The Italian government made a surprising announcement in early August, revealing a new 40% tax on the 2023 profits of Italian banks.
It has been dubbed a Robin Hood move, but it might remain stuck in the investors’ minds as a chaotic decision.
The Italian government made a surprising announcement in early August, revealing a new 40% tax on the 2023 profits of Italian banks. Those profits were boosted by higher interest rates during the early part of the year, mirroring how the previous year saw energy companies’ bottom lines expand due to elevated oil prices.
The government said that the tax will finance tax cuts, which will ease the burden on households and businesses grappling with higher costs from variable-rate mortgages and lending. A similar tax imposed on energy companies generated approximately €3 billion in revenue in 2022.
The government’s approach took a twist when there was a sharp decline in the value of banking stocks the day following the announcement, a 0.1% cap on the new tax, which applies to a lending institution’s total assets. Some analysts estimate this could halve the projected tax amount.
The actual impact of this ill-conceived measure remains unclear, but the repercussions on investor confidence have already manifested. Credit rating agency Moody’s labeled the newly introduced windfall tax of 40% on surplus bank profits as “credit negative.” Short-term political expediency may have influenced the government’s decision more than a comprehensive evaluation of the long-term well-being of the Italian economy.
According to the calculations of the rating agency for the five leading Italian lenders—UniCredit, Intesa Sanpaolo, Bper, Banco Bpm, and MPS—the repercussions of this new tax could notably diminish their net earnings, with an estimated impact of roughly “15% of the system’s 2022 net profit.”
Additionally, Moody’s noted that the tax would compound the challenges faced by Italian banks, including restrictions on profitability stemming from factors such as modest lending activity and increased operational expenses. Moreover, the measure raises concerns among investors about the possibility of other thriving industries facing similar additional taxation if they experience a prosperous economic year.
Italian Prime Minister Giorgia Meloni admitted that the announcement was off a few days later, but she defended the tax, saying she “would do it again” because it was the right thing to do.