23rd February 2024
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Spain seeks 4.8% windfall tax on banks, 1.2% on energy firms to beat cost of living crisis

With the plan to tax banks and energy firms initially announced by Spanish Prime Minister Pedro Sánchez two weeks ago, the socialist-led coalition government finally announced the details in its bill introduced to parliament on Thursday.

The proposal is to tax banks 4.8% on windfall profits made from net interest and fees charged to clients, in the boldest move against lenders by any major European Union nation to offset the impact of a worsening cost-of-living crisis. The tax on financial institutions is expected to provide three billion euros to offset the crisis.

The proposal also calls for energy companies with more than one billion euros in revenue in 2019 to pay an additional 1.2% in tax on revenue this year and next. The government hopes that this will raise a further four billion euros – making seven billion in total to combat the crisis, as governments across Europe scramble to raise funds to ease the impact of record inflation exacerbated by Russia’s invasion of Ukraine

The Spanish government said proceeds from its tax would help pay for measures to alleviate a cost of living crisis, including high energy bills.

The bill will also penalise companies that pass the costs of the new taxes on to their clients.

Officials say the tax would apply to about 20 major corporations. Under the government’s proposal, watchdog bodies would monitor the companies for compliance.

Government spokesman Patxi López said ‘it is common sense that whoever obtains extraordinary benefits is the one who contributes part of those benefits to common solidarity’.

López stressed that ‘it cannot be that when we go through a crisis, its consequences always fall on the same backs, nor that inequality multiplies in an obscene way’ and that is why ‘this government is showing that there is a way out of the crisis that is much fairer, more equitable and more efficient’.

The details of the proposals put an end to more than two weeks of uncertainty over the government’s plans, initially outlined by Prime Minister Pedro Sánchez on 12 July. ALSO READ: Spain to hit banks and energy firms with temporary windfall tax.

A debate and vote by MPs is scheduled for after their summer recess.

The PSOE-Podemos coalition will need to negotiate with a wide group of allies to pass the bill in the splintered parliament, where no party has a majority. 

The government has struggled in recent months to gather support to pass significant legislation, but it has never lost a major vote. That track record indicates that it will likely clinch enough backing for the windfall taxes.

Sánchez’s surprise announcement of the planned tax, during a speech to Congress, wiped out billions of euros off banks’ market value. The shares have since recovered as the European Central Bank moved to increase interest rates. 

For energy firms, the blow has been far less as the possibility of a windfall tax had been floated by officials for weeks, and governments in other countries across Europe have made similar moves.

Energy companies have seen bumper profits as prices of oil and natural gas soared in the wake of the war in Ukraine.

ALSO READ: Spain to hit banks and energy firms with temporary windfall tax

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