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Sunday, October 18, 2009

Bank bonuses - and taxes?

Bonus schemes are in the news again. But it is not only Goldman Sachs - all banks announcing large bonus schemes are under fire since, as US National Economic Adviser Larry Summers pointed out, the banks are only around because they received large government (for which read taxpayer) bailouts. Indeed, in various ways direct and indirect they still rely on taxpayer sponsored action.

It is not surprising therefore to hear talk about the potential for a windfall tax on bonuses - mentioned in the Sunday Times today by John Waples.

One of the benefits of deferred bonus schemes, from government's point of view, is that they may be announced now but payouts will be spread over, say, three years. That gives plenty of time for governments to introduce 'excessive bonus taxes' should they wish to do so.

But unless there is fundamental reform of the banking system little will change; banks have shown themselves to be institutionally unable to reform themselves.

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