Slovakia Plans to Squeeze Banks to Finance Populist Pledges

(Bloomberg) -- Slovak’s ruling coalition will put the squeeze on banks to pay for tax cuts and higher social spending as it ramps up criticism of the financial industry before 2020 elections.

The government will double a special bank tax to 0.4% of deposits in 2020, Robert Fico, Chairman of the senior ruling Smer party, said on Tuesday. The decision, which is supported by Smer’s coalition partners, is “a hard government response to outrageous” fees charged by lenders, he added.

Countries across the region have sought to force lenders to contribute more to raise spending on social handouts. In Hungary, the first eastern European country to introduce a special bank tax, the levy helped wipe out half the value of the biggest lender OTP Bank Nyrt at the time. In Romania, the so-called “tax on greed” spooked investors and triggered a rout in the stock exchange last year.

The popularity of the three parties in the ruling coalition has taken a hit since the murder last year of an investigative reporter that triggered the largest protests since the end of communism and forced Fico to resign as prime minister.

In response, the government adopted an unprecedented stimulus package, abandoning a plan to balance the budget from 2019 that had helped Slovakia become a poster child for euro-zone austerity. Doubling the bank tax, which Fico said will be discussed by the cabinet on Wednesday, may bring an additional 130 million euros ($144 million) to the budget, which targets a deficit of 0.5% of output.

Slovakia’s banks are mostly units of foreign lenders led by Erste Bank AG’s Slovenska Sporitelna AS, Intesa Sanpaolo SpA’s Vseobecna Uverova Banka AS and Tatra Banka AS, owned by Raiffeisen Bank International AG.

To contact the reporter on this story: Radoslav Tomek in Bratislava at rtomek@bloomberg.net

To contact the editors responsible for this story: Andrea Dudik at adudik@bloomberg.net, Michael Winfrey, Andras Gergely

©2019 Bloomberg L.P.