THE IRISH GOVERNMENT has signalled that it has no plan to introduce a windfall tax on bank profits, instead pointing to the existing levy that banks must pay.
Earlier this week, Italy’s right-wing government announced a surprise 40% windfall tax on “surplus profits” of banks generated by the rise in interest rates.
The announcement shook Italian’s banking system and sent share prices of Italian banks downwards but although the announcement was widely seen as mishandled, the policy itself is not totally unusual.
In Spain, it’s left-wing government has also introduced a similar tax on banks scheduled for 2023 and 2024 and similar measures have been introduced in Hungary, the Czech Republic and Lithuania.
Banks globally have reported massive profits this year as they reap the benefits of higher interest rates introduced by central banks in a bid to tame inflation.
In Ireland, Bank of Ireland and AIB both recently reported significant growth in profits so far this year.
Irish banks are currently the worst at pasing on rate gains to savers when compared to the UK, the US, the Eurozone and 18 other European countries according to S&P Global ratings as reported by The Financial Times.
When asked if there are any plans to introduce a windfall-tax on bank profits, a spokesperson for the Department of Finance pointed to the levy that currently exists.
Speaking to reporters today at Cabra Library, Minister for Public Expenditure and Reform Paschal Donohoe was asked whether he would support the introduction of an Italian-style levy.
He responded:
So we already have a levy in place in our banking sector. That has been in place now since the global financial crisis. So that measure is in place.
Donohoe added: “It’s a matter for the Minister for Finance in relation to the future of that levy.
“We really appreciate that for many at the moment, the rising interest rates and inflation continuing to go up places so much pressure on so many. And we have looked to help to respond back to the rising cost of living with a variety of different measures, both in last year’s Budget and since then.”
Since 2014, Ireland has imposed a bank levy based on the level of Deposit Interest Retention Tax (DIRT) paid by credit institutions authorised by the Central Bank of Ireland. However, this levy is not linked to the profits generated by banks.
The levy raised €150 million each year between its introduction and 2021, a further €87 million in 2022, and is expected to again raise €87 million in 2023.
The amount raised by the levy is fixed every year and is based on the deposits held by banks, not the profits earned by them.
This is why the intake from the levy dropped in 2022 as KBC and Ultster Bank left the Irish market.
This year is the final year that the levy is chargable under the current legislation as it stands.
A Department of Finance spokesperson told The Journal that the Department is currently reviewing the levy and will make recommendations based on this to the Minister for Finance.
Earlier this year, a public consultation took place on the matter which received 18 submissions.
The future of the levy is expected to be reflected in October’s Budget.
The spokesperson said: “This Department is currently engaged in an exercise to review the bank levy, and make recommendations to the Minister for Finance as to its future.
“The Department is aware of the range of levies of various types and durations that are in effect across the EU, and these have informed, and will help inform, its continuing work in this area,” the spokesperson said.
Donohoe was also asked by The Journal if he believes the Government can or should do more to encourage banks to pass on better savings rates to consumers.
According to Irish comparison site Bonkers.ie, the best rate available for a monthly saving account with Irish banks at the moment is 2% AER.
Donohoe responded: “Well these are commercial decisions and they’re decisions that have to be made independently by banks within our country.
“But of course, the Government wants to see interest rates and their changes also passed on to savers, just as they are passed on to borrowers. But we do have a bank levy in place, and that bank levy was put in place in recognition of the fact that our banks were beginning to return to profitability and that levy is in place to deal with those issues.”
Yesterday, the Department of Finance told The Journal that the Government cannot intervene with the interest rates Irish banks are currently paying savers as it is a commercial decision for banks.
However, in the UK politicians have been actively engaging with banking bosses for months on the matter in a bid to encourage them to pass on better rates to savers.
A spokesperson for the Central Bank of Ireland told The Journal this morning that neither it nor the European Central Bank has a role in setting commercial rates on bank savings accounts, loans or mortgages.
“But we expect all regulated entities – including banks – to take a consumer-focused approach in respect of any decision that affects their customers (existing and new) including to communicate clearly, effectively, and in a timely manner with all of them,” the spokesperson said.
They added: “Like our peers in the EU, we have regular engagement with banks based in Ireland on this and other issues.”
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