The Italian Government Imposes 40% Windfall Tax on Bank Profits
The Italian government has surprised the banking industry by introducing a 40% windfall tax on the profits made by banks from high interest rates. The tax is a one-off levy that will be applied this summer, with the proceeds intended to help mortgage holders. This decision has caused banking shares to tumble, with Italy’s largest chain, Intesa Sanpaolo, experiencing an 8% drop, while rival UniCredit saw a 6.5% decrease.
Similar taxes have already been introduced in Spain and Hungary, leading to calls for the UK government to follow suit. Italy’s right-wing cabinet, which agreed to the measure late last night, has accused the country’s banks of making record profits this year from higher lending rates, without passing on the benefits to savers. Intesa Sanpaolo, for example, expects to make over €13.5bn (£11.6bn) this year from its net interest margin alone.
Deputy Prime Minister Matteo Salvini highlighted the significant profits made by banks and the lack of benefit to current account holders. The tax will be applied to the net interest margin, which measures the income banks obtain from the difference between lending and deposit rates. Analysts estimate that the tax could reduce Italian banks’ net income by nearly a fifth this year, with the government expecting to collect €3bn (£2.6bn) from the measure.
The decision to impose the windfall tax follows complaints from the Italian government about the European Central Bank’s (ECB) decision to raise interest rates. Inflation in Italy slowed to 6.4% last month, while the ECB increased its benchmark deposit interest rate to 3.75%, marking the ninth consecutive rise. The UK government and regulators have expressed concerns about British banks’ failure to pass on higher rates to savers, but there is no indication that a similar tax will be introduced in the UK.
The Bank of England recently increased interest rates for the 14th time in a row to 5.25% and warned that rates are likely to remain high to combat inflation. The Financial Conduct Authority has also warned that it will take action against banks that cannot justify low interest rates. Campaigners in the UK have welcomed Italy’s decision and called for higher taxes on banks in the UK.