Italy approves 40% windfall tax on banks for 2023 as profits soar

[brmgb]

Unsurprisingly, highly regulated sectors like banking where entering is extremely hard display cartel like behaviors. There is no incentive coming from the competition so why would anyone lower the net interest margin. In this context, I think a windfall tax somehow makes sense. Then again, I'm pretty sure it's going to be misused by the government. I would much rather see regulation forcing banks to raise interest rate on deposits but well at least this goes somewhat in the right direction.

[toomuchtodo]

I trust governments more than banks and the people who run banks. More regulation is welcome, and occasionally, one off policy hacks are needed vs slowly tightening the regulatory regime (which gives banks time to adapt and avoid or evade; not good!). Move fast and regulate systemic systems.

[nequo]

> I would much rather see regulation forcing banks to raise interest rate on deposits

Regulation that increases competition would be even better. It seems like that would be the underlying problem.

[gruez]

>Unsurprisingly, highly regulated sectors like banking where entering is extremely hard display cartel like behaviors. There is no incentive coming from the competition so why would anyone lower the net interest margin. In this context, I think a windfall tax somehow makes sense. Then

I'm not sure what the banking market is like in Italy, but in the US it's trivially easy to find banks that pay close to or above fed daily funds rates[1]. Sure, your average main st or wall st bank might still be paying 0.1% interest, but there isn't exactly lack of competition either.

[1] first result on google: https://www.bankrate.com/banking/savings/best-high-yield-int...

[madballster]

This is an old European disease. Corporate profits are often seen as an adverse result; of consumers being taken advantage of unfairly. Taxing excess profits beyond what are already high tax rates is popular amongst voters (e.g. see poll results in the UK, 2022). However, this lowers the appeal for new entrants to enter these markets to compete for these excess profits through better and more efficient products and services. If one wants free enterprise and reap its benefits one has to allow high profits for companies and see if competition takes care of the "problem".

[toyg]

> see if competition takes care of the "problem".

We have seen: for industries with big capital requirements or heavy regulatory frameworks (enacted for everyone's safety), it just doesn't.

[concinds]

Your assumption, that if without these extra taxes, more banks would be created and the industry would become less concentrated, seems untrue. The banking industry seems to be becoming hugely concentrated in every Western country, regardless of windfall taxes.

[bko]

I think that's correct. I have a theory about bullshit jobs in highly regulated or profitable industries. Places like Google have a ton of employees that don't contribute anything but make work projects. Why don't they just cut the workforce in half? Because their profit margin would be too high. It's already 25% with all the bloat. Imagine if their profit margin shot up to 50%? They would likely be dragged in front of Congress to explain themselves. It's even more true for banks (who i would argue have even more bullshit jobs where people literally do nothing)

You could think this is good as it supports people but I think it's kind of sad thousands of people get up and go to work every day with no impact on anything,just waste away at a desk. This doesn't even mention the economic waste

[webdood90]

I didn't think it was possible but banking shills apparently exist

> If one wants free enterprise and reap its benefits

who wants this from banking???

> one has to allow high profits for companies and see if competition takes care of the "problem"

ah, yes - we've seen this work so many times before!

[tensor]

Unfortunately the old American disease of not ensuring competition and instead passing regulation ensuring monopolies stay in power means the "problem" is not actual solved, and is in fact made worse.

[scotty79]

> Corporate profits are often seen as an adverse result; of consumers being taken advantage of unfairly.

What is it then?

I think it's a clear sign that competition doesn't work and savings were not passed to consumers. The thesis that competition will work eventually reeks of trickle down economics.

Such tax is just punishment for the lack of competition. It sends a message that if you are not going to compete for the customer then you can't keep the profits gained from your reluctance to compete.

[IG_Semmelweiss]

If banks would be forced to choose between:

1- Windfall tax 2- Elimination of banking license regulations

What do you think would be their choice?

They would choose (3) "pay money to lobby for none of the above" and instead lobby congressmen/deputies, to eliminate this question

[TomK32]

Wikipedia doesn't list many, but the USA had one in 1980. Surprisingly the US oil companies have survived this https://en.wikipedia.org/wiki/Crude_Oil_Windfall_Profit_Tax_...

[throw0101a]

> However, this lowers the appeal for new entrants to enter these markets to compete for these excess profits through better and more efficient products and services.

And how many de novo banks have there actually been in any country recently? In the US, the land of plenty (banks), there's been one in the last twenty years.

Bloomberg's Odd Lots podcast just had an episode on this (including the topic of de novo):

* https://www.youtube.com/watch?v=8lPFHWgxq5c

Banking is low margin, and it takes decades to get any kind of return: few, if any folks, have the patience for that kind of ROI when there are alternatives.

[neilwilson]

I'd go further than that. Corporate profits become stores of value. The money stops moving, which reduces the transaction rate and lowers inflation.

That is, after all, how interest rates work. We 'tax' the mortgage payers and give it to deposit holders to hold as a store of value. That reduces the transaction rate.

So if we tax corporate profits and redistribute it around, then interest rates have to go higher to force the money released from the corporate profit store, to the deposit holder store.

If prices are too high, the solution is to encourage the capitalisation of more competition, not encourage keeping money in the bank.

[Biologist123]

The final sentence of this comment requires at least two underlying assumptions to hold true:

1. Investors invest for speculative returns, not predictability or risk minimisation.

2. Free enterprise is possible within existing political-economic frameworks.

[Hamcha]

> If one wants free enterprise and reap its benefits one has to allow high profits for companies and see if competition takes care of the "problem"

One must just glance at the US to see what happens, the high profits get used to lobby politicians to make competition impossible, thus the problem doesn't get solved and becomes the status quo.

[spacebanana7]

> This is an old European disease.

Permanent high taxes are better than unpredictable windfall taxes.

It's very difficult to budget for the future when you don't know how much tax you're paying by a binary order of magnitude. When industry specific, it can create perverse incentives for outsourcing.

[dinkblam]

fully agreed. if you look at e.g. California, those European diseases might start to infect the USA too...

[mschuster91]

> If one wants free enterprise and reap its benefits one has to allow high profits for companies and see if competition takes care of the "problem".

Banks will do just the same that all megacorps do: buy up their competitors with all the excess profit to make even more profit.

[solumunus]

Spoiler: it doesn’t.

Also, I’m in Europe and my bank gives me better deals on savings than any American bank offers.

[polishdude20]

But like, you can use those profits before they get taxed to pay your workers more and invest in more and better equipment and tooling. So you can lower your tax bracket by providing a better service anyways.

[ilyt]

Well unless the companies decide to just not compete on price and keep it high, see the fuel prices in EU.

[ilrwbwrkhv]

And that is why so many british businesses incorporate in the virgin islands or cayman.

[bastardoperator]

TIL not being a capitalist is a disease.

[barbazoo]

> If one wants free enterprise and reap its benefits one has to allow high profits for companies and see if competition takes care of the "problem".

I sometimes wonder if perhaps other parts of the world have a different vision of how to run their economy. Surely "free enterprise" isn't a universal rule and certainly not the way it is conducted in North America. Maybe they're just doing things differently?

[tensor]

This is a bit strange as presumably interest rates were raised in the first place to prevent inflation. Turning around and scolding the banks for doing what the government wanted in the first place seems counter productive.

Wouldn't redistributing these profits back to mortgage holders just undermine the raising of interest rates in the first place?

[sergiosgc]

Banks aren't directly profiting from higher interest rates. They are profiting from arbitraging the change. They are increasing loan rates before their capital costs increase. They could easily do the same on a downward slope.

[t0mas88]

There is debate about whether high interest rates work to solve inflation at all. But if you believe they do, it makes sense to want the banks to also pass those rates on to savings accounts instead of only milking the mortgage market. Because that would theoretically cause consumers to save more instead of spending the money.

But these high bank profits could indicate that the high rates have not been passed on to saving accounts.

One issue in Europe is that there is no easy way for consumers to access the high interest rates with their available cash. While the US government has an online portal for consumers to buy state debt directly.

[scotty79]

I'm not sure why people think higher interest rates reduce inflation by removing money from the economy.

Main reason high interest rates reduce inflation is that they disincentivise taking new loans and each new loan take is new money printed. So higher interest rates is just putting breaks on money printing.

[gowld]

Sort of. Distributing the profits to bank shareholders doesn't help inflation.

To curb inflation, the windfall (interest rate) taxes should be burned.

[ricardobayes]

Can we have energy companies next? Pocketing record profits during this situation is just disgusting.

[koolba]

If there are no windfall profits during boom times, are you equally onboard with subsidies during lean times?

If the banks are doing something predatory then that behavior should be stopped. Not being able to define it and then seizing an arbitrary portion of the profits isn’t going to stop it in the future. Hell, since profit is after expense, they can increase CEO salaries to reduce it and be taxed less!

Plus if the “crime” here is fleecing depositors with interest rate spreads, they should make them pay that arbitrary percentage to each depositor based on their pro rata share over the coarse of the year.

Otherwise you’re taking some pensioners’ low savings account interest and giving it to away to someone else entirely.

[woodruffw]

Ideally we'd just nationalize them: state- or municipality-owned power companies in the US routinely provide cheaper and better service than their private counterparts[1].

[1]: https://wgme.com/news/local/are-private-or-public-electric-u...

[jamil7]

I'd rather governments just retook control of a lot of utilities and nationalised them, rather than random one-off windfall taxes.

[megaman821]

Windfall taxes and bailouts aren't the policies that create a healthy banking sector. Instead they should worry about crafting better regulations and having competition for where people's savings go.

[femiagbabiaka]

What would you say is an exemplar of a healthy banking sector?

[scotty79]

Ideally you make things more fireproof. But that's not an argument for not putting out things that are in flames at the moment.

[hello_moto]

This is a one-off tax if I read that correctly...

[hello_moto]

> If one wants free enterprise and reap its benefits one has to allow high profits for companies and see if competition takes care of the "problem".

Max profits for BigCo (Bank, the rest, same) and lower the wages for the people seem to be the M.O. these days.

I'd love to see higher Corp tax that is spread to people. Force higher tax and give tax break to force them spread their profit to their employers would be one example that is beneficial for everyone.

[AnimalMuppet]

Meh, this is just going to lead banks to find ways to move profits into 2024. If they're serious, they should permanently raise the tax rate on high-earning banks.

[scotty79]

Why is personal income tax progressive but not corporate income tax?

Of course progression needs to be based not only of the profits of a given corporation but also all of the subsidiaries down the chain of ownership.

[hospitalJail]

Say I own the index fund VT in my IRA.

Does that mean Italy just took away some of my retirement? Shouldn't we be outraged?

[gmerc]

Now do tech companies.

[sdfghswe]

I dislike banks as much as anyone else. But does it bother anyone else to see rules changed around? Wouldn't it be a better approach to tell people/corporations how they're gonna be taxed?

[cykotic]

It does not bother me. But I think there should be a min/max for how much wealth a person has. No one suffers from taxing windfall profits. Windfall , by definition, being unexpectedly high profits.

[Obscurity4340]

I mean, they kind of are. You might call it an ex post facto telling, but there you have it. I'd prefer everyone jumped on board and did it everywhere so there was no FAFO necessary.

[rchaud]

According to the article the Finance minister rejected the hike but it was passed anyway.

[etchalon]

Behavior changes, circumstances change, laws change. And thus entropy continues.

[DarkNova6]

Yes. We should keep privatisation of profit and nationalization of losses.

[frandroid]

They're not changing the rules of the game on Jane Public's family here. They're sur-taxing banks' already exorbitant profits. Oh no, the bankers bonuses will be 20% instead of 30%!

[acyou]

Do we levy windfall taxes on farmers after a bumper crop harvest?

No, because we assume the profits will be reinvested.

How does a bank efficiently re-invest? Does taking profits mean efficient reinvestment? I dont think so. It just means inflation.

Windfall taxes just grow the big government. More cost to be directly passed on to consumers at the end of the day.

If we don't like capitalism, why not just say we want to ban usury and be done with it?

For me, this line of thinking usually ends with: If you can't beat them, join them. As Adam Smith Founding Fathers, and people at the top everywhere would have hoped. Time to get off Hacker News and make my profits soar.

[scotty79]

> How does a bank efficiently re-invest?

Banks that have more money then they need for operation just indulge more in gambling.

[gdsdfe]

Canada need to do the same!

[hello_moto]

Canada leaders are all cowards. All of them. They all sell promises of lowering costs for the people but every single policy that they created have always driven everything up.

Grocery monopoly and corp profits.

Housing "affordability" means "lowering requirements, giving tax break for first time buyer" ...

It's not the kind of "Affordability for the people" that one expect.

[maxehmookau]

More of this please!