Countries should consider imposing a two-pronged tax on banks and other financial firms to pay for bailouts the next time markets tank, the world's financial body is proposing.

The International Monetary Fund, headed by managing director Dominique Strauss-Kahn of France, right, is advising countries to consider a special tax on financial firms to help pay for future bailouts.The International Monetary Fund, headed by managing director Dominique Strauss-Kahn of France, right, is advising countries to consider a special tax on financial firms to help pay for future bailouts.

In a report to the G20 countries that was obtained by the BBC, the International Monetary Fund recommends a globally co-ordinated flat fee on every big bank, coupled with a tax on profits.

The money would be managed by governments and used to pay for economic rescue measures if the world ever again faces the kind of financial crisis that devastated economies over the last year and a half.

The fee would start off relatively flat, but over time shakier institutions would pay higher amounts. It would apply to banks, but also hedge funds, insurers and other financial institutions so that a bank couldn't wangle out of the tax by reclassifying its activities.

The proposal is the IMF's response to a request by G20 member countries for ideas on how to reform financial markets to alleviate future economic crises. The G20 finance ministers will discuss the scheme at a meeting this weekend, and will likely broach it again at their summit in Toronto in June.

The Canadian government has already said it is staunchly opposed to any new tax on banks, while the British government said it welcomes the notion.

Various ideas have emerged for how to make financial firms pay their own way for being bailed out, including a fee on every exchange of currency, and a financial transactions tax on every purchase and sale of stocks, futures and options.
Global coalition wants stronger measures

The IMF's proposal, while considered radical relative to the organization's usually conservative stances, only partly satisfies the appeal of a coalition of world leaders, celebrities, economists and philanthropists who are jumping on board a "Robin Hood tax."

Actor Ben Kingsley, French President Nicolas Sarkozy, the European Parliament and German Chancellor Angela Merkel are among the many high-profile supporters of the measure.

The Robin Hood tax would levy a 0.05 per cent fee on bond, stock, futures and options trades between financial firms, potentially raising $650 billion a year worldwide.

The campaign leaders have proposed that every country take half of the earnings from the tax to help their ailing economies recover from the recession. The other half would be committed to international efforts: one-quarter of the total money for combating climate change, and the rest for helping the poor in Third World countries.

Globally, the tax is small enough to spare financial institutions harm, but would discourage the kind of speculative trading that was partly behind the global crisis, advocates say.

"At a time when people at home and abroad are suffering economic hardship, our politicians should listen to the voice of ordinary voters. A tiny tax on banks could make a difference to poor people," Kingsley said.

The international campaign was launched in Britain on Feb. 10 and now involves 106 organizations. A national campaign was launched Tuesday in Ottawa, with advocates saying the federal government could collect at least $700 million a year.

"Revenue from this tiny tax would come from one of the most profitable and undertaxed sectors of our economy: the banks and stockbrokers, who — let's be frank — can certainly afford it," said Mark Fried, policy co-ordinator for Oxfam Canada.

"We pay our taxes so all Canadians can have quality public services. Why shouldn't the big banks chip in their share?"

The Canadian Bankers Association quickly dismissed the concept, saying a Robin Hood tax just confuses the issue by mixing up development and climate issues with difficult negotiations to stabilize global finance.

"I think it's the wrong focus," said Nancy Hughes Anthony, the association's president. "I think this is a distraction from what really needs to happen in terms of financial reform."

Iceland just took care of global warming for the next 2-3 years, and potentially for the next couple decades. That should be enough to offset all the extra emissions as politicians fly all over to discuss how to cut carbon footprints.