Spain Seeks 4.8% Tax On Banks To Beat Cost Of Living Crisis
Bank executives have said the tax could hamper credit for an economy still struggling to recover from the pandemic.
(Bloomberg) -- Spain is seeking to tax banks for windfall profits made from net interest and fees charged to clients, in the boldest move against lenders by any major European Union nation to offset the impact of a worsening cost-of-living crisis.
A bill introduced to parliament Thursday aims to set a 4.8% tax on Spanish banks. It also seeks to charge a 1.2% levy on the domestic sales of energy firms. The measures, put forward by parties of the ruling coalition, would also penalize companies that pass the costs of the new taxes on to their clients.
The details of the proposals put an end to more than two weeks of uncertainty over the government’s plans, initially outlined by Prime Minister Pedro Sanchez on July 12. Now the administration, which aims for approval later this year, will have to negotiate with a wide group of congressional allies to pass the bill in the splintered parliament, where no party has a majority.
Taxing profits on oil companies’ business, which operate in unregulated markets, “doesn’t make sense,” according to the chief executive officer of Repsol, Spain’s largest oil firm.
Comparing this year’s refining margins for Repsol with last year’s “is nonsense,” said Jose Jon Imaz, speaking after the announcement of the bills, in an analyst call to discuss Repsol’s earnings. “When prices fall, revenues fall, and companies have not been compensated. Our refining business lost hundreds of millions of euros in 2020 and 2021 and I didn’t see any government talking about supporting these extraordinary losses.”
The government has struggled in recent months to gather support to pass significant legislation, but it has never lost a major vote. That track record indicates that it will likely clinch enough backing for the windfall taxes.
The levies, which aim to raise 7 billion euros ($7.1 billion) over the next two years, have raised tensions between Sanchez and big business as governments across Europe scramble to raise funds to ease the impact of record inflation exacerbated by Russia’s invasion of Ukraine.
Spanish banks were among the worst performers in Europe on Thursday prior to the announcement of the bill. Banco Santander SA and Banco Sabadell SA had reported earnings earlier. They remained mostly unchanged after the bills were introduced.
Many people and companies “are suffering the consequences of the crisis, of the war” but others “are obtaining extraordinary profits,” said Patxi Lopez, leader of the Socialist party in the Congress. The proposals ensure that banks and energy firms “contribute part of those profits” to common welfare.
Hampering Credit
Bank executives have said the planned tax could hamper credit for an economy still struggling to recover from the pandemic and facing headwinds from the war in Ukraine. Lenders also say that a rise in interest rates, as is happening in Europe, doesn’t necessarily result in extra profits.
For their part, energy firms have been arguing that they aren’t seeing windfall profits and that any such tax is unfair on them. Iberdrola SA, the country’s largest utility, yesterday said that its profit in Spain is weakening and that it is oil and gas firms which are reaping large benefits from the upheaval in global energy markets.
Sanchez’s surprise announcement of the planned tax, during a speech to Congress, wiped out billions of euros off banks’ market value. The shares have since recovered as the European Central Bank moved to increase interest rates.
For energy firms, the blow has been far less as the possibility of a windfall tax had been floated by officials for weeks, and governments in other countries across Europe have made similar moves.
The proposal may prompt the European Central Bank to position itself on the tax as it has done on similar taxes in countries including Lithuania and Poland. ECB Vice President Luis de Guindos cautioned that the tax shouldn’t damage the solvency of the banking system, or crimp lending.
(Updates with Repsol CEO comments in fourth paragraph)
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.