2023-09-27 04:39:58
After Spain, Sweden, Lithuania, and, of course, Italy, the Netherlands wishes to set up a “exceptional tax on bank income“. On September 22, Dutch MPs approved a bill aimed at raising the level of taxation of banks and applying a 15% tax on share buybacks by these same banks. Immediate reaction on the markets financial: the value of ABN Amro Bank and ING Group fell on the Amsterdam Stock Exchange.
Why (over)tax banks?
The main reason can be summed up in half a sentence: the spectacular rise in interest rates in Europe since the summer of 2022. In a little over a year, the European Central Bank has increased its key rates by force. And especially the rate of its deposit facility, which remunerates the investments that banks make on a daily basis with the ECB with the excess money that they have not lent to their clients. This rate went from -0.5% – the famous negative interest rates – to 4% in one year. As pointed out Litter“monetary conditions have never tightened so much or in such a short time in the history of the euro zone.“
Certainly. But this increase in interest rates has largely benefited the banks, to the point that, for Dutch MPs, this is an “exceptional income”. Taxing such an annuity would be all the more legitimate since, according to Dutch MPs, the country’s banks do not share the profits with their clients: the remuneration of savings deposits remains very modest in the Netherlands, at levels similar to those we know in Belgium.
Illegitimate surplus profits?
So there is a big gap. It is still necessary to be certain that the banks are indeed making “excess profits”, that is to say considerable additional profits linked to a literally extraordinary context. For Xavier Dupret, economist at the Joseph Jacquemotte Cultural Foundation, there is no doubt on this point: “In a time not so long ago, that of the energy crisishe recalls, it was said that excess profits did not exist. Then we ended up admitting that yes, multinationals generated considerable excess profits. And today, it is obvious that bank profits are much higher than they were in pre-COVID times, due to the simple fact that the ECB deposit rate – the rate at which banks’ deposits with of the ECB – soared in one year (editor’s note: the deposit rate increased from -0.5% to 4%). This means that, somewhere, banks are making money by not doing much, by letting part of their customers’ money “sleep” in ECB accounts. And what we observe at the same time is that the interest rates which remunerate the savings of bank customers have not increased proportionately. And therefore, inevitably, there is reason to question the legitimacy of these profits. It can easily be assumed that part of these profits is illegitimate. The question of taxing them to organize a return to the community can legitimately be asked and, moreover, it is being asked throughout Europe, transcending all political divisions. “
Banks are resisting
Banks are naturally trying to resist this pressure. They are not lacking in support… In the Netherlands, outgoing Prime Minister Mark Rutte advised parliamentarians not to vote in favor of these measures, on the grounds that they would risk pushing businesses to leave the country.
In Italy, banks were able to count on the support of the European Central Bank. Prime Minister Giorgia Meloni had just announced her intention to tax 40% of excess profits earned by the country’s credit institutions in 2022 and 2023 thanks to the rise in rates. The ECB made it clear that this measure risked weakening Italian banks… A reasoning that it had already developed at the end of 2022 when Spain announced its intention to tax banks’ excess profits.
And with us?
In Belgium, the question of a possible levy on the exceptional profits of banks has recently arisen. The Flemish socialist party Vooruit has just formulated a proposal aimed at taxing the excess profits of banks. “We are not once morest profitsthus declares to Time group leader of Vooruit at La Chambre Melissa Depraetere, daily The time, but the current situation is extreme. The big banks generate a mountain of liquidity from the interest they receive on the money they hold with the ECB. With this money, they do not increase interest rates on their customers’ savings deposits, but buy back their own shares, which further increases earnings per share. We think it is right to ask the banks to make a serious effort when drawing up the budget (of the federal state)”. If his proposal were implemented, Vooruit estimates that it would bring in 588 million euros for the state.
The arguments of the Belgian banks
This proposal to introduce a tax on excess profits obviously does not please the banking sector at all. In a press release, the employers’ organization of the Febelfin sector “deeply deplores this proposal” and emphasizes that “a strong banking sector is essential to supporting the economy and society. However, an additional tax burden will have the effect of limiting the societal role and the impact that banks can have to support the economy, particularly in times of crisis.“.
But the banking lobby also insists on the fact that banks are, it says, already subject to a level “particularly high contributions“. Febelfin explains that “for 2022, the total amount [des contributions des banques] can be estimated at 3.6 billion euros. Indeed, in addition to “classic” taxes and levies (corporate tax, social security contributions, etc.), the Belgian financial sector pays each year a certain number of specific taxes to which other sectors are not subject. […] Or some 1.6 billion euros in total in 2022.“
Still in this press release, Febelfin adds that “the financial sector understands the expectation of customers who want a return on their savings account, but the introduction of an additional tax on excess profits will not help in this regard“.
What if it was mainly a question of competition?
In fact, the introduction of a tax on surplus profits would undoubtedly lead Belgian banks to postpone a possible increase in the remuneration of savings. Especially in a banking landscape dominated by four large banks. Hence this question: isn’t the problem elsewhere? In perhaps insufficient competition between the big banks? The president of the ECB’s prudential supervisory board Andrea Enria counted on competition to “force” banks to remunerate household savings better and faster but, observation, “in some markets this hasn’t worked very well. Banks therefore lagged, probably too long, before passing on these higher interest rates to customers.“.
Xavier Dupret is more direct, if only by asking a rhetorical question: “Oone can wonder, he said, what is the ultimate source of this formation of unjustified excess profits? And in most cases, we will find a lack of competition in certain sectors. Would this require recreating competition? Because it’s true that within the banking sector, there are different situations. Small banks, which seek to attract customers, and larger banks which benefit from a certain form of inertia from their customers.“And who, therefore, must not make the effort to decently remunerate their clients’ deposits… So, what solution? Dismantle what Xavier Dupret calls “a certain number of oligopolistic situations“? Not simple, obviously, but, he said, “there would be competition once more. And who says competition in a period of increasing rates, also says clear desire of banking players to attract customers in a pattern of competition a little more advanced than today and therefore to increase the remuneration of individual savings“.
The next few weeks will be interesting in this regard… A few months ago, at the request of Deputy Prime Minister and Minister of the Economy Pierre-Yves Dermagne, the Belgian Competition Authority was tasked with carrying out an in-depth examination of the banking services in our country. She must submit her report by the end of October.
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