Government Gives Green to Extraordinary Levies

The plan of the government to raise hundreds of millions of euros from the likes of banks, pharmaceutical, gas and electricity companies has now been endorsed, but could backfire as the knock-on effect kicks in. Here The Daily provides you with an unofficial translation of an article on the subejct today from Hospodarske Noviny.

State to extract millions from banks

Source: Hospodárske noviny Author of original: Marcela Šimková

The government of the Smer-SD party will costs banks almost EUR 187 million over the next year and a quarter.

That is how much on top they will have to pour into the state coffers after introduction of the extraordinary bank levy and extension of the base for paying the classic bank levy. Yesterday’s decision of parliament makes Slovakia the country with the highest banking levy in Europe. It should be applicable “only” until 2021.

The new levies also are supposed to help the state cut its deficit. The twofold higher burden will be felt by companies, and also the state, according to head of UniCredit, Jozef Barta. “Just look at Hungary, where roughly the same levy was introduced. After two years, corporate loans had fallen by 13 percent.
I don’t have the exact calculations, but with a 10% drop in loans I would dare to say that GDP growth would drop by one to two percent”.

An expert agrees with him, while adding how banks are the subject of interest also elsewhere.
”Because states are lazy to cut their own costs”, adds analyst with NextFinance, Martin Prokop.
In addition to this, he claims that people will pay higher levies in the end also. Even though Smer-SD plans to prohibit the levy being reflected in fees, financial houses can still pass the higher costs to interest rates. According to MP with the SaS party, Jozef Kollár, the government should therefore reflect more on reality, and not just stick to some ideological keys.
On the other hand, however, banks will not pay the levy forever, but only until a billion euro is saved up in the special fund. The levy rate will gradually drop and the money will be used only in the event of the financial sector having problems.
Millions to flow also from regulated companies

In addition to banks, though, the government is sucking out more millions also from regulated companies. Companies in the energy sector, pharmacy or postal services will chip in over a hundred million euros to the state at the end of this year and next year. According to spokesman for Slovensky plynárensky priemysel, Peter Bednár, although SPP understands the government’s objective to resolve the current situation also via a specific levy, it does not feel that it is correct that it is targeting solely regulated activities. “Nowadays the market with energies is already fully open, and so also fully competitive. Imposing a similar obligation on just some of the players within the sector adversely affects their competitiveness on the market, and conversely, give advantage to some of them”. According to ČSOB analyst Marek Gábriš, the actual taxation of certain sectors in itself is already problematic, because it disrupts equal competition.
Supporting growth? It might not work out

At the same time, the money from the extraordinary levy is not even supposed to serve for consolidation, according to the government objectives. Together with the extraordinary levy for banks, which will only be applicable to the end of this year, Fico’s cabinet wants to pour the funds into the economy and so support growth in Slovakia. It is still unclear, though, just what exact measures the government wants to use to kick-start our economy or just how the money will be divided. This is true even though the first projects are supposed to get off the ground already at the end of this year. “These questions are still premature. There are several proposals on the table that have to be assessed”, said finance minister advisor Radko Kuruc.
According to the chief analyst with ING, Eduard Hagar, although the idea of supporting economic growth is correct, foremost the state should endeavour to achieve this by supporting the business environment. Analyst with the F.A. Hayek Foundation, Tomáš Púchly, points out how although government stimulation will help bloat GDP over the short-term, its real benefit for the economy is questionable. “For instance, if funds are badly allocated, which is more than likely, the influence of stimulating the economy will vanish as soon as it is stopped”.

Marcela Šimková