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Imf Floating The Idea Of A 10% Tax On Eu Savings

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Not sure how much weight to give this- but apparently the idea of a one off 10% 'wealth tax' has been suggested by the IMF as a way to settle the costs of the banking bailouts to national governments;

This is a story that should raise an eyebrow or two on every single face in Europe, and beyond. I saw the first bits of it on a Belgian site named Express.be, whose writers in turn had stumbled upon an article in French newspaper Le Figaro, whose writer Jean-Pierre Robin had leafed through a brand new IMF report (yes, there are certain linguistic advantages in being Dutch, Canadian AND Québecois). In the report, the IMF talks about a proposal to tax everybody's savings, in the Eurozone. Looks like they just need to figure out by how much.

Here's what the October 2013 IMF report, entitled Fiscal Monitor : Taxing Times, literally says on the topic, in the chapter called:

Taxing Our Way Out Of - Or Into? - Trouble

The sharp deterioration of the public finances in many countries has revived interest in a capital levy, a one-off tax on private wealth, as an exceptional measure to restore debt sustainability. (1) The appeal is that such a tax, if it is implemented before avoidance is possible, and there is a belief that it will never be repeated, does not distort behavior (and may be seen by some as fair).

There have been illustrious supporters, including Pigou, Ricardo, Schumpeter, and, until he changed his mind, Keynes. The conditions for success are strong, but also need to be weighed against the risks of the alternatives, which include repudiating public debt or inflating it away (these, in turn, are a particular form of wealth tax on bondholders that also falls on non-residents).

There is a surprisingly large amount of experience to draw on, as such levies were widely adopted in Europe after World War I and in Germany and Japan after World War II. Reviewed in Eichengreen (1990), this experience suggests that more notable than any loss of credibility was a simple failure to achieve debt reduction, largely because the delay in introduction gave space for extensive avoidance and capital flight, in turn spurring inflation.

The tax rates needed to bring down public debt to pre-crisis levels, moreover, are sizable: reducing debt ratios to end-2007 levels would require (for a sample of 15 euro area countries) a tax rate of about 10 percent on households with positive net wealth .

http://www.theautomaticearth.com/Finance/the-imf-proposes-a-10-supertax-on-all-eurozone-household-savings.html

Once I would have dismissed such ideas as the ravings of conspiracy theorists- but now they seem all too credible. :angry:

Edited by wonderpup

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Won't work without Capital Controls or the money will simply run. The experience of Cyprus shows these types of levies only rob ordinary people of their capital and savings. The truly wealthy never get hit. It also tends to drive savings future savings 'underground'. God only knows what would happen to London property prices if this was actually attempted

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Yep, head scratching. It seems they have 6 suggestions and this is the last one but I haven't read the whole report yet. Cyprus style bank confiscation in Europe may not be so far-fetched as it sounds. Thanks for posting this.

Edited by doahh

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Won't work without Capital Controls or the money will simply run.

I am sure that I have read that such policy is now available to the politicians in Canada, UK and a couple other countries as well (Japan?). This from Zero Hedge:

The European Union agreed on Thursday to force investors and wealthy savers to share the costs of future bank failures, moving closer to drawing a line under years of taxpayer-funded bailouts that have prompted public outrage.

After seven hours of late-night talks, finance ministers from the bloc's 27 countries emerged with a blueprint to close or salvage banks in trouble. The plan stipulates that shareholders, bondholders and depositors with more than 100,000 euros ($132,000) should share the burden of saving a bank.

The deal is a boost for EU leaders, who meet later on Thursday in Brussels, and can show that they are finally getting to grips with the financial crisis that began in mid-2007 with the near collapse of Germany's IKB.

"For the first time, we agreed on a significant bail-in to shield taxpayers," said Dutch Finance Minister Jeroen Dijsselbloem, referring to the process in which shareholders and bondholders must bear the costs of restructuring first.

The rules break a taboo in Europe that savers should never lose their deposits, although countries will have some flexibility to decide when and how to impose losses on a failing bank's creditors.

"They can affect German savers just as well as they can affect any other investor in the world," German Finance Minister Wolfgang Schaeuble said after the meeting

If that ZH article is correct then it seems to me that this is much closer to reality that most would care to believe.

Edited by doahh

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They better well take 10% ownership in other people's homes/portfolios as well, if they steal 10% of my savings. And do wealth tax savers once, then you have a confidence problem, risking worse problems for the economy.

Although many Labour voters loved the shakedown windfall tax, a wealth tax of sorts, on the banks when Labour got in. Ok when it's other people's money isn't it, including shareholders. Not when it comes for you.

It's not like non home-owning savers haven't been punished enough, with older home-owners, BTL portfolio expanders, big mortgage borrowing buyers of past 10 years (and even now) saying house prices double every few years, or only go up.

Savers who've never owned a home, 30+ should be getting compensation for having done their best to avoid fuelling bubble. The payment going up with each year of their age. Not having their savings plundered.

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Not sure how much weight to give this- but apparently the idea of a one off 10% 'wealth tax' has been suggested by the IMF as a way to settle the costs of the banking bailouts to national governments;

http://www.theautomaticearth.com/Finance/the-imf-proposes-a-10-supertax-on-all-eurozone-household-savings.html

Once I would have dismissed such ideas as the ravings of conspiracy theorists- but now they seem all too credible. :angry:

Only credible if they really want to see German tanks on the streets of Brussels.

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We, in the UK, are already paying such a bailout tax on our savings and nothing is being said about it.

It's way past time the bankers were prosecuted instead of being bailed out.

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someone pays for all this...capital formation has all but stopped, so they gotta take capital already formed

SO, a tax would pay your already formed capital to the government so it could pay it back to you in benefits/keep themselves in clover, or they could cut the liability of the bank to pay you back, which is what they did in Cyprus.

And when this isnt enough, theyll take your fixed assets....

At the end of the day, there are no Martians paying for all this.

Edited by Bloo Loo

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someone pays for all this...capital formation has all but stopped, so they gotta take capital already formed

SO, a tax would pay your already formed capital to the government so it could pay it back to you in benefits/keep themselves in clover, or they could cut the liability of the bank to pay you back, which is what they did in Cyprus.

And when this isnt enough, theyll take your fixed assets....

At the end of the day, there are no Martians paying for all this.

One can quite easily imagine all this just descending into chaos, i.e. civil unrest, revolution, war.

Edited by TheCountOfNowhere

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The IMF's 'idea' does not exist in isolation.

As Cyprus showed, governments will attempt to take even 'guaranteed' savers funds in a bail in if they want to.

NZ and Spain recently passed laws/constitutional changes to allow bail-ins.

The BoE and SEC published a paper last year proposing that the funds supposedly available to protect & guarantee savings in banks could be seized to prop up a failing bank instead.

As I have said before, with such tiny ROI on bank savings, it is insane to keep more than the barest minimum of funds in a bank now.

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The IMF's 'idea' does not exist in isolation.

As Cyprus showed, governments will attempt to take even 'guaranteed' savers funds in a bail in if they want to.

NZ and Spain recently passed laws/constitutional changes to allow bail-ins.

The BoE and SEC published a paper last year proposing that the funds supposedly available to protect & guarantee savings in banks could be seized to prop up a failing bank instead.

As I have said before, with such tiny ROI on bank savings, it is insane to keep more than the barest minimum of funds in a bank now.

please enlighten....what are these funds of which you speak?

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Won't work without Capital Controls or the money will simply run. The experience of Cyprus shows these types of levies only rob ordinary people of their capital and savings. The truly wealthy never get hit.

Yes, I think that is part of the plan.

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So how would they go about quantifying your "wealth" in order to tax it?

The average person here probably has money in several bank accounts, maybe some NS&I linkers and ISAs, some equities, and other odds and sods - pms? The bank accounts and NS&I are easy to just skim 10% off the top, but what are they going to do about holdings of equities, gilts, gold, foreign denominated investments etc?? A "one off wealth census" would set all the alarm bells ringing.

You can see how this would only end up affecting the smaller scale savers - anybody with large amounts is going to have it diversified enough to minimise the impact.

Should make for some interesting discussions on where to keep savings now though ;)

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someone pays for all this...capital formation has all but stopped, so they gotta take capital already formed

SO, a tax would pay your already formed capital to the government so it could pay it back to you in benefits/keep themselves in clover, or they could cut the liability of the bank to pay you back, which is what they did in Cyprus.

And when this isnt enough, theyll take your fixed assets....

At the end of the day, there are no Martians paying for all this.

Agree, no capital, wealth being created, just more and more skimmed off and the medium of money used to exchange and store being devalued by increasing its supply.

Going backwards, perhaps accelerating.

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So how would they go about quantifying your "wealth" in order to tax it?

The average person here probably has money in several bank accounts, maybe some NS&I linkers and ISAs, some equities, and other odds and sods - pms? The bank accounts and NS&I are easy to just skim 10% off the top, but what are they going to do about holdings of equities, gilts, gold, foreign denominated investments etc?? A "one off wealth census" would set all the alarm bells ringing.

You can see how this would only end up affecting the smaller scale savers - anybody with large amounts is going to have it diversified enough to minimise the impact.

Should make for some interesting discussions on where to keep savings now though ;)

the point is, the bank is ALREADY skimming your wealth...they take this cash, and spend it in investments....then they propagate the myth that some savers are sitting on cash mountains...The official bail in is just to let the bank of x% of what they owe you...they get to keep their jobs, their investments and any returns they make using YOUR capital.

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please enlighten....what are these funds of which you speak?

Good question.

Thats why I inserted the word 'supposedly'. ;)

Ultimately, Carney's printing press., I suppose.

But this is not a trivial point. The FSCS scheme places limits on the amounts that can be paid out in compensationeach year.. So if the (probably hypothetical) funds are appropriated to instead support a failing bank, that would then reduce any remaining funds (or allowance) that could be spent compensating depositors.

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the point is, the bank is ALREADY skimming your wealth...they take this cash, and spend it in investments....then they propagate the myth that some savers are sitting on cash mountains...The official bail in is just to let the bank of x% of what they owe you...they get to keep their jobs, their investments and any returns they make using YOUR capital.

I'm aware of that. The point I'm making is, how is people's wealth outside of banks assessed for this "one-off" wealth tax?

Edit to add - in other words, how do they avoid alerting the more astute parts of the population that it's coming?

Edited by Fully Detached

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Good question.

Thats why I inserted the word 'supposedly'. ;)

Ultimately, Carney's printing press., I suppose.

But this is not a trivial point. The FSCS scheme places limits on the amounts that can be paid out in compensationeach year.. So if the (probably hypothetical) funds are appropriated to instead support a failing bank, that would then reduce any remaining funds (or allowance) that could be spent compensating depositors.

the FSCS funds come from banks, IFAs and insurance firms in the form of an annual fee ( for the small guys).

There is about a 4.2bn annual limit IIRC, and this money comes again, from the financial community...

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I think this is a wonderful idea...

As it would be the final straw on the camel's back. We could see bankers and politicians lynched yet...

They came for the xxxxx but I'm not xxxxx so I never said anything...

Then they tried to directly take my money (on top of QE).....RAGE!!!

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Well, you can see where the IMF is coming from.

It is going to have to write off a loan for the first time in its history. (Greece.)

Much better that Eurozone savers get stiffed en masse, doncha think? And while we're about it, why not steal something for a rainy day?

The Fund also recognizes that it would require a high rate of 10% for all households with positive net savings in 15 countries of the Eurozone. :o

The Fund notes that such one-time contributions have been widely used in Europe after the First World War in Germany and Japan after the Second World War. As a one-off crisis measure, IMF thinks the action could be perceived as fair.

It's totally delusional. But that doesn't mean it won't happen.

We are all Cypriots now.

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I had been getting worries about this for some time as we had over the insurance limit sitting in an AIB 30 day access account. When they first started talking about the European wide bailins I gave notice on my savings account and have diversified the money away.

The issue in Ireland is that if when the banks run out of funds again the government does not have the money to stump up the €100k insurance. What will happen is they will limit withdrawals to a €1,000 euros a day and it will take you a couple of years to get your money out.

Again like has been said elsewhere it is not targeting the really wealthy. To target the really wealthy you would need to cease their overseas (London) properties and then sell them off.

So in summary confiscating 10% of all savings will just affect the little people and not their best friends the bankers.

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Well, you can see where the IMF is coming from.

It is going to have to write off a loan for the first time in its history. (Greece.)

Much better that Eurozone savers get stiffed en masse, doncha think? And while we're about it, why not steal something for a rainy day?

It's totally delusional. But that doesn't mean it won't happen.

We are all Cypriots now.

Would give UKIP a massive boost here if it happened, might be the best way to speed up the disintegration of the EZ?

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Would give UKIP a massive boost here if it happened, might be the best way to speed up the disintegration of the EZ?

What makes you think this will just happen in Europe?

What is total debt, private and public, as a percentage of GDP in the UK?

What is the same figure in Greece?

I suspect the UK has a higher figure than Greece and is no more capable of paying it off except by massive devaluation which is effectively default.

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