Italy Considers New 5% Tax on Top Banks' Profits

Italy's Deputy Prime Minister and League party leader, Matteo Salvini, is proposing a new tax targeting the country's ten largest banks. The proposed levy would require these institutions to pay 5% of their annual profits for three consecutive years. This initiative comes as the Italian coalition government begins discussions on the 2027 budget, alongside other fiscal matters like income tax, wages, and healthcare.

The proposed tax is based on an estimated aggregate profit of approximately 30 billion euros for the ten targeted banks. A 5% collection rate would yield about 1.5 billion euros annually, totaling roughly 4.5 billion euros over the three-year period. Salvini's League party intends to allocate these funds towards pension programs. The political strategy behind this move appears to focus on large corporations, deliberately excluding hundreds of smaller local banks that have closer ties to small businesses and voters in peripheral regions.

Spain has implemented a similar tax for several years, serving as a potential benchmark. In its first year, the Spanish tax generated around 1.3 billion euros, followed by 1.7 billion euros the next year. The Spanish mechanism has since been adjusted with rates ranging from 1% to 7%, with the highest rate applied to the largest entities, notably Santander. Madrid has extended this collection until 2027. While Salvini is politically distant from Spain's government, he is adopting the principle while proposing a different mechanism.

Within Italy's ruling coalition, Forza Italia has historically expressed reservations about windfall taxes on banks, which has been a primary reason for the failure of previous similar proposals. The internal debate on this matter will be crucial in determining if Salvini's current proposal will be included in the final budget law. The profits in question have surged recently, largely due to the widening gap between the interest banks charge on loans and the interest they pay on deposits. As interest rates in the Eurozone rose, this spread expanded rapidly, leading to record profitability in the sector and making it an attractive target for taxation.

Lombard Odier forecasts continued profit growth for banks in the US and Europe, suggesting this trend might persist and explain the recurring nature of such proposals across Europe. In Israel, the debate over bank taxation is a recurring feature of budget discussions, with arguments that such taxes are ultimately passed on to consumers. Israeli banks are reportedly already factoring this possibility into their future profit projections. Intesa Sanpaolo and UniCredit, Italy's two largest banking groups, are particularly positioned to be significantly impacted by the proposed tax, as the League's proposal targets banks with high returns on equity.