European Governments Introduce Bank Windfall Profit Tax: Italian Government Injects Water to Dilute Policy
Financial Associated Press, August 10th – European countries are taking new measures to address the windfall profits of their banking industries. In Italy, the far-right government has hastily diluted the proposed “40% bank windfall profit tax” in response to pressure from the asset market.
On Monday night, Italian Deputy Prime Minister Salvini announced that a windfall profit tax of 40% would be imposed on the extra profits of the Italian banking industry as a result of the European Central Bank’s interest rate hike. The revenue generated from this tax would be used for tax breaks and loan subsidies targeted at first home buyers.
Following this announcement, diligent analysts worked overtime to assess the impact of this unexpected event on investors. While the Italian government expects the tax to increase revenue by approximately 3 billion euros, Gianmarco Rania, the director of securities at Banor Capital, stated that analysts believe the actual revenue from the tax could reach 4.5-5 billion euros.
Rania explained that small and medium-sized Italian banks may see a 20-25% reduction in profits, whereas large banks could face an impact of 8-15%. As a result, Italian bank stocks experienced a decline on Tuesday, with UniCredit falling 6% and Intesa Sanpaolo falling over 8%. In just one day, the market value of Italian bank stocks decreased by more than 9 billion euros, casting doubt on the average 11-12% return that Italy’s banking system offers to shareholders.
In response to these developments, the Italian Ministry of Finance quickly took action to modify the windfall tax proposal. Financial bureaucrats worked late into the night and announced that the tax would be capped at 0.1% of risk-weighted assets for banks. This adjustment significantly reduced the impact on small and medium-sized banks to around 10%, and large banks saw a decrease of only 3-5%. Consequently, bank stocks rebounded, with UniCredit closing up 4.37% and Intesa Sanpaolo rising 2.33% on Wednesday.
It is important to note that Italy’s proposed “bank windfall profits tax” is currently just a proposal from the cabinet and requires approval from the parliament. Italian banks could also follow the legal procedures taken by their Spanish counterparts. Additionally, other European countries such as the United Kingdom, Poland, Estonia, and Lithuania have similar plans to levy a bank windfall profits tax.
Overall, these measures highlight European governments’ efforts to address windfall profits in the banking industry and redistribute them for public benefit.