A little information about the new bank taxOn September 7, 2019 by Frances Ferebee
Something that has recently gained a lot of space in the financial news is the proposal for a new bank tax. The government will give more money to the defense (20 billion over four years) and some of them want to be financed with the help of this new bank tax.
The idea of the bank tax is that the banks and other players in the financial market should be included and pay the tax. Finance Minister Maskita Lapshysays the banking sector is making big profits today and should be able to contribute more money.
All the details are not clear yet, but it seems that they have come a long way on the work with the bank tax. The Social Democrats have long wanted to introduce such but C and L have been opposed. However, they now seem to have approved the scheme after all.
How are banks and private individuals affected?
The very idea is that the tax should be for the banks and not for private individuals, but the usual thing with fees and taxes directed at companies is that we will eventually still be customers who get the bill. When banks pay higher taxes, there is a risk that they will raise their prices or raise interest rates on eg mortgage loans etc.
In this way, it will still be the customers who have to pay in the form of more expensive loans and the like. Many savings economists and other knowledgeable banks believe that the banks will transfer the bulk or perhaps even the entire tax on us ordinary private individuals long enough.
In addition to the banks being able to raise interest rates or fees and the like for their customers, we can also suffer in other ways. If the banking sector is taxed and ends up in a tougher position, this can also affect the banks share prices. The bank shares are some of the most owned shares of ordinary savers, ie private individuals. In other words, our equity portfolios may also suffer from the tax.
In this way you can say that it can be a double blow for us ordinary people. Of course, it is conceivable that the banks will also be able to take a certain part of the blow and that they can see lower profits going forward, but at least the banks have tools to get away and their profits are already large.
Bank Tax Bad Alternative?
There are clearly many who are hesitant about how good a bank tax is. It is clear that the government wants to raise money to finance the defense from anywhere and they have chosen to go this way.
The moderates say, for example, that if you instead skip the debated family week (that both parents can have three days off in connection with holidays and study days) and free year (the opportunity to take one year off from work to study, with compensation corresponding to the unemployment benefit fund and which really only the Environmental Party wants to introduce) you don’t even need a bank tax. The family week alone is estimated to cost the state 5.4 billion.
Many people are critical of how good a bank tax will actually be. For example, savings economist Joakim Bornold mentions that the four major banks Swedbank, SEB, Nordea and Handelsbanken had a profit of SEK 112 billion last year, which the government surely thinks they want to get part of. However, Nordea, for example, accounts for 40 billion of this money and they now have their head office in Finland, so they are perhaps out of reach? Can other banks want to move abroad in the future as well?
Others are skeptical about the timing of the bank tax. It seems that Sweden is on its way into worse times and that it may expect a recession in the future. Throwing on a bank tax that hampers both banks and private individuals can ease the decline and make the situation worse.
Finance Minister Per Bolund says the bank tax should help the state to manage banks, which may be the reason why the country gets into financial crises. However, this is something that some economists are hesitant about, especially considering that the money should go to the defense and not to some kind of buffer to help us with crises in the future.
The banks are exempt from VAT
What is interesting is that the financial sector is exempt from VAT, especially for the reason that it is difficult to determine VAT on their business. Therefore, it has simply been left free of VAT. This, of course, offers some advantages over other sectors and for this reason we have also looked at ways of taxing the financial sector already before.
It may seem fair to introduce a bank tax to offset the VAT and even the VAT usually end up being ordinary consumers, so it may end up being good with the bank tax. Unfortunately, it’s not that simple and there are arguments both for and against.
Some arguments against the bank tax as compensation for VAT are, for example, that the bank tax only applies to banks even though all financial services are exempt from VAT (not just a bank), or that VAT exemptions are not always always an advantage and that, for example, you can also get an increased tax burden. For example, when you can’t deduct VAT costs yourself.
In connection with the bank tax, however, there is no mention of introducing this solution instead of VAT. The reasons are second. Whether these reasons are good or not can be debated for a long time. I don’t think very much about a bank tax as a solution and I would have preferred to take the money elsewhere. For example, by dropping the family week, or something else less important.
Higher taxes are not the solution to everything and one has to think about the effects of taxes in the slightly longer term and in a larger perspective. Don’t just think that the banks make good money and that it would be nice to squeeze them and get extra money in the budget.