Surprise Italian Bank Windfall Tax Scaled Back
(8 August 2023 – Italy) The Italian government has sensationally scaled back its plans to enact a major one-off 40 percent bank profit windfall tax that sent bank shares crashing.
Italian bank profits have surged in 2023 on the back of rising interest rates across Europe and pocketed the favourable net interest margin (NIM), a key measure of their profitability. The proceeds were designated to help with the rising cost of living by supporting mortgage holders and cutting taxes. Citi analysts estimated that the tax could have slashed up to 12 percent off Italian banks' 2023 earnings while BofA calculated proceeds of between 2-3 billion euros for the Italian government.
Instead the finance ministry made a major about-face and announced the tax would be capped at 0.1 percent of assets and applied to the income that comes from the gap between the banks' lending and deposit rates. The announcement resulted in a significant rebound in bank share prices of the country's lenders.
Other European Union countries such as Spain and Hungary imposed similar windfall taxes on banks. Lithuanian regulators backed a temporary windfall tax on banks to fund defence spending and Estonia is planning to increase taxes on banks to 18 percent from 14 percent this year.
“Whoever dreamed up this plan would fail their economic exams” commented Bocconi University Professor Francesco Giavazzi, economic advisor to Meloni’s Predecessor, Mario Draghi.
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