• World - Europe
  • Updated: August 08, 2023

Italy's Right-Wing Cabinet Imposes 40% Windfall Tax On Banks

Italy's Right-Wing Cabinet Imposes 40% Windfall Tax On Banks

People pass in front of a branch of Monte dei Paschi di Siena (MPS), the oldest bank in the world, in Siena, Italy, Aug. 11 2021. (Reuters Photo)

European banks, especially in Italy, experienced significant pressure on Tuesday after the country's right-wing cabinet surprised the financial world by approving a 40% windfall tax on profits generated by higher interest rates.

This decision came in response to the government's reprimand of banks for failing to reward deposits.

As a result, share prices plummeted across the continent, affecting major Italian banks like Intesa Sanpaolo, Unicredit, and Monte dei Paschi di Siena, causing them to lose between 6% and 8% in early morning trading in Milan.

The unexpected move by Prime Minister Giorgia Meloni's ministers reignited the debate over a windfall tax, which had been previously considered but then appeared to have lost traction.

The issue gained fresh attention due to bumper first-half results reported by banks, prompting the government to act just before the summer political shutdown.

The tax is aimed at using part of banks' significant profits to support families and businesses affected by the recent rise in interest rates, caused by the European Central Bank's (ECB) decisions.

Deputy Prime Minister Matteo Salvini emphasized that the measure would target banks' "surplus profits" resulting from the ECB's interest rate hikes.

“One has only to look at banks' first-half profits... to realize that we are not talking about a few million, but... of billions," Salvini said.

Salvini described the Italian cabinet's move as "common sense," but Francesco Galietti, from the Policy Sonar consultancy, said it was a "hugely controversial tax."

This move is part of Italy's efforts to raise funds for the 2024 draft budget, particularly after a surprising 0.3% decline in gross domestic product (GDP) in the second quarter of 2023.

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