In what is considered to be a surprise blow, Italy has surprised the entirety of Europe by setting a one-off 40% tax on profits that were gained from rising interest rates. Italian banks were shocked by the news, to say the least, as the announcement came shortly after lenders were reprimanded for failing to award deposits.
Overview
According to an analyst from Citi Bank, the 40% windfall tax could erase roughly 12% of all earnings for Italian Banks in 2023. Additionally, a report from Bank of America estimates the windfall tax will result in the Italian government earning somewhere between 2-3 billion euros. The 40% tax is for the year 2023 only, and all banks are expected to pay the sum owed in full by June 30th, 2024.
Higher Earnings Than Anticipated
“One only has to look at banks’ first-half profits to realize that we are not talking about a few million, but of billions,” Deputy Prime Minister Matteo Salvini told a news conference in Rome. If (it is true that) the burden deriving from the cost of money has doubled for households and businesses, what current account holders receive has certainly not doubled.” Earnings for Italian Banks are up 50% in the last year. This is a very high number when compared to the rest of the European sector, which only saw a 20% rise.
Wrap Up
A few other countries in Europe such as Spain have recently imposed windfall taxes. After Italy’s recent move, it is expected that several other countries around Europe will also follow suite. The Italian government uses the proceeds to help its citizens struggling with basic living costs. This is a relief for many Italian citizens as they will hopefully no longer have to deal with the burden of high prices and interest rates, while the big banks benefit.