Mr. Gabriel Makhlouf:

That is first and foremost a question for the Government. I will bring out two issues, first a general one around tax policy. My advice to anybody thinking about a tax policy change is to at a minimum consider three questions. First, what are you trying to achieve? Are you trying to collect more revenue for the Government or are you trying to correct some sort of externality? Be very clear on what you are trying to achieve. Second, where do you want the incidence of the tax to fall? Who is it in the end you want to pay this tax? Is it the shareholders of a business? Is it individuals? Is it the consumers of a particular product that that business makes? That is a question that needs to be thought through. I am talking in general terms now; I am not talking about the banking levy. It is a question that applies to all tax policy questions. Third, make sure you think very carefully about the indirect consequences of any decision you make. In particular, if you can think through the unintended consequences of any decision you make, that would be even better. That is a general tax policy thing. If anyone were to ask me, that is what I would reply.

From a Central Bank perspective, however, and specifically to the Deputy's question about the banking levy, at the end of the day this is a question for the Government. Our interest will be what the impact would be of whatever increase or change is made on the financial system and what the impact would be on the economy. Part of our job is to ensure financial stability, to ensure that the financial system works for the real economy.

I will speak hypothetically for a minute. One of the consequences of an extremely high banking levy – I will not say what that number might be – would be to disturb a bank’s capital position. What the impact of that change on the bank would be depends on the individual bank, so we must be careful about the design if we go down that road. The other issue I would be concerned about is that if there was a very high increase in that sort of tax, what would happen to the lending we want banks to do into the real economy? Would increasing the levy - I am not saying by what amount but by a very big amount - not only impact on the bank's capital position but also on its capacity to lend into the real economy, which would have negative consequences for everyone in the end? Those are the kinds of things we in the Central Bank think about but, at the end of the day, tax policy is a question for the Government and not for us.