Lenders nod to state development fund, in order to avoid bank tax

21-05-2019

Lenders operating in the Czech Republic have agreed to contribute to a state development fund designed to cover increased public spending during a global economic slowdown in order to avoid the threat of a bank tax that would present an even bigger drain on their income.

Photo: Pixabay, CC0 Public DomainPhoto: Pixabay, CC0 Public Domain Faced with the choice of nodding to the prime minister’s idea of a state development fund or facing the threat of a progressive tax pushed by the coalition Social Democrats, the country’s four largest banks quickly opted for the former.

Prime Minister Andrej Babiš, who has been looking for ways to increase budget revenues at a time of higher social expenditures and slowing economic growth, said on Monday that the country’s four biggest lenders Societe Generale SA, Erste Group Bank AG, KBC Groep NV, and UniCredit SpA had agreed to jointly pay an initial 6 billion crowns (260 million dollars) to the proposed state fund in 2020. He wants other banks to join in as contributors later, envisaging an annual income of around 10 to 16 billion crowns for state coffers.

The Czech Banking Association issued a statement saying the state development fund was “the best solution for the future prosperity of the Czech Republic -more progressive and innovative than introducing an additional bank tax.”

However, according to the daily Hospodářské noviny the prime minister and banking representatives have radically different views on how such a fund would operate.

The prime minister wants banks to donate as much as a fifth of their dividends into the state development fund which would be used to help finance public investment projects as the government best sees fit.

However the country’s largely foreign owned banks, envisage the fund as a source of low interest loans for companies involved in public investment projects, meaning that the money would be repaid and the banks’ contribution would be in providing extremely advantageous loans in the public interest.

The Social Democrats, who have not given up on their bank tax proposal, are far from happy with the direction the talks have taken. They are arguing in favour of a progressive bank tax from 0.05 percent to 0.3 percent, which would raise some 14 billion crowns a year; a revenue guaranteed by legislation without strings attached as to how the money could be used.

Social Democrat leader Jan Hamáček said his party would continue to push for the progressive bank tax as “the better alternative” for the county, noting that the prime minister’s idea of a fund to which banks would contribute on a voluntary basis once in a while was a practice reminiscent of Eastern Europe.

21-05-2019