Windfall Profits: Not in Banking
Recent article of KPMG in relation to the hypothetical new tax that the Spanish Government has announced for Large Spanish Banks. KPMG points out that the possible dysfunctions in the performance of (highly regulated) sectors such as the financial sector must be resolved through regulation and not through fiscal policy. Consequently, this is a purely tax revenue-oriented measure.
According to the article, the hypothetical creation of a new “windfall profit tax” for the banking sector raises several problems:
- For at least a decade, the European Central Bank has been pursuing a very expansionary monetary policy to counteract the effects of successive economic crises, with artificially low, even negative, interest rates.
- The rise in the Euribor should not lead to excessively high interest rates (rather reasonable) and that the abnormality has been the years of zero or negative interest rates. The banking business itself has been very unprofitable in Spain.
- The combination of high inflation and higher interest rates will affect the payment capacity of families and companies, which will end up having an impact on banks, either by increasing delinquency or by slowing down the demand for credit.