High Court upholds the validity of the banking tax
Spain’s High Court has rejected appeals by lenders Bankinter, Sabadell and Cajasur to suspend payments of the extraordinary banking tax while it reviews the levy’s validity, El Economista newspaper reported on Monday. The court reasoned that the banks would be able to recover the amount paid plus interest were the tax found to be unlawful, while suspending payments would be illegal and cause serious damage to the general interest.
The banking tax was approved in December 2023 as part of a package of measures aimed at easing the cost of living of ordinary Spaniards amid high inflation. The tax imposes a temporary 4.8% levy on banks’ net interest income and net commissions above a threshold of 800 million euros ($861 million). The government expects to raise about 1.2 billion euros ($1.3 billion) from the tax in 2023.
Some banks and associations objected to the tax and filed challenges before the High Court, while the European Central Bank also warned of adverse effects on the banking system. According to El Economista, the court refused to raise the question of the levy’s constitutionality before the Court of Justice of the European Union.
Banks face pressure from low interest rates and digital competition
The banking tax adds to the pressure faced by Spanish banks, which have been struggling with low interest rates, high non-performing loans, and increased competition from digital platforms. The sector has undergone a wave of consolidation in recent years, with mergers between CaixaBank and Bankia, Unicaja and Liberbank, and BBVA and Sabadell.
The tax also affects foreign banks operating in Spain, such as Santander, HSBC, ING, and Deutsche Bank. Some of these banks have reduced their presence or exited the Spanish market altogether, citing low profitability and regulatory uncertainty.
The banking tax is expected to expire at the end of 2023, unless the government decides to extend it or make it permanent. The government has said that the tax is a temporary measure to help fund social spending and reduce public debt, which has soared to over 120% of GDP due to the COVID-19 pandemic.
Consumers benefit from lower fees and higher savings rates
The banking tax has had some positive effects for consumers, who have benefited from lower fees and higher savings rates offered by some banks. According to a report by Bankinter Research, the average fee charged by Spanish banks for current accounts fell by 12% in 2023, while the average interest rate for deposits rose by 15%.
Some banks have also launched new products and services to attract and retain customers, such as cashback programs, loyalty points, digital wallets, and robo-advisors. These initiatives have helped improve customer satisfaction and loyalty, as well as increase cross-selling opportunities.
However, some experts warn that the banking tax could also have negative consequences for consumers in the long term, such as reduced credit availability, higher borrowing costs, lower financial inclusion, and lower innovation. They argue that the tax undermines the competitiveness and stability of the Spanish banking sector, which plays a vital role in supporting the economic recovery and growth.
