to them, the result is economic stagnation.

The fact is that distribution of income and wealth across the world is becoming more uneven. You don’t need to be a diehard flag carrying member of the Communist Party to think this is a problem. Right now, the global economy needs to see taxes used to take money from profits that are not otherwise being spent, and from financial transactions, to help alleviate the lot of those who are being penalised by globalisation.

© Investment & Business News 2013