The banks are ‘taking advantage of the cost-of-living crisis’ and should be hit with massive windfall taxes, according to People Before Profit.
Yesterday, Italy introduced a one-off 40% tax on the profits banks have earned from the surge in European interest rates over the last year and a half.
The Italian Government expects to make around €2bn from the tax, which it aims to use to support mortgage holders and cut taxes.
The move has seen the value of Italian bank shares plummet.
On Newstalk Breakfast this morning, People Before Profit TD Paul Murphy said Ireland should follow Italy’s lead.
“The banks are making enormous, exceptional profits at the moment,” he said. “AIB, Bank of Ireland (BOI) and PTSB in the first half of this year made €4bn in profits – that is a tripling of what they made last year.
“The reason they are making those profits is very simple. The European Central Bank has increased interest rates by just over 4% over the last year, going from a negative interest rate of -0.5% to a rate of +3.75% and instead of passing those interest rates on to depositors, banks have hoarded them and taken them on as private profit.”
Interest rates
Deputy Murphy said AIB and BOI have €60bn sitting on deposit with the ECB making almost 4% in interest – but have passed many of the interest rate increases on to mortgage holders, leaving some people facing increases of up €500 per month.
“This is simply private profit taking,” he said. “It is a transfer of public money into private hands.
“It is taking advantage of the cost-of-living crisis just like the energy companies, so it is entirely appropriate we would say we want to tax these and then use the money to protect mortgage holders, for example.”
"Major concerns"
Also on the show, economist Austin Hughes said he had some “major concerns” with Deputy Murphy’s argument.
He noted that Italy’s economic situation is very different to Ireland’s – with major budget deficits in the past two years compared to Ireland’s budget surplus.
Meanwhile, Italian public debt, depending on how you measure it, is either twice as high or four times as high as Ireland’s, he said.
“So, the Italian Government really was in a desperate situation to try and do this and the consequences immediately have been fairly desperate as well,” said Mr Hughes.
“The Italian Government was aiming to raise around €2bn from this but yesterday, we had about €10bn wiped off the value of Italian [bank] shares.
“Now those shares are the future pensions of Italian people in the main so the negative unforeseen consequences have been very significant.
“They have actually pulled that back in an announcement last night.”
Public money
Deputy Murphy noted that Spain, the Czech Republic, Lithuania and Hungary are also considering a bank windfall tax to combat what he insisted is, “simply a transfer of public money into private hands”.
“The ECB is meant to put up the interest rates, that is meant to flow through the banking system and have an impact on the economy,” he said. “That is not what is currently happening.
“What is currently happening is the banks are sitting on that profit, are taking the benefit of the increasing interest rates and not passing it on.”
Mr Hughes suggested a windfall tax could impact on investment in other areas of the economy – and warned that the banks could simply pass the burden on to customers.
“Don’t think immediately that the people who will suffer will be the banks out of this,” he said. “This is why I am saying you need to look at the broader economic impact – and it is negative.”
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