Swedish Banks Face New Tax to Cover ‘Enormous’ Crisis Costs
(Bloomberg) -- Sweden’s banks are gearing up for a fresh fight with their government to try to block a proposal that singles out the financial industry for an extra tax.
The Social Democrat-Green coalition government has long made clear it intends to impose a levy on banks, which it argues represent a bigger risk to economic stability than most other industries.
“We have seen a financial crisis that has cost enormously, so it’s not unreasonable that the banks get to contribute,” Asa Lindhagen, Sweden’s minister for financial markets and a member of the Green Party, said in an interview on Tuesday. She also said there’s little to indicate that the industry can’t afford such a levy. “The banks are clearly doing really well. It’s not as if they are in a difficult situation.”
Swedish banks were among Wednesday’s worst performers in Bloomberg’s European index of financial stocks, with Svenska Handelsbanken AB, SEB AB and Swedbank AB all falling more than 2% by mid-morning in Stockholm. The declines coincided with a report by the central bank warning of elevated financial stability risks amid a debt-fueled housing-market boom.
But Sweden’s financial industry is digging in its heels. On Monday, the country’s bankers’ association lashed out at the government’s latest proposal, which it says probably breaches European Union law. It also pointed to analyses by regulators suggesting that such a framework would ultimately weaken financial stability.
Prime Minister Stefan Lofven turned to Facebook to underscore his determination to move ahead, no matter how much banks complain. The industry represents a potential “risk for an economy” that can “cost taxpayers large sums of money.” It’s therefore “reasonable” to ask banks to pay more. So in 2022, “we will introduce a new tax on banks,” he said.
A proposed bank tax has been in the works for years. But Sweden’s government was forced to return to the drawing board in 2020 to redraft an earlier bill, after it risked colliding with EU law on state aid amid questions over the motivation behind such a framework.
Sweden’s Financial Supervisory Authority has warned that a levy targeting bank liabilities, as the proposed taxation does, may miscalculate actual industry risks. Instead, the FSA said financial stability concerns would be better addressed using capital requirements.
Sweden’s National Debt Office said the proposed tax doesn’t actually take into account how risky a specific bank’s operations are. The office warned back in November that the industry might try to dodge the tax by sending more business outside Sweden.
In its latest proposal, Lofven’s government plans to impose a slightly lower tax rate than previously intended. But it also wants to target bank operations outside Sweden. The government expects to generate 5 billion kronor ($600 million) in additional revenue next year alone, if the tax goes ahead.
The Swedish Bankers’ Association says that “such a tax would have far-reaching negative consequences for Swedish jobs, Swedish growth and the competitiveness of Swedish banks.” The group even suggested such a levy would hurt the industry’s efforts to shift toward a more sustainable business model.
“Higher financing costs also make the climate investments that are necessary for Sweden to be able to live up to the Paris Agreement more expensive,” it said in a statement on Monday.
Unsurprisingly, the proposed tax would hit banks with large operations outside Sweden particularly hard. Sweden’s biggest lender, Svenska Handelsbanken AB, is a case in point, with the U.K. representing its second-largest market.
What’s more, “the proposal might collide with double taxation agreements,” according to analysts at Handelsbanken’s equity research unit.
“Swedish banks should at least be compensated for taxes paid outside of Sweden on their international operations,” the analysts said. “Additional adjustments to the tax proposal are therefore likely.”
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