Economy

Spain hits banks and utilities with windfall tax

Sánchez government targets lenders as it seeks funds to ease pain of inflation

Spain's prime minister, Pedro Sanchez: His plans for a windfall tax on banks and energy companies have triggered sharp falls in the stocks of Spanish banks. Photograph: Pierre-Philippe Marcou/AFP

Peter Wise
Barney Jopson
Tue Jul 12 2022 - 20:24

Spain became the largest euro zone country to impose a windfall tax on banks in a sign of European governments’ search for funds to lessen the painful impact of price rises.

The move by Socialist prime minister Pedro Sánchez – which the government said was designed to limit banks’ gains from rising interest rates – triggered sharp falls in the stocks of Spanish banks.

Shares in Caixabank, Bankinter and Sabadell fell by about 10 per cent after the levy was announced while those of Santander and BBVA, the country’s two biggest banks by market cap, dropped by nearly 4 per cent.

The bank levy came without warning and drew strong criticism from analysts.

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“This is a crude form of populism. The government argument is that banks are benefiting from rising interest rates,” said José Ramón Iturriaga, an analyst at Abante Asesores. “But there was no state compensation during the long period when rates were negative.”

Among other measures, the government plans to use the funds raised to build 12,000 homes in Madrid, make most state railway journeys free between September and December, and provide €2 billion in scholarships for over-16s.

Mr Sánchez, who leads a coalition government with radical left lawmakers, said a similar tax would be levied on energy utilities as part of the package aimed at protecting the less well-off from the impact of inflation and soaring energy prices.

The temporary taxes on banks and energy groups, which are to be applied in 2023 and 2024, are projected to raise a total of €7 billion – €1.5 billion a year from the financial sector and €2 billion a year from utilities. – Copyright The Financial Times Limited 2022

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