Expectations vs. reality So the government stopped taxing the banks Salvini and Meloni wanted to attack the “billions of profits” of the banking sector in order to finance the mortgages of the first houses and reduce the taxes of the Italians: it did not work out that way

The date is August 7, 2023, and Giorgia Meloni’s deputy and Transport Minister Matteo Salvini makes an unexpected announcement: banks will be taxed on their “extra profits”. Everything happens at the post-Council of Ministers press conference, where Meloni and, above all, Economy Minister Giancarlo Giorgetti are missing. Salvini describes the new tax as “a measure of social justice”; Thanks to the 40 percent withdrawal by the state, this tax would only finance “relief for first home mortgages” and “tax relief” for 2023. The news shakes the industry and has strong repercussions on the markets: the next day Italian banking shares lose between 6 and 7 percent on the stock market, blowing up almost 10 billion euros.

However, the situation has changed considerably from the announcement of the rule to its actual implementation. In the following days, the majority of the government remained divided on the issue, with Foreign Minister and Forza Italia leader Antonio Tajani commenting that “the regulatory text must be well written” and hoping to “never see anything like this”. Rule on banks’ extra profits”. Yes, because the tax has changed from being a “convenient” withdrawal of banks’ “billions of profits”, in Salvini’s words, into a tax on which zero euros are collected for the state budget. No one, not even partially state-owned banks He won’t pay for it.

Tax on banks’ extra profits is on the Meloni government’s mind

Context: The decision taken by the European Central Bank on interest rates in 2023 brought significant profit margins to banks. Higher rates actually mean higher mortgage and loan costs. As can be seen in the chart below by Today.it, the profits of Italian banks will exceed 40 billion euros in 2023, i.e. 17.2 billion euros more than in 2022, according to an analysis by the Autonomous Federation of Italian Banks (Fabi). A total increase of 70 percent.

The Meloni government therefore decided to extract resources precisely from these profits: the tax on extra profits provided for a 40 percent tax on the interest margin accrued by banks in 2023 compared to the previous year. This means that banks will have to pay 40 percent of a certain item in their income accounts to the government, corresponding to the interest margin, one of the main indicators of bank balance sheets. Interest margin is defined as the difference between a bank’s interest income and expense, that is, the interest it receives and gives to customers.

In a statement dated August 8, the Ministry of Economy and Finance explained that the tax cannot exceed “0.1 percent of the total assets of each financial institution”, that is, the sum of all financial properties owned by the bank. Giorgia Meloni described the significant interest margins achieved by banks in 2023 as an “unfair difference”, echoing Salvini’s concept of “measures to support families and businesses around the world”, namely thanks to “recoveries” from taxing extra profits. Facing difficulties arising from the high cost of money often does not even allow one to cover the costs of a mortgage in peace.” It did not work out that way.

What was the tax on banks actually like?

After the approval of the decree, estimates said that between 2.5 and 3 billion euros would be transferred to the state coffers. In fact, there have never been official estimates of how much the state budget could get from a tax on banks’ extra profits. As a matter of fact, a file from the Senate Budget Service stated that the government did not specify the revenues from the new tax for “precautionary reasons.”

However, the decree was overturned during its passage from Palazzo Chigi to the Senate to be turned into law. The text is being considered in the Senate Environment and Industry Committee, where the government is introducing an amendment to make a significant change: banks can choose not to pay taxes. In this case, the only condition they will have to comply with is that they allocate two and a half times the tax to “strengthen their assets”.

Government changes to tax on banks' extra profits: text

If banks had used this provision to distribute dividends, they would have paid penalties. In addition, with the change, the maximum amount to be paid without including government bonds in the calculation was increased from 0.1 percent to 0.26 percent. The text was then submitted to the Parliament to be approved and turned into law and was published in the Official Gazette. The consequences were predictable: No one paid the tax, which had now become optional.

No one pays taxes on extra profits: the examples of Intesa San Paolo and Unicredit

Considering that the final text of the Law foresees the possibility of not paying tax on extra earnings, it was predictable that no banking institution would do this. The situation developed like this: All Italian banks chose to strengthen their assets by allocating an amount equal to 2.5 times the expected tax. Unicredit was the first to announce this: in the note on the accounts for the third quarter of 2023, which CEO Orcel described as “excellent”, the institute “took into account the specifics of the law”; “obligation to pay taxes according to the 2023 third quarter budget”. Thus, Unicredit preferred to allocate 1.1 billion euros in reserves instead of paying 440 million euros to the state.

Intesa San Paolo instead “instead of paying this tax, took advantage of the option offered and allocated an amount of approximately 1.991 billion, corresponding to 2.5 times the tax amount of approximately 797 million,” we read in the group’s third report. 2023 quarter results note. As can be seen in the table below, Fabi calculates that for the leading Italian banks this amounts to 4.2 billion euros allocated for 2023. Paying the tax would instead bring 1.8 billion euros into state coffers.

How much banks have to pay the government for extra profit tax

Fabi experts explain to Today.it: “All banks preferred to set aside a non-distributable reserve equal to 2.5 times the theoretical tax amount. This is an option clearly provided by an amendment to the decree. By forcing credit institutions to strengthen their capital, they avoided paying extraordinary taxes. This Through the route banks have probably envisaged capital strengthening and this route may, in perspective, be proposed or imposed in the light of the possible deterioration in credit by supervisory and supervisory authorities”. When the decree was first approved, Fabi general secretary Lando Maria Sileoni expressed a positive opinion about the tax, arguing that the contribution was fair because it “aimed at reducing social inequalities.”

Minister of Economy and Finance Giancarlo Giorgetti agrees, commenting at a press conference about the final version of the law that it is “a major operation of industrial and banking policy and in the end Italian banks will most likely be closed.” “Among the strongest in Europe”.

Even state banks do not pay

The tax on banks’ extra profits in Italy is not an isolated case: Similar measures have been adopted in Spain, the Czech Republic, Lithuania and Hungary. In Italy, the state will collect zero euros even after intervening in the sector from institutions it partially owns and with large resources. According to a study conducted by the Catholic University, the Italian State had paid approximately 18 billion dollars to public funds (and therefore to taxpayers) as of 2018 to save institutions in difficult situations. At least 5 billion will never be recovered.

The Mediocredito central bank is controlled by Invitalia, a state investment agency affiliated with the Ministry of Economy and Finance (MEF), and prefers to set aside reserve funds and not pay taxes on extra profits. Monte dei Paschi di Siena, a bank in which Mef holds a 39.23% stake, did the same: The Institute noted that “with regard to the legal provisions on the taxation of banking extra profits, the Board of Directors of the parent company, by exercising the option provided for by the said provision, shall decide on the financial statements for 2023.” A positive position was taken to propose to the Parliament the creation of undistributed profit reserves of not less than 308.9 million Euros for approval (a similar situation has been expressed before) by Bank Widiba at least 3.8 million Euros (312 million in total million Euros) in exchange for a reserve, without affecting the income statement.

Thus, from the emergence of the provision in the Council of Ministers to its publication as a law in the Official Gazette, the state went from wanting to “take” billions of euros from the banks’ “billions of dollars in profits” to leaving the banks where they wanted. They collect effectively zero euros for a fee.

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Source: Today IT