As the ECB monetary tightening puts greater pressure on European citizens, Italy decided to tax the bank’s extra profits.
The Milan stock exchange went on a steep drop on Tuesday as the Italian government announced a 40% tax on excessive profits by financial institutions. Vice-President Matteo Salvini announced the measure.
At the latest European Council meeting, Italian Prime Minister Giorgia Meloni declared her intention to support and subside Italian families. Part of Meloni’s plan was to convert variable-rate mortgages into fixed-rate ones for Italian families.
According to the Italian government, the newly announced tax will finance this measure. The government will receive a 40% cut of profits exceeding 3% of 2021 and 6% of 2022 gains. In no case shall the tax exceed 25% of the bank’s total asset value.
On Tuesday, the Milan stock exchange dropped 2,21% in value by mid-day.
The tax will be limited to 2022 and 2023 profits and will go into effect in the second half of 2024. Government estimates show that this measure will yield €3 billion, which will be used to ease fiscal pressure and high mortgage rates.
In March, the Italian government cut income and corporate taxes as well as reduced penalties for tax evaders who come clean.
The European Union asked Italy to solve its tax evasion issue, one of the largest in the bloc, as a condition to receive the €190 billion recovery fund.
EU-wide issue
The Italian measure to reduce fiscal pressure comes amid a difficult time for European taxpayers.
At the end of July, the European Central Bank raised interest rates by a further 0,25% bringing them to a 22-year high. Being part of the Eurozone, Italy is also affected by this rate increase.
Italy’s GDP declined by 0,3% in the second quarter despite a mirroring +0,3% increase in the Eurozone. In general, the entire bloc risks profound recession or, even worse stagflation.
Eurozone inflation declined more than expected in June but is still very high at 5,5%. Eurostat expects a slight drop to 5,3% in July. Core inflation also remains a serious issue at 5,5%.
The 2% inflation target set by the ECB is still very far, and no rate stabilization is expected this year. The first rate cuts are expected for the middle of 2024 when Europe will have most likely fallen into recession.
High-interest rates and inflation hit first and foremost common citizens, who experienced a global pandemic and a major war on European soil in quick succession. As the Ukraine crisis appears with no end in sight, will Europe resist another winter of high energy prices and interest rates?
