BOE's Posen Calls For Tax Hike To Curb Asset Bubbles

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Adam Posen, a member of the Bank of England's Monetary Policy Committee, called for taxes such as stamp duties and capital gains to be increased in line with asset price inflation to prevent price bubbles in the future.

"If we can contemplate a Tobin tax on financial transactions, we should be able to set up something in similar spirit for real estate transactions which are taxed and regulated," Posen said Tuesday at the MPR Monetary Policy and Markets Conference in London. "This should be in no way constraining on fiscal policy decisions over the medium-term. But it would mean having already existing title fees, capital gains taxes, stamp and transfer taxes, varying over time in line with price developments in the housing market more broadly."

Posen said that the issue of asset bubbles cannot be tackled with monetary policy and that the central bank should consider using property taxes as a "blunt instrument targeted to lean against the wind in real estate prices".

"The bottom-line for monetary policy coming out of the crisis is, if you have a financial problem, use financial policy tools to fix it," he said. "That applies to bubbles, which means monetary policy should not be targeting asset prices as well as inflation."

"The main point I wish to make is that we should start discussing going directly after the source of the costliest bubbles, that is real estate fluctuations, when the costs of doing so are small."

Posen's comments come as central bankers around the world are contemplating fresh regulations to avoid a repeat of the credit crunch and the ensuing financial crisis.

Adam Posen, a member of the Bank of England's Monetary Policy Committee, called for taxes such as stamp duties and capital gains to be increased in line with asset price inflation to prevent price bubbles in the future. (Market News Provided by RTTNews)