HomeBussinessMichael McGrath tells Dáil that bank windfall taxes could lead to price...

Michael McGrath tells Dáil that bank windfall taxes could lead to price increases

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AIB made €2.39bn profit last year. BoI made €1.94bn. Together, they paid €673m corporation tax

In a written reply to a Dáil question posed by his Fianna Fáil colleague John Lahart, Mr McGrath said a number of factors needed to be considered in relation to windfall taxes on banks – such as the potential for negative impacts on customers and employees “and further reduced appetite for competition in a sector that has recently seen the departure of two significant banks”.

‘There is a risk of such taxes leading to lower levels of economic activity’

Mr Lahart had placed the Dáil question in the context of the country’s two major banks recording healthy profits. Bank of Ireland recently reported record pre-tax profits of €1.94bn for 2023, while AIB reported pre-tax profits of €2.39bn for last year.

In his reply, Mr McGrath stated: “Introducing a windfall tax could have an impact on the capital position of the banks and consequently on their market value, resulting in an immediate reduction in the value of the State’s remaining shareholdings.”

“It would also have the potential to damage the State’s credibility in the international markets, and this could have negative consequences for values achieved in future share sales.

“From a consumer perspective, increased costs and reduced competitiveness in the banks as a result of a windfall tax could potentially lead to pricing increases or reduced services.”

The minister said this could have a negative impact on consumers.

“For example, through increased fees, increased mortgage interest rates, or reduced lending to Irish businesses – or on employment in the Irish banks if cost-cutting measures are required.”

Mr McGrath pointed out that a banking levy has been in place since 2014.

He said that the Finance (No 2) Act 2023 provided for a revised form of the bank levy based on the end-2022 eligible deposits of four named institutions that received state assistance during the banking crisis, namely AIB, EBS, PTSB, and Bank of Ireland.

‘A tax could reduce the value of the State’s remaining shareholdings’

He said the 2024 target revenue of €200m stipulated in Finance (No 2) Act 2023 is more than twice the €87m raised in 2022 and 2023 by the previous form of the levy, and one third more than the circa €150m raised under it each year between 2014 and 2021.

He said that the operation, extent and target revenue of the bank levy will be further considered in advance of Budget 2025.

In his reply, Mr McGrath also told his party colleague that while it is possible that imposing windfall taxes could lead to theoretical gains, “there is a risk of such taxes leading to lower levels of economic activity, and to companies passing the additional tax burden onto their suppliers or consumers.”

The annual report for AIB shows that last year it incurred a corporation tax charge of €336m, reducing profits to a post-tax profit of €2.05bn after its revenues totalled €4.74bn.

Bank of Ireland recorded post-tax profits of €1.6bn after its corporation tax charge totalled €337m. Its operating income increased to €4.46bn.

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