Transaction tax - no thanks!

The trouble is though that for some countries and governments that appear to have lost their way and with it, all sense of reality, balls that have been kicked into touch have an unfortunate habit of bouncing back into play - meaning that as long as the current UK government still has breath in its body expect that it will play this one out for all the votes that it might stupidly think it could be worth!

Leave aside that any form of financial markets transaction tax as that put forward by Gordon Brown and others to the G20 finance ministers this past weekend would, if it was ever to be implemented, need to be operated by all member states to kill the idea off in countries like the UK will still require many more shouts and appeals from voices of opposition that have been heard so far.

They are in my view absolutely right to oppose such a nonsense idea. Why? Because as far as I can see the basis for imposition of such a tax internationally or domestically has in terms of its reasoning as a weapon to hit banks been badly thought out, unnecessarily complicated, quite probably unworkable and a no doubt hugely expensive to operate form of taxation. Worse though is that if any form of transaction tax as envisaged by Brown was ever to be implemented by the UK or even a handful of G20 nations we may be assured that the hugely important UK banking and financial services industry would be decimated.

Originally proposed by US economist James Tobin as a post Bretton-Woods solution aimed at preventing speculation on currency exchange rates we may perhaps be thankful that even back in the 1970's the US government failed to bite on the idea. The Swedes did take the idea on board though and for a ten year period through the 1980's. Easy to forget that during the early part of this period Sweden enjoyed the proud status of having Europe's highest standard of living. Certainly Sweden was a hugely expensive place back then and one almost had to pay to breathe! In the end though all that a transaction tax seemed to do was to further isolate Sweden in the eyes of the rest of the global financial community.

It did not work for them and in my view it won't work across the rest of the G20 economy now. Indeed, the sooner the UK authorities realise that suggesting ill thought out forms of taxation for the sole purpose of attempting to win the none intellectual vote the sooner the UK economy can start moving forward away from the current quagmire.

Those that do not share such a view may prefer to see this form of proposed transaction tax as being little different to the various stamp duties that governments such as the UK frequently favour as a means of raising revenue. Detested though such forms of tax often are by those that it affects in practice there is of course nothing wrong with a stamp duty form of taxation on house sales or, tongue in cheek, even as a means of taxing individuals that play the stock market.

To be sure, in the case of property or stocks and shares type stamp duty it is the individual investor or buyer that pays the percentage they have little alternative but to pay up. Damaging though this is to both real estate and investment industries not only have we all got fairly used to it somehow it is also quite workable as a form of tax. Not so a national or even partial form of global transaction tax though. Why? Simply because unless everyone did the same and charged the same rate of tax individual economies such as Britain that might go out on a limb imposing some form of transaction tax would see there financial markets decimated.

Take currency trading for instance. Roughly speaking no matter what global currency we might be talking about it is reasonable to suggest that currently one third of global currency transactions are conducted on the London market. One is left to ponder whether Messrs Brown and Chancellor Darling really do imagine that if they were to go forward with any form of transaction type tax the existing levels of financial business would remain in London. Equally, one may imagine this as part of game being played by the Labour government to make the task of the next government all the more difficult and that may, in their eyes, shorten its life to just one term.

Certainly we can virtually guarantee that much of the current banking and financial market type business done in the UK would quickly disappear - indeed, you wouldn't see it for dust! Business gone, bankers and traders also probably gone to countries in which they are welcomed, it begs the question just what on earth will be the driving force of the UK economy in the years ahead and that will provide sufficient tax revenues for the government to pay down all that £1.5 trillion of debt they have allowed to be built up? Oh, forgive me, how could I be so stupid......it's the retail consumer of course!

Thankfully at this stage and no matter how Chancellor Darling goes on, we can be pretty certain that despite UK government rhetoric there will actually be no universal imposition of transaction tax. The US for one would have to agree and without that it seems that G20 members such as the UK, France and Germany don't have a chance. Neither, despite supporting voices from regulators, would the government dare to implement any additional form of transaction tax that might seriously affect the middle vote. Worryingly though there are those within G-20 that persist with the idea that global regulation is the future order of the day. That they are wrong in our view matters not one jot as this issue isn't about to be removed from the agenda. Perhaps the good news though is that the future will not be about G20 - it will be about G4!