The 10 disadvantages of AKEL's windfall tax proposal for the banks

The bill submitted by AKEL and currently being discussed in the Finance Committee, suggesting a 5% tax on the windfall, as the party characterises them, profits of the banks for the years 2024 and 2025, can be considered the culmination of the demonisation banks are being subjected to after returning to profitability.

As suggested in the bill, submitted on the party’s by AKEL MP Stefanos Stefanou pictured above, the revenues from this next tax will go to a "Social Solidarity and Borrower Support Fund,” the creation of which is proposed in the same bill.

However, experts suggest that this bill constitutes a completely unfair, misguided, untimely and essentially dangerous proposal, for a number of reasons.

The same experts call on MPs and the other involved parties to soberly consider the position they will take towards AKEL’s proposed law, for the following reasons.

1. A serious de-escalation of interest rates is anticipated in the coming months, so the discussion is untimely.
2. Banks in Cyprus already pay a Special Tax of 0.15% on their deposits. It is noted that over €500 million has been paid to the state through the Special Tax over the last 10 years.
3. The banks have been paying this tax for years and even during periods of low or negative interest rates, when the banks were actually making losses or making little profits.
4. Also, the Special Tax was paid and continues to be paid regardless of conditions in the economy or the banks themselves, the amount of Non-Performing Loans or the high inelastic costs (labour costs, energy costs, emergency measures due to a pandemic, etc.).
5. At the same time, banks have a series of supervisory objectives that they must maintain or meet immediately (for example capital adequacy, provisions, available cash, the Minimum Requirement for Own Funds and Eligible Liabilities (MREL), etc.).
6. For years in Cyprus, the environment has been characterised by high credit risk, high operating costs for the banks, low return to the shareholders - who in times of great challenges - strengthened the Cypriot banks with billions in recapitalisation needs.
7. Given the serious geopolitical tensions in the region, for an economy like the one in Cyprus it is particularly important to have stability in the legal framework and a friendly business-investment environment.
8. A very incorrect message is given to foreign investors who have already invested in the country or who could invest in Cyprus, that the tax regime or even the legal one can be differentiated regularly and according to political expediencies. This is something the rating agencies have also noted.
9. The proposal is unfair to banks after their years of losses and huge efforts to consolidate bank balance sheets and undermines the positive result, which comes a decade after the 2013 crisis.
10. Banks for years went through a major process of reorganisation, rationalisation and modernisation. During the period of the pandemic, together with the State, they were the main and most decisive factor in supporting society and strengthening the economy, with the largest suspension of installment payments and the simultaneous provision of loans, free services to those who needed them and with great flexibility for the transition to digital solutions.

That the proposed bill was submitted by AKEL is not a surprise given the party’s history. The question now, experts suggest, is what the other parties will do, with the exception, they suggest, of DISY, as it has repeatedly demonstrated in practice - whether as a governing party or as an opposition party - that on major and critical issues, it knows, with isolated exceptions, to draw the red line between responsible behaviour and vote hunting.

The outcome of AKEL's proposed law on banks and their profits will be judged by the decisions taken by the parties of the so-called intermediate space, which happen to be part of the government at the present time and, in fact, under a President of the Republic who has repeatedly, with intensity, expressed his vertical disagreement and has warned of the dangers that lurk in a possible implementation of the targeting set by AKEL.

The crucial question that remains to be answered is whether this time the specific parties will ignore the sirens of populism or whether they will choose to follow AKEL on the path of obtaining easy, not financial but political, profit.

A more comprehensive version of this article, in Greek, can be viewed here.

(Source: InBusinessNews)