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Spanish ruling coalition proposes windfall tax on utilities and banks
Global Banking & Finance Review®
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By Christina Thykjaer and Jesús Aguado
MADRID (Reuters) – Spain’s leftist ruling coalition introduced a draft bill on Thursday to create a temporary tax on banks and power utilities, aiming to raise 7 billion euros ($7 billion) by 2024 to fund measures to ease cost of living pressures.
“There is no social justice without fiscal justice,” spokesperson for the Socialist Party in Congress Patxi Lopez said, adding it was the duty of a “progressive government” to share the costs of the crisis “fairly and equitably”.
The tax, plans for which were first set out on July 12, would include a 1.2% levy on Spanish power utilities’ sales and a 4.8% charge on bank’s net interest income and net commissions, the text of the proposal showed.
Higher fuel prices prompted Spanish truckers to walk out for several weeks in March, disrupting supply chains and forcing some factories to halt production.
The government has not yet said how it will distribute the proceeds of the tax. It has already introduced some measures to offset rising inflation such as a rebate on fuel costs, and previously introduced a levy on utility companies deemed to have profited from high gas prices.
Banks are now being targeted on the grounds that their profitability is boosted by rising interest rates.
The tax will only apply to companies with a turnover of at least 1 billion euros in 2019, while the threshold for banks will be 800 million euros, according to the bill.
“The new tax is not deductible for corporate tax purposes and cannot be passed on to customers,” the proposal read, setting fines of 150% if the amount of the levy is passed on.
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The proposal has to be debated on parliament where changes could be introduced.
The tax on banks – whose net interest income is a measure of earnings on loans minus deposit costs – is expected to yield 3 billion euros, while the tax on energy companies’ windfall profits is expected to raise 4 billion euros.
Some bankers have cautioned against such a tax and Bank of Spain Governor Pablo Hernandez de Cos hinted earlier this week that the ECB could even issue a negative opinion on the tax.
On Thursday, chief executives from both Santander and Sabadell warned against stigmatizing the sector, adding that the tax would hit mostly small savers and shareholders.
“It is hardly possibly to fight inflation through taxes,” Santander CEO Jose Antonio Alvarez said. “If 3 billion of capital comes out of the sector it takes away 50 billion euros of lending capacity.”
Asked about the measure on Thursday, Repsol chief Josu Jon Imaz said oil and gas companies operating in free markets do not have windfall profits.
“We must not forget the billions of euros of losses we recorded in previous years,” Imaz told analysts on a conference call. “Oil and gas has risk, there is no regulated tariff that ensures profitability.”
(Reporting by Christina Thykjaer and Jesús Aguado; Additional reporting by Emma Pinedo and Isla Binnie; Editing by Frank Jack Daniel and David Holmes)
A windfall tax is a one-time tax imposed on companies that have unexpectedly high profits, often due to external factors like economic conditions or market changes.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured annually.
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