THE IDEA of a special bank tax has been put back on the table in Slovakia. While the opposition has revived a previously rejected proposal to impose a special tax on banks, the Finance Ministry has now come up with its own proposal inspired by the European Commission’s work on an EU framework for crisis management in the financial sector. And even though Slovak banks, unlike those in several other EU countries, survived the financial crisis that started in summer 2007 without state aid, the ministry wants to move quickly and introduce the tax as early as of the start of 2012.
Finance Minister Ivan Mikloš opposed a special bank tax last year when the opposition wanted to introduce it instead of the 1-percentage point hike in value added tax to 20 percent. Later he agreed to the introduction of such a tax in a coordinated way within the European Union. Now that it has become clear that the European Commission may fail to agree the introduction of such a tax by 2012, as originally planned, Mikloš has proposed introducing one in Slovakia anyway, with effect from the start of next year. Banks in Slovakia are opposed.
The Finance Ministry announced the introduction of the special tax on banks in its 2011-2014 Stability Programme, which Slovakia was obliged to send to the European Commission by the end of April. According to this document, the new tax will be calculated on the aggregate liabilities of each bank after taking into account their own capital resources and deposits already protected by the national deposit protection scheme.
This means that mainly corporate deposits will be subject to the tax. The rate is proposed to be 0.2 percent of relevant liabilities.
“The SBA is against any selective sectoral tax whose incomes will flow into the state budget,” Marcel Laznia, spokesman for the Banking Association of Slovakia (SBA), told The Slovak Spectator. “We believe that the efforts of the Finance Ministry should be directed, when it comes to consolidation of the public finances, more towards to the side of state budget expenditures.”
The SBA is aware that the European Commission is preparing a draft directive about crisis management of banks, including sections on special national funds and bank levies.
“However, for the time being we do not see any reason other than a political reason for individual introduction of a bank tax or levy, much less one which takes a form which we believe is not in line with EC plans,” Laznia said, referring to the initiative of the Finance Ministry.
The EC plan is for banks to be required to contribute to national resolution funds and that money from these funds would be used to finance the costs of rescuing or liquidating failing banks.
According to Laznia, one of the main problems with the Finance Ministry plan is that income from the levy would go into the government’s budget.
SBA can foresee a levy on banks in the form proposed by the European Commission, which flows into a special national resolution fund to be used to finance the costs of dealing with failing banks, according to Laznia. The SBA’s precondition is the existence of the same conditions across the whole EU and precisely defined rules under which money from such funds can be used.
Juraj Karpiš, an analyst with the Institute of Economic and Social Studies (INESS), a think tank, does not see any reason to impose a special tax given that banks in Slovakia did not need state assistance during the crisis. He regards the EC efforts to introduce a special bank tax as the introduction of the principle of collective blame, in which all banks are punished irrespective of their risk profile.
“This tax creates moral hazard and punishes conservative banks which did not need assistance from public resources,” Karpiš told The Slovak Spectator. “Introduction of this tax would amount to a confession by the regulator that it is not able to regulate the sector allocated to it. The market approach used in any other sector would be a better solution: cessation of state assistance and bankruptcy of problematic subjects.”
Laznia as well as Karpiš believe that the special tax will reduce banks’ profits and that in the end it will be clients who at least partly will pay the final bill.
“The bank levy would not only affect the profitability of banks in a negative way, but may also endanger their stability,” said Laznia, adding that corporate deposits in particular will be the basis for the levy. These can quickly move to other eurozone or EU countries where such a levy does not exist or where its rate is lowest. The rate proposed by the Finance Ministry is one of the highest of any country where such a levy has been introduced.
The impact on different banks may differ, but those focusing on corporate clients will be hit hardest, according to Laznia.
The tax will increase banks’ costs; they will then pass part of that burden to customers via charges or interest rates, according to Karpiš.
“Thus the private sphere would have at its disposal less funds, which would curb future economic growth,” said Karpiš.
Igor Vida, the SBA’s president and director-general of Tatra Banka, wrote in the Hospodárske Noviny financial daily on May 11 that even though the bank-tax proposal has not yet been prepared for interdepartmental review, intensive discussion about it is already taking place. He pointed out what he saw as two major problems with the proposal. The first is that while 10 EU member countries have already introduced a bank tax in one form or another, the remaining 17 have not. This means that if Slovakia introduces the tax before it is applied in all countries in the same form, Slovakia will effectively be discriminating against its own banking sector in favour of other countries’. The second snag Vida identified was a lack of clarity about the circumstances under which the funds raised by the tax could be used.
“Even when terms for use are set, the money will be still in the account of state financial assets and could thus be used for anything, for example payment of Christmas pensions,” wrote Vida, adding that one resolution by the cabinet would be enough to make this happen.
Opposition proposes its own bank tax
In late April, opposition deputies from the Smer party – chairman Robert Fico, former finance minister Ján Počiatek and former deputy finance minister Peter Kažimír – submitted a draft amendment to the law on value added tax to parliament introducing a special bank tax. Smer had submitted a similar law last year. This time, Smer has again sought to reverse the hike in value added tax from 19 to 20 percent, effective as of January 1, 2011, and replace it with a special tax imposed on banks’ selected liabilities. The proposed rate in the Smer bill is 0.73 percent and the revenues would flow into the state budget until the public deficit falls below 3 percent.
Karpiš and Laznia also oppose this special bank tax.
“The impact of the opposition proposal on the banking sector and its clients would be devastating and would leave it close to the situation which is now seen in Hungary,” said Laznia. “Also, because of [such a] tax banks in Hungary reported an 80-percent drop in profits in 2010 and will probably not be able to create enough capital and thus support demand for loans and the country’s economy in the future.”
16. May 2011 at 0:00 | Jana Liptáková