Tax toll as bonuses dive on Wall Street

In an alarming omen for London's finances, New York state officials have revealed that cash bonuses paid to Wall Street bankers plunged 44% last year.

New York state comptroller Thomas DiNapoli said shrinking bonuses will cost local government almost $1 billion in income tax revenue. Top banks such as Citigroup, Merrill Lynch and Morgan Stanley handed out $18.4 billion in 2008 compared with $32.9 billion in 2007.

Despite the big drop in the size of the bonus pool, DiNapoli said it was the sixth-largest ever. A few banks, such as JPMorgan and Goldman Sachs, reported record earnings at the start of 2008.

Payouts for 2009 will be worse as banks have racked up massive losses, laid off tens of thousands of staff, and had bonuses restricted.

Authorities also face a further drop in revenues because lossmaking banks are due $31.3 billion in tax credits.In Wall Street's most profitable years, financial services contributed up to 20% of New York state's total tax revenue.