The House of Representatives needs to take a closer look at the consequences of the additional bank tax that will be introduced in the Netherlands in 2025. The plan to make banks pay for the minimum wage increase did not take into account the risk of market disruption and high interest rates on the loans of large banks, which have to transfer another 150 million euros a year.
This is what European Central Bank (ECB) President Christine Lagarde wrote in her recommendation on the additional bank tax. The ECB does not immediately reject this option, but warns about its possible effects on the financial system. For example, the fragmentation of the European market as banks stay away from the Netherlands due to taxes. “This could impact the resilience of the banking sector and lead to market disruption.”
This autumn, the House of Representatives adopted the proposal of D66, PvdA-GroenLinks and ChristenUnie to increase the bank tax. This was intended to finance plans to increase the income of people with minimum social income. MPs were angered by the high profits made by banks this year as consumers received little interest on savings while the ECB’s interest rates rose. The Dutch Consumer and Market Authority (ACM) is investigating whether there is sufficient competition in the Dutch savings market.
record interest
The ECB quickly raised interest rates to a record level of 4.5 percent last year. It’s no surprise that banks instantly make higher profits, according to the European regulator. In its letter to The Hague, the ECB emphasizes that the consequences of rapid interest rate increases for banks may not be very positive in the long term. “Profitability may become less positive or even negative over a longer period of time,” the ECB says about the consequences of higher interest rates, for example due to less lending.
The ECB is trying to cool the out-of-control economy with high interest rates to combat high inflation. In its statement yesterday, the Dutch central bank (DNB) concluded that the Dutch economy will remain inactive this year and next year. This could affect banks with payment defaults, Lagarde writes
According to the ECB, this was not taken into account in the House of Representatives proposal. This is why Lagarde first called for a “comprehensive analysis” of the consequences on the financial system in the Netherlands and for this to be included in the draft law.
Useless
Dutch banks currently pay 470 million euros in special taxes annually, depending on their size. This was introduced during the credit crisis to prevent banks from taking on too much risk and paying high returns. This did not help much, the ECB concluded from the Ministry of Finance’s assessment of 2021.
Since the ECB’s recommendation is not binding, the House of Representatives can ignore it. Previous plans in Spain, Italy, Slovenia and Lithuania to punish banks with additional taxes for excessive profit claims and low savings interest rates were weakened or canceled on the recommendation of the ECB.
Source: NOS
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.
