PYMNTS-MonitorEdge-May-2024

‘Windfall Tax’ on Banks and Energy Companies Could Bring Spain $6B

Spain government building and flag

Spain’s government expects to raise $6.3 billion from its “windfall tax” on banks and energy companies.

With those entities recording record earnings, the tax “is quite a manageable amount given the profit volume which, under no circumstances … can be considered confiscatory, but rather proportionate to these profits,” Budget Minister Maria Jesus Montero said on Tuesday (Feb. 21), per a report by Reuters.

Spain approved a temporary tax on lenders and energy companies in hopes of raising 7 billion by 2024 to ease cost of living pressures, although that amount was lowered after debate in the country’s Parliament.

Reuters notes that oil company Repsol appealed the tax before Spain’s High Court. And as PYMNTS reported last year, the plan has angered some of the key players in the Spanish banking industry.

“It’s clearly the wrong idea. It’s unfair, it’s distortionary and it’s counterproductive,” Gonzalo Gortázar Rotaeche, chief executive of Spain’s largest domestic lender, CaixaBank, said during an earnings call. He added the tax “is weakening the banks … It makes no sense.”

The CEO said the tax would impact his bank the most, to the tune of $425 million to $478 million this year.

Spanish Prime Minister Pedro Sanchez seemed unfazed by the backlash, saying last year that if the heads of banking and energy giants were protesting, “then we are going in the right direction.”

Also raising concerns was the European Central Bank (ECB), which cautioned last year that the tax could hit banks’ capital positions and wind up raising the cost of credit.

In an opinion published in November, the ECB warned that “the realization of downside risks in the current environment may significantly reduce the repayment capacity of debtors.” Thus, the central bank argued that the effect of higher interest rates on bank profitability “might therefore be less positive, or even negative, possibly over an extended horizon.”

It’s not just Spain considering new taxes on big banks. After England’s four biggest banks — HSBC, Barclays, NatWest and Lloyds — recorded a surge in income last year, officials in the U.K. began calling for a windfall tax to fill in the country’s budget gap.

As PYMNTS reported, Sir Charlie Bean, a former deputy governor of the Bank of England, told a Resolution Foundation event in November that such a measure could potentially raise “tens of billions” of pounds of much-needed tax revenue for the British government.

PYMNTS-MonitorEdge-May-2024