Spain | The new bank tax: what it's about and what it means

Over the last few months, an attempt has been made to build a simple but straightforward narrative, according to which the banking sector must make an additional fiscal effort due to the increase in its hypothetical extraordinary profits, with which to contribute to the necessary income agreement.

Key points

• Key points:
• The Proposal for a Law to impose a special tax on banks presented on 28 July argues that the tax is warranted due to the high profits that banks reported in early 2021, in absolute value, and because these profits are likely to increase further as interest rates climb.
• In recent months, we have heard other technical arguments in support of the tax, such as market concentration and the allegedly uncompetitive behavior of the sector, along with more political ones, such as the public aid previously handed out to restructure the banking system (mostly savings banks with governance subject to political powers) and thus avoid the liquidation of institutions that would have affected millions of customers who held their savings there.
• Unless the slowdown of the Spanish economy prevents it, the expected normalization of interest rates by the ECB will lead to a recovery in the return on equity (RoE) of Spanish banks, which has been lagging behind the RoE of the wider economy for more than a decade.
• Although the arguments in support of the tax claim that it is a tax on profits (which are already subject to corporate income tax), it is in fact a tax on the main component of revenue: net interest income plus net fees and commissions. In real terms and like GDP, net interest income plus net fees and commissions (the tax base) was still below its pre-pandemic levels in 3Q22, while government revenues were 10% higher.
• It would have been better to design tax reforms that generate certainty with a comprehensive, coherent and long-term vision, as was indeed the aim of the Report of the Commission of Experts on the 2022 Tax Reform, which has been shelved for the time being.

Authors

Geographies

Topics

Tags