IMF calls for a tax on household savings


#1

IMF calls for a tax on household savings - google translate


#2

Thanks (I think ) BR this Bail by another name in is getting closer


#3

yes a good old bail in is the way this dog and pony show is heading I’m afraid.


#4

Having fleeced the sheep, they’re now mowing the pasture!


#5

Interesting, it might also be intended to encourage households to start spending again.

It certainly would encourage me to redo the kitchen sooner rather than later! Rather than saving another few thousand, I might as well borrow and avoid any tax on my savings.


#6

It’s not even a wealth tax, since wealth is NET assets.

Old charts from Eurostat.
epp.eurostat.ec.europa.eu/statis … iabilities

Financial assets as % of GDP.
https://epp.eurostat.ec.europa.eu/statistics_explained/images/e/eb/Table_Households_financial_assets_as_a_percentage_of_GDP%2C_2007-2011.png

Financial assets by instrument
https://epp.eurostat.ec.europa.eu/statistics_explained/images/thumb/d/d8/Table_Households_financial_assets_by_instrument_(%_of_total_financial_assets)_2007-2011.png/800px-Table_Households_financial_assets_by_instrument_(%_of_total_financial_assets)_2007-2011.png

Don’t have the raw data to hand, but assets/GDP seems to vary wildly (average maybe 150%) whilst currency and deposits seem to average about half of financial assets, DE and IE both 40%.

In the case of Ireland it’s 10% of 40% of 195%, which is 8% GDP, with unknown side effects.

Not going to fix anything very much, is it?


#7

The IMF is saying that this will just get debt back to its level at the end of 2007, but I presume that’s aggregating across the 15 countries rather than specifically getting Ireland back to the end of 2007 (which I expect would take a lot more than 8% of GDP at this point).

If the alternative is inflation eating away at savings over time with little or no interest on deposits, what’s the better option?


#8

You mean better of those two, or better than either?

Of those two I’d choose inflation, since it gives the owner of the asset the choice about risk/reward.

In any case, this is unworkable.

If it’s flagged in advance there will be bank runs then capital controls, either of which would be a disaster.

If it’s done overnight there will be capital controls then slow-motion bank runs.

If it’s retrospective then it’s totally immoral and probably illegal.

Why would anyone keep money in a bank at almost zero rates if, regardless of the solvency or liquidity of that bank, the State can just help itself whenever it likes?


#9

I believe it would have the complete opposite effect on most others.
Such a smash and grab invokes fear.

When you start stealing people’s savings, they don’t spend them, but hide them.
(example : people don’t buy less gold and silver because burglars like to steal them, they just hide these assets in their houses)
They may actually save even more than before, as they hide greater quantities of money in anticipation of future shortages.

I believe the law of unintended consequences would throw a serious spanner into any desired effect of such a tax…


#10

Is that better for the economy as a whole? Or better at an individual level?
Questions of workability and morality aside, it probably makes more sense at a macroeconomic level to grab 10% of savings than to stimulate an equivalent level of inflation. The inflation would have to be realized fairly quickly in order to be of any benefit, and that would be very destabilizing. At least a money grab would be over with quickly - it might skew some incentives temporarily, but inflation would skew everything and ongoing until it ran its course.

How is it totally immoral if retrospective? Is it less immoral if planned or done overnight?

Well, you have to keep it somewhere. This ‘whenever it likes’ issue is key, even the IMF recognizes that.


#11

Of that I think we can be sure. :smiley:

Edit: Can anyone find the original paper? I’ve found some more articles (le Figaro has one), but can’t track down the IMF paper.


#12

content1d.omroep.nl/urishieldv2/ … apport.pdf

Here’s the original IMF piece

[code]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
nonresidents).

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 reduc-
tion, 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
precrisis 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[/code]


#13

I’m not an economist, but AFAIK inflation/monetary debasement is deliberately engineered, always has been since the Romans.

Conventional macro policy is to expand the money supply so that capital seeks return in socially productive ways (get off your arse and invent something).

Why is conventional policy not appropriate in the Eurozone? Because the Germans want to retain the purchasing power of their own savings in an environment of zero growth.

That’s what this is really about.


#14

And equally this is an argument why the confiscation/levy approach will never fly in an environment controlled by German policy.


#15

Well, inflation can be imported rather than deliberate, but yes there’s a certain choice to it being initiated.
What’s difficult - and has been since the Romans - is controlling the effects of inflation, especially if you’re looking for 10% over baseline in a short period of time.

@sorehead - thanks!


#16

They don’t mind, as long as it’s not their savings being confiscated. See Cyprus.


#17

Oookay, so the illustrious supporters are all long-dead and at latest from the age of totalitarianism…


#18

There are many things to worry about, but this is not one.

We are protected by the constitution, in at least that they would have to pass a law to do it as opposed to a smash and grab - giving us all time to move cash to the USA.

ARTICLE 40
3 1° The State guarantees in its laws to respect, and, as far as practicable, by its laws to defend and vindicate the personal rights of the citizen.

2° The State shall, in particular, by its laws protect as best it may from unjust attack and, in the case of injustice done, vindicate the life, person, good name, and property rights of every citizen.

ARTICLE 43
1 1° The State acknowledges that man, in virtue of his rational being, has the natural right, antecedent to positive law, to the private ownership of external goods.

2° The State accordingly guarantees to pass no law attempting to abolish the right of private ownership or the general right to transfer, bequeath, and inherit property.

2 1° The State recognises, however, that the exercise of the rights mentioned in the foregoing provisions of this Article ought, in civil society, to be regulated by the principles of social justice.

2° The State, accordingly, may as occasion requires delimit by law the exercise of the said rights with a view to reconciling their exercise with the exigencies of the common good.


#19

A few observations one could make:

Some peoples savings are their pension funds - so therefore if they take 10% of savings pot per year they should also take 10% of pension pot per year.

There is already a tax on household savings - its called dirt tax.

Finally, you could argue that if they tax one form of asset - your home - with an annual tax, they should do the same with your next egg.


#20

We are not remotely protected by the constitution. If we were there would be no pension levy.

There would be an emergency sitting of the Dail when the banks are closed, just like with the bank guarantee. All that’s required is for the TDs to “reconcile their exercise with the exigencies of the common good”.

Relating to ex-Patrick’s “pick your haircut” argument, this is relevant:

Dark inventory, death of a city edition
ftalphaville.ft.com/2013/10/10/1 … y-edition/

“There is actually a lot to the idea that we are living in an inevitable age of bubbles, and that such bubbles will not disappear until savers and capital owners acknowledge that they must be haircutted on the misvalued section of their wealth (the savings glut). Only this would stop it from disruptively and flightily flowing from one speculative asset class to the next because as soon as it anchors anywhere for too long its real (depreciated) value is exposed.”

That article really deserves a separate thread though, I haven’t digested it yet.