The Bank of Spain proposes to reform the bank tax

The current tax, which is in effect a “general non-taxable inherited benefit”, is calculated on the sum of the entities' interest margin (interest charged on loans minus that paid on deposits) plus net commissions (charged minus paid).

The difference with a mortgage

The Bank of Spain believes that this harms banks that focus more on SMEs: they are businesses that offer them a greater interest margin because these credits have higher interest rates than mortgages, but that also obliges institutions to reserve more provisions to meet future losses. Because the risk of non-payment is higher in SMEs than in home equity loans, where the property itself serves as collateral.

For this reason, the supervisory body proposed to the executive authority to integrate the allocations into the taxable base, and subtract them from the income figure obtained from the sum of the interest margin and commissions. It is not a question of reducing the revenues that the public treasury will receive. In fact, it is possible to maintain it at the current level, for example by raising the tax rate (currently 4.8% of the tax base). On the other hand, the aim of the Bank of Spain is that the tax does not discriminate between different business models, because it has verified that small and medium banks (Sabadell or Bankinter) are now subject to sanctions compared to those that are more focused on mortgages (Ibercaja or Unicaja).

Another proposal sent by the Foundation to the Executive Authority is that all entities that do business in Spain are obliged to pay the tax, not just large entities. Currently, only banks that earned an amount of interest and commissions in the country equal to or greater than €800 million in 2019 have to pay it, and this has excluded entities such as ING and rural banks. The Bank of Spain considers that this amounts to discrimination that harms equal competition in the market.

Likewise, the government supervisor suggested removing the ban which may affect the tax cost to the customer. In a recent report, the Bank of Spain indicated that it had seen no evidence of this effect, although it also noted that it was very difficult to verify. Moreover, if this happens, he calculates that it will be a small amount, given the size of the tax, so he considers it more appropriate to withdraw it. As with the other recommendations, they are in line with warnings the ECB had already issued on the tax in November 2022, when it noted that entities were expected to “reflect in loan prices all relevant costs, including taxes.” Considerations.

Publicly, the Bank of Spain has only called for following the Italian model of tax reform. In a recent interview with El Periodico newspaper, Governor Pablo Hernandez de Cos confirmed that he had transferred it to the government. “If Parliament decides to keep the tax permanent, one way to mitigate the concerns it raises about financial stability might be to give banks the possibility of deducting additional contributions to reserves or capital. We will generate an incentive for capital accumulation and thus increase the resilience of the banking sector,” he added. This is what was done in the Italian case, and it will be a way to make this measure compatible with enhancing the solvency of the sector.”

Inequality in government

However, the First Vice President and Minister of Finance, María Jesús Montero, later rejected this tax: “We will design the tax so that financial entities also contribute to financing public services, and not so that they can better pass the stress test.” For his part, the spokesman suggested The economist by Somar's name, Carlos Martin, argued that the socialist wing of the executive power should not only make it “permanent”, but that this should be the first step to “increasing” it later. The tax contributed €1,214 million to the public treasury in 2023, and its collection is expected to be higher this year.

Economy Minister Carlos Cuerpo is cautious. “From now on, the fact that these measures become permanent or not (referring also to the energy tax), must include additional elements of economic policy,” he explained in an interview with the newspaper “La Sexta”. He indicated from his ministry that the analysis should include the repercussions that the change in the monetary policy cycle will have on the accounts of entities, as the European Central Bank plans to start lowering official interest rates in June. The Bank of Spain's proposals are interpreted within the framework of its mission to maintain financial stability, but it is clear that the government must have a broad vision of public interests.

The bank stated that Minister Cuerbo was willing to listen to opinions before making the tax permanent and that the issue was “being handled very discreetly.”