2023-08-08 18:47:14
The government of Giorgia Meloni plans to levy a tax of 40% on the “surplus profits” of banks to offset the cost to households and businesses of soaring interest rates.
Italy intends to levy a tax of 40% on the “surplus profits” of banks generated by the rise in interest rates, a surprise decision which on Tuesday caused the tumble of securities in the financial sector on the stock market.
The government of Giorgia Meloni plans to tax banks’ “surplus profits” of “billions” of euros to offset the cost to households and businesses of soaring interest rates, the Deputy Prime Minister announced on Monday evening. Matteo Salvini.
Rate hikes by the European Central Bank (ECB) have boosted bank profits and hurt their customers who are bearing the full brunt of the increase in their borrowing rates, Mr. Salvini lamented after a Council of Ministers.
“It’s not a few handfuls of millions, but a few billions. It is a measure of fairness, ”assured the boss of the League, a far-right party member of the government coalition.
On the Milan Stock Exchange, all banking shares fell. Intesa Sanpaolo and Unicredit lost 8.6% and 5.9% respectively at the close. Monte dei Paschi di Siena fell by 10.8%, Bper Banca by 10.9% and Banco Bpm by 9%.
The Italian tax also weighed on the shares of banks elsewhere in Europe.
“Bad news”
The government’s announcement took the industry and analysts by surprise. “This is unexpected bad news,” commented experts from Banca Akros, estimating that banks’ earnings per share will be cut by 7% on average.
“We have been saying for months that the ECB is wrong to raise interest rates”, and this taxation “is the inevitable consequence”, assured the other Deputy Prime Minister, Antonio Tajani.
“It is not a measure against banks, but it aims to protect families,” he argued, adding that “the measure will only last for one year”.
The tax on bank “excess profits” will concern the accounting years of 2022 or 2023.
The 40% deduction will be made either on the part of the net interest income for 2022 exceeding the amount for the 2021 financial year by at least 5%, or on the profits for 2023 for which the threshold is set at 10%, said the government.
Rome has thus attenuated its decree compared to a first version released on Monday which reported thresholds of 3% and 6% respectively.
Giorgia Meloni thus intends to mobilize funds for the budget for 2024, which risks running out of resources due to the surprise decline in gross domestic product of 0.3% recorded in the second quarter.
This tax could yield between two and five billion euros, according to analysts’ estimates.
The proceeds will be used to reduce the tax burden on businesses and households that have had difficulty meeting their mortgages.
Italy had already introduced a tax on the “excess profits” of energy giants in 2022, which brought in 2.76 billion euros.
Soaring profits
Italian banks, like their European competitors, have seen their income generated by interest soar in the wake of the rise in interest rates, without increasing the remuneration of their customers’ current accounts.
Intesa Sanpaolo saw its net profit jump 80% to 4.2 billion euros in the first half. Its rival UniCredit posted a half-yearly net profit of 4.4 billion euros.
The taxation of banks has elicited mixed reactions.
The unions applauded, like the ICFTU, which saw it as a “fair” measure which “should be extended to other multinationals”.
“It is an extremely controversial tax” which seems to be inspired by Spain, commented Francesco Galietti, founder of the consulting firm Policy Sonar, castigating “a typical populist measure”.
Spain’s leftist government last year introduced a bank tax scheduled for 2023 and 2024, drawing criticism from the ECB.
“Uncertainty is at the rendezvous” in Italy with this tax which “came out of nowhere” while the Minister of Economy Giancarlo Giorgetti had worked to silence speculation on such a project, commented the Jefferies analysts.
Mr. Giorgetti had again declared at the beginning of June that a tax on banks was “not on the agenda”, taxing such a measure as “demagogic”.
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