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Italy’s new affordable housing weapon is a 40% windfall tax on banks



Italy has a new trick in its bag to help people facing mounting costs due to high interest rates—by taxing banks on their surplus profits.

On Monday, Italy’s rightwing coalition government introduced a surprise windfall tax of 40% on banks making money from soaring interest rates in an effort to help mortgage-holders and first-time home-buyers. 

The tax still requires parliamentary approval, and will apply as a one-off charge limited to 2023 alone, Deputy Prime Minister Matteo Salvini said, according to the Financial Times.

Salvini described the measure as a “common sense rule” that would help Italians by using “billionaire profits” in a post on X, formerly known as Twitter. He said the money raised would be used for things such as tax cuts and mortgage subsidies for first-time homebuyers.

Shares of some of the country’s largest banks including Intesa Sanpaolo and UniCredit fell 8% and 7%, respectively, in early Tuesday trading following the announcement. 

The cost of living in Italy has been on the rise with the price of food staples and rent surging. Interest rate increases in the country have also hurt people’s ability to pay their mortgages, which Prime Minister Giorgia Meloni is trying to cap through limits on rate increments on 2023 loans.

Banks on a dream run

Italy’s banks have had a bumper year so far owing to high interest rates and cost management. Five of the biggest Italian banks made an aggregate net profit of €10.5 billion ($11.6 billion) in the first half of 2023—that’s up 64% from the same period last year, according to ratings agency DBRS Morningstar. The new tax would channel a part of those profits into defraying costs for families and businesses bearing the brunt of high interest rates. 

Windfall taxes like the one Italy plans to roll out could help boost government finances and help alleviate the financial stress of the average Italian, but they will cost banks a hefty chunk of their earnings. 

“We see this tax as substantially negative for banks given both the impact on capital and profit as well as for cost of equity of bank shares,” Citi analysts led by Azzurra Guelfi wrote in a note, according to CNBC. Citi’s estimates show that the levy could amount to 19% of banks’ net profits for the year.

Italy isn’t alone in instituting windfall taxes on bank profits. Spain announced similar plans last year to help raise €6 billion ($6.6 billion) from energy companies and banks to cool the forces pushing up the cost of living.  

European banks have also seen profits surge in recent months—many of them announced share buybacks and plans to pay dividends to shareholders. Banks in the U.K. have been accused of “profiteering” by offering lower savings rates to customers despite interest rates being on a steady upward trajectory.  

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