In a search for funds to lessen the negative impacts of high prices, Spain has become the largest European country to institute a windfall tax on banks. A new windfall profit tax will be discussed next week by the Spanish government and local banks.

In response to Pedro Sánchez’s move – described by the government as designed to limit banks’ gains from rising interest rates – stocks of Spanish banks fell suddenly.
“This is a crude form of populism. The government argument is that banks are benefiting from rising interest rates,” an analyst at Abante Asesores said. “But there was no state compensation during the long period when rates were negative.”
It also plans to build 12,000 homes in Madrid, offer most state railway journeys without a charge for September through December, and provide 2 billion euros in scholarships for people 16 years and older.
Economy Minister Nadia Calvino said in a radio interview Thursday that the new levy will be levied on “extraordinary profits” from 2022. The minister did not provide further details on how the tax will operate. The new tax will not affect credit, she explained.
Because the government has previously indicated it would levy charges on energy companies, the share prices of Iberdrola and Naturgy declined less than 1 percent, suffering less than banks.
During the week of July 12, the Spanish government announced it will impose a tax on big financial institutions as part of efforts to raise funds for social programs. The move caused Spanish banks’ stock values to plummet by billions. The government has yet to specify how the tax will work, but according to officials, it will bring in about 1.5 billion euros per year for the next two years.
In the result of the announcement, Spanish listed banking groups with a higher proportion of domestic operations lost over €5 billion. Large banking groups, with more diversified business interests, lost much less money.
Without more details about the proposed tax, it is not yet clear what kind of tax the Spanish government is trying to impose on the banking sector – whether it will be direct or indirect. The purpose of the new measure, as explained by Mr. Sánchez at the Congress, is to tax higher profits expected in the future. Therefore, it is anticipated it will be implemented temporarily as a surcharge on Corporate Income Tax.